Socialist Energy System Close to Collapse in South Africa

  • Date: 10/12/19
  • Bloomberg

South Africa’s flagging economy could face a second recession in as many years due to a new wave of nationwide power cuts.

Eskom Holdings SOC Ltd., the state-owned power utility seen by Goldman Sachs Group Inc. as the biggest threat to the country’s economy, started a fifth day of rolling blackouts on Monday due to further losses of generating capacity at its plants. While the power cuts are implemented to prevent a collapse of the electricity grid, they have a debilitating effect on the economy by curtailing mining activity and factory output and causing crippling traffic delays.

The latest round of so-called load-shedding started two days after the statistics office announced that gross domestic product shrank an annualized 0.6% in the three months through September. Power cuts already hit the economy in the first quarter, when it contracted the most in a decade, lead by a drop in manufacturing, mining and agriculture output.

“As it is, the fourth quarter was going to be flat but now there’s a growing chance that it could be negative,” said Elize Kruger, a senior economist at NKC African Economics.

The one thing that could prevent GDP from dipping as deep as it did in the first quarter is the fact that many businesses are winding down as the Christmas holidays approach.

Mining companies say they are probably bearing the full brunt of load-shedding because they are among the heaviest users of electricity.

The world’s biggest platinum-group metals producers prioritize electricity allocation to underground mines and ensure workers’ safety while reducing power to smelters. Still, production may suffer as companies stockpile ore for processing later when there is sufficient power, Jana Marais, spokeswoman for Anglo American Platinum Ltd., said. Cutting power to smelters also adds to costs because the plants are designed to run continuously, she said.

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