The Bank of America (BofA) has warned that the ongoing energy crisis constituted the most serious risks to South Africa’s economic outlook in the medium term. Photo: Bloomberg
The Bank of America (BofA) has warned that the ongoing energy crisis constituted the most serious risks to South Africa’s economic outlook in the medium term. Photo: Bloomberg

Bank of America warns of Eskom threat to the country’s growth

By Siphelele Dludla Time of article published Mar 31, 2021

Share this article:

JOHANNESBURG - THE BANK OF America (BofA) has warned that the ongoing energy crisis constituted the most serious risks to South Africa’s economic outlook in the medium term.

BofA yesterday said Eskom’s electricity supply challenges could delay the country’s economic rebound in the next three years in spite of a faster recovery expected in 2021. The bank said its outlook ahead was of a 3.5 percent consensus growth this year.

BofA raised its 2021 gross domestic product (GDP) growth forecast to 3.8 percent from 2.9 percent while maintaining its outlook for 2022 at 2 percent.

BofA’s head of South Africa research Paul Steegers said they were cautiously optimistic about South Africa’s output this year, but medium-term outlook was faced with headwinds. “Despite the upgrade, we acknowledge a number of risks to the outlook. The electricity constraints pose a main risk to the growth recovery,” Steegers said.

“Eskom loadshedding has continued with the year-to-date energy availability factor at 58.6 percent from 65 percent last year. This is expected to continue at least till September.”

Eskom said this month that there would be a shortfall in the supply of electricity of approximately 4 000 megawatts (MW) in the next five years.

The power utility was last month granted permission to increase the rate of electricity tariffs by a massive 15.63 percent from April 1 after the High Court Gauteng Division ordered that an amount of R10 billion be added to its allowable revenue to be recovered from tariff customers in 2021/22 financial year.

BofA said its optimistic GDP outlook reflected global growth and commodity revisions; easing domestic restrictions and a better 2020 fourth quarter print. Steegers said growth was likely to return to pre-Covid levels by late 2023, or even 2024.

“Output is only likely to return to pre-Covid levels by late 2023 with risks from electricity shortages, a weak jobs recovery, slow reforms and vaccine/ third wave concerns,” Steegers said.

BofA’s sub-Saharan African economist Rukayat Yusuf said the delays in Eskom’s infrastructure projects such as Medupi and Kusile power stations were also key risks to the outlook.

Yusuf said international investors were hoping to see progress on emergency procurement, easing self-generation licence requirements and the unbundling of Eskom.

“We have seen some progress on this in the recent weeks but there is still quite a bit of concern, especially on the costs of independent power purchases that have been announced,” Yusuf said.

“We estimate that the 2 000MW of emergency IPP capacity will cost 18 percent more than the 2021 financial year tariffs. This implies pressure on households in the longer term.”

[email protected]

BUSINESS REPORT

Share this article:

Related Articles