South African Economy Stutters Under Increased Power Cuts

Increases in rotational power cuts in South Africa are seeing a deep economic impact, as the already struggling economy deals with hours without electricity daily. 

South African businesses are struggling to cope as another wave of power cuts have hit the country, the worst since ‘loadshedding’ or rotating power cuts were introduced in 2007. With some areas sustaining six-hour long outages for several days in the last week, the Rand hit a weekly low against the US dollar, with local business organizations sounding the alarm at the negative economic impact of the cuts. 

“[this] is a serious blow to an economy that is already struggling with low growth and a lack of decisive action,” said small business advocacy group Business Unity South Africa (BUSA) in a statement this week. 

The increase in power cuts was heralded by an unprotected wage strike by workers at the state-owned power utility Eskom, which has reportedly caused a lack of staffing and obstruction of maintenance and materials to power generating units. The strike, combined with failures to conduct scheduled maintenance operations resulted in the worst escalation of the power cuts since 2019.  

The country is still recovering from the devastating economic impacts of heavy flooding in the KwaZulu-Natal province earlier this year, and civil unrest in July of 2021. The recent increase in loadshedding contributed to the Johannesburg Stock Exchange (JSE) closing 2% weaker on Thursday.  

 
Business management consultancy Nova Economics estimates the increased power cuts to cost the South African economy almost $750 million over the last week, putting the country at an increased risk of a downgrade from ratings agencies. 

While efforts are underway to resolve the wage dispute and source increased generation capacity from Independent Power Providers (IPPs), the rewards of these efforts are unlikely to be seen in the short-term.  

“Realistically, the energy constraint may only start to ease from late 2024/25,” said economists from the Bureau of Economic Research (BER) in a research note this week. Despite the best efforts of many, the weeks ahead look dark for the South African economy.