The rand weakened to a one-month low yesterday as concerns grew over disruption to economic growth after Eskom announced the implementation of loadshedding after three weeks of no rotational power cuts.
Eskom yesterday announced the implementation of stage 2 loadshedding until Thursday night due to the continued shortage of generation capacity.
The struggling power utility, which last implemented loadshedding on May 30, said it had 5 232MW on planned maintenance while another 14 202MW of capacity was unavailable due to breakdowns.
Eskom’s persistent power cuts come at a time when the economy is facing serious challenges from rising inflation and a threat of a global recession which have left central banks with no choice but to aggressively tighten monetary policy.
The rand yesterday slipped to R16.07 to the greenback by 3.30pm, the weakest it has been since 16 May, amid general dollar strength on expectations of prolonged aggressive interest rate hikes by the US Federal Reserve (Fed) to tame inflation.
Investors are also expecting the SA Reserve Bank to follow suit and continue on its hiking cycle next month following a 50 basis points lift as inflation could cross the bank’s target range of 3-6 percent in May for the first time since 2017.
Investec chief economist Annabel Bishop said the Fed was expected to continue to move aggressively this year to stamp out high inflation, with further rand weakness the risk.
“The risk is that the US economy slows more quickly than its policy makers and markets anticipate, with a recession, and not necessarily a mild one, spooking markets as stagflation worsens on obdurate supply side price pressures, weakening the rand,” Bishop said.
Loadshedding has caused untold damage to South Africa’s economy and investment climate.
At the beginning of the second quarter of 2022, both mining and manufacturing output recorded a marked annual decline dragged down in part by ongoing power cuts, and the effects of the severe floods in KwaZulu-Natal.
Logistical challenges which were exacerbated by the KwaZulu-Natal floods in April, together with electricity supply constraints, weighed on the energy-intensive mining sector, impeding optimal production and export potential.
According to Statistics South Africa, the generation and distribution of electricity contracted by a further 3.7 percent and 2 percent from a year ago, respectively, in March and April as heightened rotational load shedding continued.
The risk of load shedding will remain until the country accumulates sufficient capacity.
Eskom has cited its ageing power plants and a historic lack of maintenance as factors that continue to add to the unreliability of the domestic power situation.
Eskom expects to decommission about 11 000MW of coal-fired capacity by 2030, and is planning fired capacity by 2030, and is planning to add about 8 000MW of cleaner capacity.
Anchor Capital investment analyst Casey Delport said that South Africa’s economic story continues to provide a mixed bag of tales as, on one hand, it was back at the size it was before the pandemic struck
“However, the economy remains stuck in somewhat of a rut - it hasn’t grown by more than 3 percent annually since 2012,” Delport said.
“While the first quarter growth is encouraging, we remain concerned about the direction of growth in the second quarter, amid the impact of the KZN floods, China’s zero-Covid policy, and the impact of higher domestic inflation on consumer purchasing power.
“Continued loadshedding will simply add to these mounting pressures.”