Load shedding impacts mining, manufacturing and agriculture industry

The impact of load shedding on the rand is becoming more evident as the higher stages continue to keep South Africans literally in the dark, with the currency slipping to over $18.

Last week started with stage 6 load shedding, which was only lowered to stage 4 by the weekend, with Eskom saying yesterday that stage 3 – ramping up to stage 4 during evening peaks – will be implemented until tomorrow.

According to the data for Eskom’s energy availability factor (EAF), which refers to the percentage of installed capacity available to the grid at a point in time, up to the week ending 16 September, the week before last was the worst on record for the EAF.

The Bureau for Economic Research (BER) at Stellenbosch University says this is likely to have worsened last week.

“While Statistics SA will only release the high-frequency activity data for September in November, the extent of the current load shedding would not only have weighed directly on electricity generation, which forms part of the GDP calculation, but also on sectors such as mining, manufacturing and agriculture, that are heavy users of electricity.”

All this detracts from the expected recovery in quarterly gross domestic product (GDP) during the third quarter after the 0.7% contraction in the second quarter.

Referring to the SA Reserve Bank’s (Sarb) interest rate decision, BER says these short-term GDP growth concerns were outweighed by upside risks to the inflation outlook.

“The sustained weaker rand is one of the more important risks. Despite the 75 basis points policy rate hike and the fact that two monetary policy committee members preferred a 100 basis points move, the local currency lost further ground last week.”

However, BER says while sustained stage 5 load shedding may provide part of the explanation, this is rather a strong dollar story as the US central bank (Fed) signalled last week that further, aggressive, policy rate hikes are likely in the rest of the year.

“The fast-rising global shorthand long-term interest rates come at a time when the outlook for our current account balance is worsening.

“There is little to suggest the rand’s fortunes against the dollar will improve anytime soon.” BER points out that unless SA, for example, sees a sharp further decline in the oil price, sustained rand weakness sets citizens up for another Sarb policy rate hike of at least 50 basis points at the November interest rate meeting, taking the repo rate to 6.75%, close to the Sarb’s current estimate of where the rate should settle over time to achieve their 4.5% inflation target.

Therefore, BER believes SA is not far from reaching a peak in the policy rate. Perhaps the only bit of positive news on the domestic economic front was the belated contract signing of three out of 25 preferred bidders projects that are part of bid window 5 of the Independent Power Producer Programme (IPPP), BER says.

“Once completed in late 2024, the projects will add 420 megawatts of renewable energy to the grid. The total cost of these projects is estimated at R11 billion.

It remains unclear how many of the other projects will reach the final contract-signing stage. “The head of the IPP office said they are aiming to sign the contracts with the remaining 22 bidders by the end of October.

“This will be a major step towards assisting to alleviate our power woes in a few years. It will also mean we can be more comfortable to assume increased private sector fixed investment, driven by green energy investments.”

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– inao@citizen.co.za