Standard Bank CEO Sim Tshabalala says the potential collapse of SA’s power grid would unleash “Armageddon”, sparking off social unrest and a collapse of municipal infrastructure, though he says the probability of this happening is low.
“You can imagine if there’s no power food does not get moved, water does not get pumped, sewerage reticulation falls apart — it’s a proper meltdown,” Tshabalala told Business Day in an interview. “Armageddon will be at our door. [But] I think the probability of Armageddon is very low.”
JSE CEO Leila Fourie said on Wednesday that the bourse has contingency plans for backup power in various forms in the event of a grid collapse to ensure that traders are not cut off from financial markets. The Reserve Bank issued a statement on February 21 saying its Financial Sector Contingency Forum, a unit instituted after the 9/11 attacks, had been preparing response plans for a national or regional grid failure since at least 2015.
“We as a bank ourselves have our own views and plans. We have done the scenario planning. There are certain scenarios that are just so bad that they’re too ghastly to contemplate,” said Tshabalala. “We attribute probabilities to them and then we have management actions, either on our own or in partnership with the industry ... or with the authorities. I would say with a great level of confidence that on the data and information that we’ve got, grid collapse is possible but the probability is not high.”
Nevertheless, Tshabalala said he now believes the likelihood of a recession in SA has risen above 50% due to the electricity crisis, structural growth impediments and events such as SA’s greylisting by the Financial Action Task Force (FATF). Ratings agency S&P Global unexpectedly downgraded SA’s credit outlook to stable from positive, citing infrastructure issues and power outages.
“It’s a really tough environment. It’s tragic that we may be entering a recession. The probabilities of a recession I think are greater than 50%,” said Tshabalala.
That added further negativity to news on Wednesday that GDP had contracted 1.3% in the fourth quarter of 2022. The Reserve Bank estimates that stage 3 to 6 load-shedding, which equates to 6-12 hours of power cuts, costs the economy between R204m and R899m a day.
Roxanne Webster, a director at law firm Cliffe Dekker Hofmeyr says there is a direct link between the power crisis and company liquidations, which surged 30% year on year to 1,907 in 2022. In December 2022 alone, there were 159 business liquidations in SA.
“We cannot underestimate the reality that liquidations not only affect businesses but also severely and substantially impact our economy,” said Webster. “Given the bleak outlook for 2023, more SA businesses may be forced to close.”
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