Further power cuts by Eskom pose a threat to the economy which has already faltered at the start of 2019 with weak performances in the mining and manufacturing sectors.
Economists warn that these sectors will be hit further by persistent load-shedding in the coming months. Both sectors are significant contributors to GDP — mining accounts for 9% while manufacturing contributes 14%.
The embattled power utility announced stage two load-shedding on Thursday, which it attributed to a shortage of generating capacity. Eskom has not implemented load-shedding since February 15.
“The risk is that if this persists, you’re going to struggle to get confidence, investment and demand up in this economy,” BNP Paribas economist Jeff Schultz said.
“This further highlights the downside risks to growth. If we don’t see a level of improvement in the electricity supply or greater certainty with regards to policy, the economy will struggle to grow more than 1% for the next few years,” he said.
Manufacturing production grew by just 0.3% in January while conditions in the mining sector were even worse, with a 3.3% contraction, data released by StatsSA showed on Thursday. This was compared to economists polled by Bloomberg expectations of 1.2% growth in manufacturing and -3.8% in mining.
These sectors will likely continue to lose momentum in the coming months, Stanlib chief economist Kevin Lings said.
“I struggle to see a scenario where production is vigorously ramped up in both these sectors in the next six to 12 months,” Schultz said.
The economy is expected to grow at 1.5% in 2019 , according to the Treasury’s forecasts, after tepid growth of 0.8% in 2018. Schultz warned that load-shedding could shave off about 0.4 of a percentage point from growth if it persists.
“Overall, it’s a challenging start to 2019,” Lings said.
Mining, in particular, has continued to slide — output in the sector has shrunk for six out of the last eight months. CEOs in the sector say Eskom poses the greatest risk to their businesses. The sector consumes around 30% of Eskom’s annual power supply, for both mining and smelting activities, according to the Mineral Resources Council.
In addition to load-shedding, the sector also has to contend with slowing global demand, above inflation electricity tariff increases, labour unrest in the gold sector and low commodity prices, FNB economist Matlhodi Matsei said.
“The possibility of mining production staging a convincing recovery has faded in recent months,” Nedbank economist Busisiwe Radebe said.
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