A red flag has been raised in South Africa, more on issues surrounding our economy as a country. Reports say that South Africa’s fragile economy could face a second recession due to a new wave of nationwide power cuts.
Goldman Sachs has been reported to be at unease regarding South Africa’s economy. The blame is shifted to our state-owned power utility, Eskom. This was following a series of blackouts on Monday due to further losses of generating capacity at its plants. It was said that the power cuts were implemented to prevent a collapse of the electricity grid.
Days after the statistics office announced that gross domestic product (GDP) shrank an annualised 0.6% in the three months through September, that’s when the latest round of so-called load shedding started. “As it is, the fourth quarter was going to be flat but now there’s a growing chance that it could be negative,” said Elize Kruger, a senior economist at NKC African Economics.
South African could be saved from a dipping economy this festive season. The one thing that is said could prevent GDP from dropping as it did in the first quarter is the fact that most businesses are taking a break as the holidays approach.
Dawie Roodt, the chief economist at the Efficient Group stated that December is the “least damaging time to have load shedding” because the economy is geared more toward the services industry, with construction work and factory activity set to slow for the holiday break. Among the heaviest users of electricity are the Mining companies who are probably bearing the full brunt of load shedding.
It was said that the world’s biggest platinum-group metals producers prioritise electricity allocation to underground mines and ensure workers’ safety while reducing power. Jana Marais, spokeswoman for Anglo American Platinum, stated that cutting power to smelters also adds to costs because the plants are designed to run continuously. Companies like Sibanye Gold, the country’s biggest private employer, must reduce its power usage by 20% during load shedding, said spokesman James Wellsted. “It’s concerning and if it continues for a long time it will impact on production and the entire industry, not to mention the economy,” Wellsted said.
South Africa could be at risk of losing its last investment-grade credit rating with Moody’s Investors Service. SA’s weak economic growth could lead to a further deterioration in public finances.