Commenting on the power outages that have been going on in the past three weeks, culminating in a serious, stage-three load shedding last week, SEIFSA Chief Executive Officer Kaizer Nyatsumba said that it was totally unacceptable that a country with South Africa’s level of development found itself in the midst of a load-shedding crisis “right in the middle of summer”. He said not only did the situation damage South Africa’s reputation as an investment destination, but it was also causing untold harm to the economy.
SEIFSA estimates the damage done by the current outages to the metals and engineering sector alone to be estimated at R6-billion.
Mr Nyatsumba reiterated his statement, first made at a conference on sustainable power supply three months ago, that South Africa needed to tackle the current challenge of recurring power outages with a single-minded determination “as though we were going to war”. He said that failure to do so would amount to irresponsibility and cause even greater harm to the economy, which desperately needed to grow in order to create jobs.
Mr Nyatsumba said that frequent energy supply shortages and uncertainty about the security of power supply were bound to affect South Africa’s international perception as an investment destination.
“Without a sufficient and secure supply of energy, it is simply not possible for South Africa to be globally competitive,” Mr Nyatsumba said.
He added that reliable energy supply was of vital importance for a thriving business environment in general and the metals and engineering sector in particular. On average, energy costs in the metals and engineering sector account for about 8% of intermediary input costs. It stood to reason, therefore, that without reliable energy supply, the sector could not exist or expand.
SEIFSA Chief Economist Henk Langenhoven said that the metals and engineering sector’s total production for 2014 was estimated to be in the region of R320-billion, with value added to the economy estimated to be R84-billion.
“It is further estimated that the sector produced R26,5-billion worth of turnover in November and added about R7-billion to the South African economy.
Without the constraints, taking these assumptions into account, it is estimated that R6-billion worth of output and R1,5-billion in value added has been lost. These figures amount to a 23% loss of production and value add respectively to the economy,” Mr Langenhoven said.
However, the most serious potential loss was that of international markets owing to production uncertainties. Exports constitute 60% of production and imports have captured a similar share of the domestic market.
“Markets lost due to non-performance may never be regained because the perception is created that these shortages will continue for years. The resumption of gross fixed investment in the sector and, therefore, faster growth is unlikely,” said Mr Langenhoven.
Mr Nyatsumba said that it was a known fact that the South African economy has been seriously under-performing over the past few years. He said that while energy provision should support the country’s growth ambitions, there appeared to be a real danger of the two gradually drifting apart.
“Regrettably, electricity generation has become a significant physical constraint that hampers the economy’s ability to grow at a faster rate. This situation runs counter to the Government’s stated intention to stimulate local manufacturing and value addition,” Mr Nyatsumba said.
He added that manufacturing’s share of the economy had 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,” he concluded.