Speaking at a two-day “Powering African Industry Conference”, being held in Nasrec, SEIFSA Chief Economist Henk Langenhoven said irrefutably reliable energy supply was vital for a thriving economy.
“On average, energy costs in the metals and engineering sector account for about 8% of intermediary input costs. It stands to reason, therefore, that without reliable energy supply, the sector cannot exist or expand,” said Mr Langenhoven.
He added that it was unfortunate that even right now the sector could not operate at full capacity as a result, among other things, of energy constraints.
“Actual or realized economic growth in the South African economy has fallen substantially below its potential. While energy provision should support our growth ambitions, there appears to be a real danger of the two gradually drifting apart,” Mr Langenhoven said.
Definitive studies published estimated South Africa’s potential economic growth rate to be around 3,5%. In reality, growth only averaged around 1,5% during the nineties, and then accelerated to 3,7% on average during the first decade after 2000.
Mr Langenhoven said that South Africa was now seriously in danger of falling below a 2,5% average in this decade. This is mostly owing to the fact that although the economy had grown faster in the past decade (2000/2010) than recorded during the seventies, South Africa missed the last super cycle and completely under-estimated the economy’s accelerated energy demand over this period.
“Regrettably, electricity generation has become a significant physical constraint that hampers the economy’s ability to grow at a faster rate. It can be argued that this situation runs counter to the Government’s stated intention to stimulate local manufacturing and value addition,” Mr Langenhoven said.
He added: “In fact, manufacturing’s share of the economy has been steadily declining over the last three decades, with investment patterns in the sector far more worrying than the former. Reliable energy supply is absolutely vital to turn the situation around.”
According to the South African Reserve Bank, the sector is 29% larger today than 10 years ago, 66% larger than 20 years ago and 71% larger than 30 years ago. However, its share of the economy declined first from 20% in 1983 to 19% in 1993, and then further still to 18% in 2003 and eventually to 16 % in 2013.
“So, manufacturing has decline by a percentage point each decade in South Africa. Needless to say, this does not bode well for our economy. Increasingly, we have become a country that imports equipments and components that used to be manufactured here at home, in the process leaving many people unemployed.”
Mr Langenhoven said that energy provision was a long-term assignment, with 2025 a pivotal year when large portions of current generation capacity will reach the end of their useful life.
“As a country, we need to tackle this challenge with a single-minded determination as though we were going to war. Without a sufficient and secure supply of energy – and, in this case, electricity – it is not possible for South Africa to be globally competitive,” he concluded.