South Africa’s economy shrank more than expected at the end of 2022 after being battered by rolling blackouts imposed by the Eskom electricity monopoly.
Fourth-quarter activity in Africa’s most industrialised nation fell 1.3 per cent, from the previous three months, a period when breakdowns at Eskom coal plants forced power cuts almost every day, statistics released on Tuesday revealed.
The outages, which have since intensified, led President Cyril Ramaphosa to declare a state of disaster and, on Monday, appoint Kgosientsho Ramokgopa as electricity minister to tackle the crisis.
Ramaphosa’s governing African National Congress is preparing for elections next year where its long-held majority is at risk from popular anger over the blackouts’ impact on the economy.
The latest contraction means that South Africa’s gross domestic product has been largely flat since the end of 2019, even as the country’s population has increased 3.5 per cent.
The quarterly drop was the largest since deadly riots in 2021 that wrecked critical infrastructure in the country’s two most economically important provinces.
The economy grew just under 1 per cent in the fourth quarter compared with the same period in 2021, well below the expectations of most economists.
Ramaphosa has pledged to give Ramokgopa, who previously served as his infrastructure and investment adviser, greater powers to co-ordinate a response to the power crunch.
But Business Leadership South Africa, an industry group, said that “this attempt to endow the new electricity minister with overall responsibility may lead to turf wars which may not be beneficial to smooth progress”.
The South African Reserve Bank has estimated that the rolling blackouts cost the economy about $50mn a day in shuttered factories, closed shops and malfunctioning infrastructure. It has forecast that growth this year will be only about 0.3 per cent as a result.
The power crisis has also put pressure on the public finances after the South African National Treasury announced last month it would backstop $14bn of Eskom’s debts in the coming years to prevent its financial collapse. This has forced the Treasury to delay announcing targets to stabilise public borrowing as a share of GDP.
South Africa’s weak growth “is unlikely to improve any time soon as severe power cuts and fiscal consolidation continue to weigh on the economy”, said Virág Fórizs, emerging markets economist at Capital Economics.
Many South African businesses have been forced to stock up on diesel for generators to remain open during the outages, often at the expense of other investments and hiring.
On Tuesday ShopRite, South Africa’s biggest supermarket owner, said it had spent R560mn ($30mn) on generator diesel in the last half of 2022, hitting profits despite strong sales growth.
“The ongoing cost to our economy in terms of growth and investment is devastating, as is the impact on the everyday lives of South Africans, most of whom are already dealing with considerable hardship,” Pieter Engelbrecht, Shoprite’s chief executive, said.
