Allianz Trade, a global leader in trade credit and political risk, has warned that the ongoing energy crisis in South Africa poses the heaviest drag on economic growth as it affects business activity, and added that the crippling rotational power cuts will not be resolved in the next 12 months, in spite of the government’s promises to end it sooner.
This was in spite of Allianz Trade upgrading South Africa’s country risk ratings, saying that it was among 21 countries that showcased their resilience to global shocks.
In its Country Risk Atlas yesterday, Allianz said electricity generation posed the heaviest drag on growth, with the national utility being able to work at only half of its nominal capacity.
This comes as Eskom implemented Stage 6 load shedding indefinitely - up to 12 hours of no electricity per day - at the weekend as a result of insufficient generation capacity.
At least 10 generating units were taken out of service while five were also taken out of service due to boiler tube leaks, leading to outages of 17 798MW of generating capacity while 6 653MW was out on planned maintenance.
Allianz said the lack of reliable electricity supply hindered businesses, industry and households from realising their potential.
It said while labour unions were likely to mobilise strikes in opposition to loosening local content rules for new generation capacity, it was improbable that sufficient capacity will materialise in the next 12 months.
However, Allianz said that despite challenges such as load shedding, poor infrastructure and modest employment rates, South Africa exhibited positive economic performance in 2023, with declining trends in insolvencies and reduced external vulnerabilities.
It said economic resilience remained a feature of South Africa, despite business interruptions.
Allianz has forecast a modest gross domestic product (GDP) of 1.4% this year, 0.2 percentage points higher than the 1.2% forecast by the SA Reserve Bank.
It said the output in the energy-intensive mining and manufacturing sectors was likely to resume close to pre-pandemic levels thanks to an increased availability of electricity, some electoral spending, tourist inflows and resilient internal demand.
“South Africa's strengths lie in its positive economic performance, despite challenges such as load shedding, critical infrastructure blackouts as identified as the number one risk, and modest employment rates,” it said.
“The country has experienced declining trends in insolvencies and reduced external vulnerabilities. Additionally, fiscal consolidation efforts, disciplined salary increases, and increased tax collection have contributed to stabilising the government debt ratio. South Africa also demonstrates external resilience to shocks, with abundant international reserves, a flexible exchange rate, and limited external debt in foreign currency.
“However, South Africa does face weaknesses that could impact its risk rating. The lack of reliable electricity supply hinders growth and affects businesses, industries, and households.”
In their monthly SME Economic Forecast, SME Funder Retail Capital - a division of TymeBank – pointed out that their recent survey showed that load shedding still caused major business disruption for the majority of local businesses, with only a few of these companies having the resources and a contingency plan to manage the financial implications.
Retail Capital yesterday also warned that load shedding emerged as one of the costliest challenges for businesses in 2023, and that it will continue and potentially escalate in 2024.
However, Old Mutual Wealth investment strategist Izak Odendaal said projecting from the low growth of the past few years – less than 1% on average – into the future as South Africa’s potential growth rate was set to rise, especially with the implementation of the new African Continental Free Trade Agreement.
“This is not to suggest that all is hunky dory. And while there are concrete plans on the table, and active involvement by the business sector to deal with some of the economy’s major challenges by crowding in private sector skills and capital, this is not the case for many other areas where we still need an effective and caring government to intervene,” Odendaal said.
“Ultimately, the private sector only solves problems where its bottom line is affected. Most social problems require a broader societal solution.”