Eskom warns of a constrained power grid as manufacturing sector shrinks

Eskom warns of a constrained power grid as manufacturing sector shrinks

Eskom has warned that the power grid will be constrained all week as several generators are out of service due to “planned and unplanned outage.” This on the same day as Bloomberg reports that the South African economy could have been a full 10% larger “if power shortages hadn’t stifled growth and investment.”

The parastatal has made headlines in recent weeks as the chairman stepped down after losing the support of the board over a decision to suspend the CEO and another three high level managers. This has left Eskom without permanent leadership.

Dawie Roodt, chief economist at Efficient Group Ltd. stated the country’s predicted 2% growth this year could have been a full percentage point higher had it not been for the power cuts that have restricted the mining and manufacturing industries. Both these sectors were heavily affected by strikes last year causing them to grow at the slowest rate since the 2009 recession.   

“If we’d had enough electricity since 2007 and it was not a limiting factor, the economy could have been about 10% bigger than it actually was by the end of 2014,” Roodt told Bloomberg. “That is more than R300bn, or more than a million job opportunities.”

The power utility cannot seem to raise the R225bn funds it needs to build more generators and maintain its current plants. 

“Finance Minister Nhlanhla Nene said in February the utility will receive R10bn in June, the first payment of a R23bn cash injection from the sale of state assets. The National Treasury is currently reviewing an application by the power company to increase its prices by 25%. Annual inflation was 3.9% in February,” reported Rene Vollgraaff of Bloomberg.

It is expected that a government report, due out today (9 April) will show a decline in manufacturing output of 1,5% in February following a 2,3% decrease in January. Last year the manufacturing sector contributed a mere 13,3% to the GDP – down from 16,5% in 2007.

The Manufacturing Circle (whose members include the local unit of ArcelorMittal and cement company PPC Ltd.) has said that industrialists are wary of investing large sums into South Africa as a result of the erratic power supply.

“If you’re going to spend a billion rand, you need to have some surety that there’s going to be electricity available,” Paul Curnow, an energy expert at the Manufacturing Circle, said to Bloomberg. “People are just simply not building new projects right now.”

Edited by Jenni McCann


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