The World Bank has slashed South Africa’s economic outlook from 2.7 percent to 2.5 percent this year.
The bank blamed the continuing paralysis at Eskom and warned that the problems in the electricity sector were curtailing economic growth.
Delivering its two-yearly analysis on Africa’s Pulse, the bank said the electricity crisis had “very severe” implications for the country’s economic prospects.
“The power shortages in South Africa is of great concern,” the bank’s chief economist for Africa Francisco Ferreira said. “We hope bringing in the power plants into the grid will bring about some relief.”
“There is a need for better management of Eskom’s assets going forward.”
The bank’s downgrade follows on the heels of a similar outlook by the SA Reserve Bank in January, and against the Free Market Foundation’s prediction of 4 percent or more by the end of 2015.
Unending feuds
Most economists have pointed to unending feuds and corporate governance issues within Eskom for the country’s bleak economic prospects.
In February, Finance Minister Nhlanhla Nene projected 2 percent economic growth for 2015 during his Budget speech – down from the 2.5 percent he had indicated in his medium-term budget statement in October last year. Nene said he expected the economy to grow to 3 percent by 2017.
Since Sunday, Eskom has been forced to shed up to 2 000 megawatts of electricity from the grid. In a statement yesterday, Eskom said the demand had surpassed its ability to provide electricity.
“The electricity supply system remains very vulnerable due to a shortage of generation capacity as several units are currently out of service due to planned and unplanned outages,” Eskom said.
The World Bank’s lead economist for South Africa Catriona Purfield said while the country had sound fiscal policies and a progressive tax system that had lifted 3.6 million South Africans out of poverty, the electricity constraints had hampered production and exports.
“You need to complement fiscal policy with higher, more inclusive growth that essentially generates jobs especially at the lower end of the distribution,” said Purfield.
The bank said sub-Saharan Africa’s growth would slow down from 4.5 percent to 4 percent this year.
It said although social grants and the delivery of free services to the poor had helped to cushion the poorest of the poor from poverty, South Africa remained one of the most unequal societies in the world.
The bank blamed sub-Saharan Africa’s downward growth trend to the fall in the prices of oil and other commodities
“Despite strong headwinds and new challenges, sub-Saharan Africa is still experiencing growth,” World Bank vice-president for Africa Makhtar Diop said.
“And with the challenges come opportunities.
“The end of the commodity super-cycle has provided a window of opportunities to push ahead with the next wave of structural reforms and make Africa’s growth more efficient at reducing poverty.”
The bank said although Nigeria’s economy would suffer this year as a result of recent violence by extremists such as Boko Haram, it would rebound in 2016 and beyond. Nigeria is the continent’s biggest economy.
Ferreira said even though debt in sub-Saharan Africa remained manageable, debt-to-gross domestic product ratios for countries with increased bond markets had picked up in recent years and uncertainty about future global monetary conditions were reasons for caution.
“It is in these challenging times that the region can and must show that it has come of age, and can sustain economic and social progress on its own strength,” said Ferreira.
“For starters, recent gains for the poorest Africans must be protected in those countries where fiscal and exchange rate adjustments are needed.”
The bank said the fiscal policy stance in the region was expected to remain tight in most net oil-exporting countries for the rest of the year.
It said while capital expenditure was expected to bear the brunt of expenditure measurers, recurrent expenditure, including fuel subsidies, would also be reduced.
It said despite these adjustments, fiscal deficits would remain high.
“Large fiscal deficits and inefficient government spending remain sources of vulnerability for many countries in the region,” the bank’s Punam Chuhan-Pole said.