SA dumped over power woes
11/06/2008 20:57  - (SA)  

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London - Structural energy problems in South Africa is forcing investors to turn away from the mineral rich country and focus on prosperous Brazil, the Reuters Investment Outlook Summit heard on Wednesday.

Mining companies and other major electricity consumers have had supplies rationed since the national grid came close to collapse in January and with few solutions in sight investors will start looking to other areas.

"This has cost South Africa this year - it has been a big disappointment to investors," said Chris Palmer, head of global emerging markets at investment fund Gartmore.

"Brazil has been a good place to invest, South Africa has been less good."

South Africa has suffered electricity shortages since the start of the year as power utility Eskom struggles to generate enough power to meet demand.

The power shortages have dented economic growth, which fell to a 6-1/2-year low of 2.1% quarter-on-quarter in the first three months of 2008.

"South Africa has had many years to think about these issues so there is only one place where you can lay the blame - there has been chronic under investments by the government in the electric utility sector," Palmer said.

During a period of rising commodity prices a country like mineral-rich South Africa should be doing relatively well, he said.

"To have a constraint placed on growth because they cannot produce enough electricity - although they export coal to the rest of the world ... it is ironic," he said.

Most mines are operating at only 95% of normal power requirements.

Brazil and South Africa had a similar type of economic position ten years ago, Palmer said, adding when Brazil faced power difficulties in 2002 the government took action to make sure its industry remained attractive.

"That work hasn't been done to the same extent in South Africa ... these are two countries exporting similar items but their industries are asymmetrical, affected by public planning and public policy," Palmer said.

- Reuters

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