Its Lights Out for South Africa boom
Pastor Dale Morgan
Its Lights Out for South Africa boom*
By Alison Swersky
Business reporter, BBC News
Log onto the website of Johannesburg's mammoth shopping complex, Sandton
City, and against a bright yellow background is an illustration of a
light bulb.
"Enjoy the light comfort of Sandton City," it reads.
A vague advertising slogan for the uninitiated overseas visitor. But for
switched-on South Africans, it's a key selling point.
It is intended to suggest that the complex has its own independent power
supply - a real asset at a time when power cuts have suddenly replaced
hijacking as the dinner-table conversation centrepiece among the middle
classes.
People swap tales of lifts coming to a halt between floors; four-way
intersections becoming muddled car parks as the traffic lights flicker
and die; and queues of frustrated customers outside hastily-closed banks.
The joke goes, what did South Africa have before it had candles?
Electricity.
But there are few laughs for those who have never experienced the
underdeveloped side of South Africa, cosseted away in leafy gated
communities - with electronic gates which, these days, are very much
dependent on the vagaries of state energy provider Eskom as to whether
they will open.
Quite simply, South Africa, for years a beacon of hope illuminating the
continent, is facing an energy crisis which threatens to overshadow the
economic achievements of the post-apartheid government.
Lights out
The new spending power of the rising black middle class has combined
with soaring commodity prices, foreign investment and a massive
infrastructure boom to drive economic growth at an estimated 5% over the
past few years.
The big damage was done at the beginning of the year when businesses
were totally unprepared
Dennis Dykes, chief economist, Nedbank
In addition, massive government subsidies have gone toward connecting
the poor masses to the national grid, so that two-thirds of South
Africa's 42 million people now have access to electricity - almost
double 1994 levels.
But in January, the sheer disconnect between demand and supply suddenly
became clear with some of the worst nationwide blackouts in its history,
which forced South Africa's gold and platinum mines - some of the
largest metal producers in the world and the country's crown jewels - to
shut for five days.
The result: uproar.
The government stood accused of persistently neglecting South Africa's
crumbling power infrastructure, despite repeated warnings of the dangers.
Eskom has also come under fire for not dealing with a chronic skills
shortage. Some critics blame affirmative action policies that, they say,
lead to the promotion of black employees over their more experienced
white counterparts.
There have been allegations of greed as well. Eskom executives pocketed
fat salaries and bonuses in the run-up to the crisis, while failing to
invest in maintenance and adequate coal supplies, say angry consumers.
Eskom maintains wet coal was to blame, due to the heavy summer rains.
State of emergency
The government called a state of emergency. Since April, Eskom, which
produces 95% of South Africa's electricity, has embarked on a programme
of what it euphemistically calls pre-emptive load shedding.
Essentially, this is a nationwide rota of scheduled power cuts that
affect different neighbourhoods at different times - though unplanned
power cuts still occur when the grid becomes shaky and Eskom needs to
dump voltage quickly.
Traffic from the Nelson Mandela Bridge, which links Johannesburg's
northern suburbs with its city centre - taken by a photographer at The
Star newspaper
Power cuts knock the traffic lights out causing chaos at rush hour
From 5 May, however, these are to be largely suspended, as Eskom sees
encouraging evidence that its 10% savings target is on track to be achieved.
But celebrations are muted as the government's perceived failure to
cater adequately for future growth has created a cloud of uncertainty
for companies, investors and households, who are braced for years of
problems while Eskom rushes to make plans.
There are also serious worries that the power crisis may black out the
World Cup, which South Africa hosts in 2010, despite assurances of a
successful event.
Disruption
The power cuts have caused havoc for every industry, from manufacturing
to musicals - even frightening tourists by bringing Cape Town's famous
cable car to a grinding mid-air halt.
Emigration lawyers and companies selling diesel-charged generators seem
to be the only beneficiaries.
Generators have been a saviour for many large franchises and
international operations.
But the cost is high - one restaurant forked out 250,000 rand ($32,983;
£16,626) for one - making them unaffordable for most small operations.
For independent retailers, a power disruption means abrupt gloom, dead
credit card readers, disengaged security tags and no CCTV, heightening
the risk of theft.
The Star newspaper captures shoppers at Jabulani Mall in Soweto, south
of Johannesburg during a blackout
Most small shops have to close during a blackout because of security risks
For food shops, such as Sandton City's gourmet delicatessen, the Bread
Basket, it means three ovens full of still-born quiches, lasagnes, cakes
and bread rolls.
The Bread Basket's owner, Panos Avraamides, estimates that each power
cut costs his business between 5,000 rand and 15,000 rand, depending on
whether it is a planned outage or unscheduled.
Butchers arguably have it even worse, as they watch their prime cuts
lose their cool in warming refrigerator cases. Restaurants are in a
similar position.
Dim economic outlook?
Many economists have shaved about half a per cent off their 2008
economic forecasts as a result of the power problems, with the most
pessimistic predicting growth of below 3% for 2008.
This is much lower than the 4% predicted by South Africa's well-regarded
Finance Minister Trevor Manuel in his February Budget.
"The big damage was done at the beginning of the year when businesses
were totally unprepared," said Dennis Dykes, chief economist at Nedbank,
which is owned by financial giant Old Mutual.
Erwin Roode, the owner of Cape Town-based property consultants Rose &
Associates, adds that a virtual halt to new private sector construction
will not help.
"Eskom has said that in future, electricity certificates would not be
granted for any development that requires electricity demand of more
than 100 kilowatt amps - that's the equivalent of two hot water geysers
in an expensive house," he said.
Miner using a drill in a South African mine owned by AngloGold Ashanti
Job cuts at mines are feared amid electricity restrictions
The shutdown of the mines and subsequent crimp in production due to
electricity restrictions is also likely to cause a "punchy dent" in GDP
in 2008, says Mr Dykes.
However, other analysts consider that with international platinum and
gold prices being driven ever higher by the energy crisis in South
Africa, mining groups could still achieve healthy profits.
As a result, the main stock index, the JSE All Share, which is dominated
by mining firms, has notched up a series of all-time highs recently,
reaching 33,164.3 on 19 May, even as investors sell off retail,
industrial and banking stocks.
Consumer woes
South African consumers are looking at a 100% increase in their
electricity bills by 2009 if Eskom gets approval from South Africa's
electricity regulator, Nersa. But it is widely expected that those that
can afford it will be hit much harder, in order to support those who cannot.
Households are already burdened with the global problems of expensive
fuel and food costs that boosted inflation to 10% in March - the highest
in five years. Successive rises in interest rates took the overnight
borrowing rate to 11.5% in April.
But with South Africa boasting some of the cheapest tariffs in the world
until now, many economists consider that the hike in electricity prices
should have come a long time ago.
The economy may be on pause, but one of the main concerns for shoppers
at Sandton City, located in the richest square mile in Africa, is that
they don't get stuck in a lift when Eskom turns off the lights.