Reserve Bank warns load-shedding likely to negatively impact economic activity for at least next 12 months

The South African Reserve Bank forecasts GDP growth of merely 0.3% in 2023, with load-shedding expected to detract two percentage points from overall growth this year.

This is assuming 280 days of load-shedding at varying stages, but predominantly at stage 4, the SARB said in its Financial Stability Review.

In the first five months of this year, about 13,000 GWh have been shed, more than in the entire 2022 when 11,697 was shed, SARB calculations show.

Both years showed a significant worsening of electricity supply: In 2018, about 219 gigawatt hours (GWh) were shed, 1,326 GWh in 2019, 1,701 GWh in 2020 and 2,558 GWh in 2021.

The more frequent and higher stages of load-shedding are caused by the declining performance of Eskom’s fleet of ageing power stations, the SARB said.

The average energy availability factor (EAF) for this year so far is 52.8%, down from an average of 58.1% in 2022, 61.8% in 2021 and 65% in 2020. This sustained decline in the EAF is primarily attributable to an increasing number of unplanned outages amid increasingly frequent breakdowns of generating units at old and unreliable coal-fired power stations.

The total unplanned outage factor has averaged 35.9% in 2023 thus far; again the highest on record (the 2022 average was 31.3%).

The SARB forecasts load-shedding is expected to ease to 150 days (lowering GDP growth by 0.8 percentage points) and 100 days (reducing GDP growth by 0.4 percentage points) in 2024 and 2025 respectively, as some mitigating interventions are implemented.

Impact

The central bank said Eskom’s ongoing power supply constraints are continuing to negatively affect the productivity and profitability of businesses, and may threaten the viability of some businesses, especially SMEs. Domestic business confidence continues to slip as business conditions soured in the wake of higher stages of load-shedding.

The country is also facing inflationary risks from severe stages of load-shedding, as higher operating costs from running diesel generators are passed to consumers and higher rates of wastage and spoilage, especially along food value chains, lead to possible goods shortages.

A SARB analysis shows that load-shedding may add 0.5 percentage points to headline inflation in 2023.

On top of this, load-shedding will likely adversely affect other macroeconomic variables, the SARB said. “For example the contractionary effect on growth could hamper a sustained recovery in employment, while load-shedding concerns will continue to weigh on investor sentiment, in turn raising South Africa’s risk premium and placing pressure on the exchange rate.”

Higher stages of load-shedding also pose an immediate risk to the efficient functioning of infrastructure such as automated teller machines (ATMs) and cellular networks, which are crucial for the smooth functioning of the financial system.

For some municipalities — especially smaller ones and those in rural areas — the revenue generated by electricity sales constitutes the bulk of municipal revenue. While a transition to alternative energy sources should have long-term benefits for the economy, it will have a structural impact on the income base of municipalities.

This will potentially place further strain on the fiscus while negatively impacting service delivery.

Outlook

Investment in and construction of private generation capacity will likely only begin to have materially positive impacts in the medium term, the Reserve Bank said.

“This lagged effect, coupled with the fact that Eskom’s major repair, capital investment and maintenance projects are only expected to be completed over the next 12 to 18 months, suggests load-shedding will remain severe and impact economic activity negatively over at least the next 12 months.”

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