Load shedding is 'disastrous' for SA economy, says Godongwana

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Load shedding is a major stumbling block to economic growth.
Load shedding is a major stumbling block to economic growth.
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  • Load shedding remains a noose around South Africa's growth prospects, and energy sector reforms need to quicken, says Treasury.
  • Treasury has revised the 2022 economic growth forecast from 2.1% to 1.9%.
  • The Russia-Ukraine war and resulting energy crisis is another major risk to domestic growth.
  • For more financial news, go to the News24 Business front page.

Escalating power cuts are having a "disastrous effect" on the South African economy, with National Treasury downwardly revising its growth forecast for 2022 from 2.1% to 1.9%.

Presenting the Medium-term Budget Policy Statement (MTBPS) to Parliament on Wednesday, Finance Minister Enoch Godongwana to Parliament noted with concern the increasing intensity of load shedding in recent months, which has disrupted economic activity.

"The intensity of load shedding is having a disastrous effect on our economy," Godongwana lamented.

In the policy statement, Treasury describes load shedding as a "feature of South African life", having occurred since 2007. "A decade and a half of this binding energy constraint has discouraged investment and weighed on economic growth and job creation."

Increasing power cuts are compromising an already fragile and recovering economy, which warrants the urgent implementation of energy sector reforms announced by President Cyril Ramaphosa earlier this year. The interventions would add 14GW of power to the grid within two years. Currently, there is a generation capacity of 4GW and 6GW.

READ | Ramaphosa's 10-point power crisis plan: What you need to know

Other factors that impacted economic growth this year include the flooding in KwaZulu-Natal and Eastern Cape, industrial action in the mining and electricity sectors, as well as global supply chain constraints. Godongwana noted that "inefficiencies" at the port and rail sectors are costing the economy billions and "undermining" efforts to raise growth.

Developments in the global environment are also less supportive of domestic growth, Godongwana noted in his speech. Risks include the possibility of the Russian-Ukraine war escalating, as this will continue to affect global supply chains, for farming inputs and gas (among others). This would trigger inflationary pressures, especially for global energy prices and food. Rising global inflation has led to central banks raising interest rates - which has the effect of constraining investment and household spending.

Treasury also flagged a decline in Chinese economic growth as a risk for commodity-exporting economies like South Africa. Already, for South Africa, imports outweigh exports. Treasury expects in 2023 that exports will face weaker demand, easing commodity prices and electricity and logistical constraints.

"… Small open economies like ours need to be especially careful and have solid fiscal buffers in place to weather the coming storm," Godongwana said.

Domestic risks

Industrial action, specifically at the ports and rail sectors, could also constrain economic activity and reduce South Africa's competitiveness, the policy statement indicated.

Treasury expects growth to average around 1.6% over the medium term (the next three years). This is still too low to support development objectives, such as employment creation.

Going forward, the government intends to increase spending on functions that promote economic growth, such as infrastructure.

Over the medium term, spending on building new and "rehabilitating" existing infrastructure will increase from R66.7 billion to R112.5 billion by 2025/26 (increasing at an annual average of 19%). These structures include roads, bridges, stormwater systems and public buildings, Godongwana said.

The Budget in 2023 will make provision for funding support for project preparation to ensure efficiency and improve capacity to roll out these infrastructure projects, a challenge that has been flagged by Infrastructure South Africa (ISA) in the past.

"We are also committed to improving state capacity, project planning and preparation, procurement practices and contract management," Godongwana said.

The Development Bank of South Africa, ISA and the Government Technical Advisory Centre are also working to develop a "viable" project pipeline.

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