The South African energy crises began in 2007, and had continued to date. Throughout this period, the country has been experiencing widespread outages due to ongoing load shedding. This has led to serious and damaging impacts to the economy; ‘Productivity is on decline, while costs are on the rise. Stocks are damaged or destroyed and confidence is drained away, while jobs are ultimately lost’, according to the country’s CDE Report. The Centre for Development and Enterprise report, further highlighted that the mining industry was seriously hit by the energy crises, due partly to interruptions in its activities.
IMPACT
The picture of the economic impact of South Africa’s energy crises, hasn’t been a pretty one. A major mining company Harmony Gold, was forced to lay off 5,000 workers due to mining halts. DRDGold, said it was forced to fire 400 workers as a result of the power crises. Another mining company, Gold Fields’, also took a hit that led to 20% decline in the first quarter of 2008 and another 25% the previous year, which has impacted negatively on its 6,900 employees and contractors. BHP has been forced to announce that it was closing two potlines at their bayside aluminium smelter, causing 500 job losses. Mining companies estimate that hundreds of thousands of ounces of both gold and platinum production, will be lost every year until the crisis passes, according to another report. But the mining industry isn’t the only industry negatively impacted by the energy crises.
Nestlé, a company with 27 factories scattered across the country, and which had invested over R1 billion into the economy of South Africa had to spend an estimated R37 million on purchasing of generators, for their production lines in order to overcome an erratic electricity supply. This, the company reported, has a large negative cost impact on its operational cost. A company making plastic milk bottles, reported that it lost R4 million per week during the worst crisis period of power fluctuations. Bakeries reported major losses, when oven-loads of bread and other baked goods would go stale due to blackouts. A group of tourists were reported to have been trapped in a cable car on Table Mountain, Cape Town, in high winds for hours. Hundreds more were left stranded until after midnight on the top of the mountain.
It gets even worse. Small business owners complained that load shedding was the number one challenge that they faced. In a report of 3,984 small business owners, 44% said that they had been severely affected by load shedding, with 85% stating that it had reduced their revenue. About 40% of small businesses lost revenue of 20% or over, during the load shedding period. About 20% small business owners claimed that they would have to consider reducing their number of staffs, or even shutting down if load shedding were to continue.
In January and February 2008, global platinum and palladium prices hit record highs, as mines were first shut down and subsequently restricted in their electricity use. South Africa supplies 85% of the world’s platinum, and 30% of palladium.
The economic costs of the energy crises to South Africa’s economy, can also be counted on loss of foreign and local investments, loss of mineral and manufacturing exports, loss of tourism earnings, further pressure on the balance of payments from increased liquid fuel imports, and sharply increased production costs. The crises are estimated to have cost South African businesses R13.72 billion in lost revenue, with an additional R716 million spent by businesses on backup generators. Some estimates said it’s much higher.
In a January 2020 article, written on Oxford Policy Management, it stated that new research from CSIR, the total economic impact of load shedding in South Africa over the past 10 years, could be as high as R338 billion. In 2019 alone, according to the report, there were significant impacts on the economy, the estimated cost being between R60 billion and R120 billion. It further stated that the scenario has made South Africa’s economy fragile due to rising debt, low growth, record-high unemployment and diminished investor confidence.
Consequently, South Africa’s GDP has taken a negative dip. Due primarily to the impact on mining companies, Economists in 2011 downgraded South African GDP growth forecasts significantly to around 4%, which falls short of government’s target of 6%. The effect is that business confidence reached an all-time low, as the county’s international image was seriously damaged, thus reducing its ability to attract fresh investments to achieve its economic targets.
CAUSES
Many causes have been attributed to the energy crises, which has crippling effects on South Africa’s economy. Many have pointed at poor quality of coals supplied to Eskom’s coal-fired power plants. Eskom is the major energy supplier in South Africa, and is saddled with the responsibility of meeting over 90% of its electricity needs. Other reasons adduced for the crises are also captured below:
Government’s neglect:
A December 1998 report, stated that analysts and leaders in Eskom and in the South African government predicted that Eskom would run out of electrical power reserves by 2007, unless action was taken to prevent it. But the government took no action to expand the country’s energy production capacity before 2007. This, according to the report, was because the government was considering privatizing Eskom.
Another cause is insufficient generating capacity (South Africa produces around 47,000 MW against an installed generation capacity of 52,000 MW). Also, maintenance issues and breakdowns of ageing poorly – maintained power stations, have also been identified as partly responsible for the crises. Many of these issues are a consequence of underinvestment and Eskom’s struggle with increasingly high debts. Again, corruption and mismanagement of Eskom, most notably during the Jacob Zuma administration, are major contributions to the energy crisis. Again, there is the case of incompetence and neglect by Eskom staff, while some highlighted deliberate sabotage, skill shortages and operational failures as also contributory factors.
SOLUTIONS
Many have proffered solutions to South Africa’s energy crises. For instance, World Economic Forum in its September 25th 2015 report, suggested that ‘Fixing South Africa’s energy crisis is not just about generating more electricity and that more focus is also needed on the transmission and distribution. The report explains that ‘A smarter, more flexible grid would give South Africa a much better return on its energy investments, and make renewables a more significant part of the energy mix’. The report further stated that the key element of how energy moves from generation to consumption, has mostly been overlooked. It also suggested that ‘Planners must also now consider the addition of independent power producers (IPPs), to the energy mix and small-scale residential generation as citizens, increasingly frustrated by load-shedding and rising electricity prices, start to install their own rooftop solar systems.’
In 2016, Eskom stated it intended to pursue a nuclear solution to current energy woes. 2016 projections stated that the use of nuclear power would provide over 1000GW of power by 2050. In readiness to this, the company launched a training program for 100 technicians, engineers and artisans to certify them as nuclear operators.
In 2018, the National Energy Regulator of South Africa, denied an application by Eskom to increase electricity tariffs by 19.9% and instead granted a 5.2% increase, citing a list of reasons for the refusal, chief among which was ‘finding that Eskom had an additional 6,000 employees that were not needed, costing the company R3.8 billion annually’.
In January 2020, South African President, Cyril Ramaphosa, stated that the country will allow firms and households to generate their own power to relieve pressure on Eskom.
The World Economic Forum report, further suggests that electricity sector is moving away from a monopolistic model, as new players – the growing number of IPPs, are taking on roles and responsibilities historically controlled by Eskom. It believes that the contribution of small-scale residential generation, is being delayed by an absence of clear policies and regulations.
