South Africa’s reputation as a reliable investment destination is coming under intense pressure and the country will inevitably be seen as no different to some of the other African countries where power cuts are a norm rather than an exception, economists and energy experts cautioned last week.
South Africa endured a second straight weekend in which the embattled power utility had to ration power as it grapples with persistent strains in its power generation capacity.
On Thursday, Public Enterprises Minister Lynne Brown warned that the next two years could be tough as Eskom looks for ways to tackle delays that have hampered construction of the country’s two newest power plants, Medupi and Kusile.
For South Africa, uncertainty surrounding power supply constraints present the country with more hurdles to overcome in its bid to drive economic growth, put a meaningful dent in unemployment and turn the government’s National Development Plan into a reality.
Johan Muller, a programme manager for energy and environment at Cape Town-based Africa Frost & Sullivan, said investors could increasingly start to look at investing elsewhere if the country’s energy supply woes were not decisively addressed. “I believe that businesses that are already operating in South Africa will do the cost-benefit calculations to determine which is more viable: staying in South Africa and implementing solutions to make them less dependent on Eskom such as off-grid solutions, versus closing business here and absorbing the costs associated with relocation,” he said.
Urgent maintenance of the Cahora Bassa hydroelectric power station has added to Eskom’s problems in recent days as a portion of capacity normally imported from Mozambique has become unavailable. As a result, load shedding could be extended through this week. Muller said Eskom was now only operational with the co-operation of industry and commerce in South Africa. In other words, if it was not for the big industrial customers, who have now been asked to reduce consumption by at least 10 percent, Eskom would now be faced with a total shutdown of the grid.
According to Muller, South Africa was fast going the route of other African countries where blackouts were seen as the norm.
“I fear that this is detrimental for companies looking to invest in South Africa, who, given the current state of affairs regarding energy security and labour unrest, will look to invest elsewhere,” added Muller.
Eskom has targeted the weekends to conduct load shedding, saying in this way it would limit the impact on the economy. Even so, the damage to the country’s standing as a reliable investment destination could take years to reverse, according to analysts.
On Friday, Eskom said the electricity system would still be constrained today and tomorrow. “Emergency reserves will be used through the evening peaks but any unforeseen technical problems at power stations or an increase in demand due to the weather conditions could necessitate the implementation of rotational load shedding,” the utility said.
Peter Attard Montalto, emerging market economist at Nomura in London, said no company was necessarily thinking of abandoning South Africa, but added that in the long run the energy crisis would hurt investment.
He said in a crisis like that of Eskom “the willingness to invest falls significantly and hence job creation and long run growth with it. That is the real issue here.” Even so, South Africa is still in a better state of affairs than most other African counties when it comes to energy supply. “But that is no excuse and the (current) position should be rectified,” said Montalto.
Ryan Steytler, an energy specialist and director at Sungrid Group said Eskom’s constraints would only be solved once Medupi and Kusile came online.