I watched electricity & energy minister Kgosientsho Ramokgopa lament the cost of electricity over the weekend and how various methods will be deployed to rationalise the tariffs.
As the Thembisa protests showed, electricity tariff hikes will always be a litmus test of the state of the nation. It’s a fundamental need and one doesn’t need intelligence services to gauge the mood, because electricity is expensive and that’s not debatable.
However, the problem is bigger than electricity. It’s even bigger than Eskom and the municipal revenue model. The problem is an economy that has “grown” at an average of 1.5% over the past decade. Our Brics compatriots have averaged 4.5% growth, whereas emerging markets have grown at 5% over the same period.
While there’s no single, universally agreed-upon level of economic growth that guarantees formal employment creation, a sustained GDP growth rate of 2%-3% or higher is generally considered a good indicator of an economy that can support increased formal sector jobs. In SA though, this would still be insufficient to reverse our unemployment crisis.
Unemployment is stuck at 33% because the economy is just not growing and cannot absorb new, transitioning or even existing workers into the system. An economy that cannot absorb doctors, teachers, nurses and even qualified technicians is not a growing economy. Several countries facing low economic growth, high unemployment, political instability and capital flight are implementing radical policy shifts, often involving a combination of fiscal, monetary and structural reforms.
These changes aim to stimulate growth, address debt sustainability and improve long-term economic prospects. Some common themes include increased government spending, targeted tax incentives, trade facilitation, labour reforms and efforts to boost productivity and investment through the creation of new industries.
The problem with an economy that is not growing is that it leads to systemic risk in other industries. Consider medical aid, an industry that relies on the cross-subsidisation of middle-aged and elderly members who are more often sick and hospitalised, by young members who generally don’t know what chronic medication is.
Likewise, pension funds need a mix of elderly members who have been paying premiums for 40 years alongside members who will contribute for the next 40 years. Life insurance works in a similar fashion — elderly members who have been contributing for a long time and are about to have their death benefits maxed, and those just starting out who will contribute to those life insurance payouts.
Old Mutual recently sounded the alarm over withdrawals of pensions via the two-pot system, which directly affects funds available to invest by pension funds, in addition to waning membership and contributions. Earlier in the year Discovery CEO Adrian Gore decried the dearth of new, young and healthy entrants into medical aid schemes, saying the present “age squeeze” model is unsustainable.
I was reminded of this while watching an elderly woman being interviewed about the Thembisa electricity protest alongside her son. She answered all the questions and was au fait about the cost of electricity and the deductions, most likely because she carries the electricity burden for the household because her son is unemployed. At some point she will not be here, nor will her pension to support that household. So what is to happen to people who live in that house who are unemployed and need to buy electricity?
While I understand the allure of wanting to sort out the electricity tariff as a quick win, the problem is that the issue is far more complex and needs a well-considered and revised economic approach. We need a new economic model.
• Mashele, an energy economist, is a member of the board of the National Transmission Company of SA.
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