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Lehman: Power crisis eats GDP
25/02/2008 14:09 - (SA)
Evan Pickworth
Johannesburg - A significant impact on the output of mining and downstream sectors during the first quarter is expected due to the South African power crisis with a net effect of 0.5% on gross domestic product (GDP), reducing 2008 growth to 4.4%, says global analysts Lehman Brothers in a research note.
GDP growth in South Africa for 2007, due to be released on Tuesday, is expected at 5%, while the National Treasury last week also pinned the net effect of the crisis at 0.5%, with GDP dipping to 4%.
"While the electricity crisis is a temporary one, Eskom is running dangerously close to its current capacity and a mixture of winter demand and bad luck could well lead to renewed blackouts," say the analysts.
"Furthermore, this crisis is just the tip of the iceberg in terms of inefficiencies and under-investment in key structural areas of the economy," they add.
Not meeting demand
Chronic under-investment in the state-owned power company, Eskom, is now coming up against soaring household and industry demand.
"Inefficiencies at the power company and very heavy rain, affecting coal-fed power stations, have also hit supply," note the analysts.
The economy virtually ground to a halt for two days at the end of January. The government declared a state of emergency and asked everyone, including mining and heavy industry users, to cut electricity demand by at least 10%.
While many businesses and wealthy households have generators, these are insufficient to support heavy industry, so production in South Africa has dropped.
Private power
"The situation seems unlikely to change soon given that the next large power station does not come online until 2009 and will not reach capacity until around 2013," say the Lehman analysts.
They add that enough capacity of privately generated power exists if it is co-generated with businesses.
"Eskom is attempting to tap this resource, but it will take time. Meanwhile, the government has outlined a plan to deal with demand, including investment in solar water heaters, and fines and incentives to encourage lower energy use. But no details are available and it is likely to be costly to
implement and take time to work," note the analysts.
However, they point out that the crisis is not restricted to South Africa.
"Recent fast growth plus poor regulatory frameworks have made the power sectors of several emerging markets vulnerable. Blackouts and electricity rationing may result," they conclude.
- I-Net Bridge
- I-Net Bridge (Business)
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