South Africa’s economy contracted more than expected at the end of 2022 after being hit by rolling blackouts imposed by Eskom’s power monopoly.
Statistics released on Tuesday showed fourth-quarter activity in Africa’s most industrialized country fell 1.3% from the past three months, when failures at the Eskom coal-fired power plant forced power outages on a near-daily basis.
Power outages that have intensified since then led President Cyril Ramaphosa to declare a state of disaster and appointed Kgosientosho Ramokgopa as Minister of Electricity on Monday to deal with the crisis.
The African National Congress, which governs Ramaphosa, is gearing up for next year’s elections, and public anger over the economic impact of the blackout is putting its longtime majority at risk.
The latest contraction means South Africa’s gross domestic product has remained roughly flat since the end of 2019, despite the country’s population growing by 3.5%.
The quarterly decline was the largest since deadly 2021 riots that destroyed critical infrastructure in two of the country’s most economically important states.
Economic growth in the fourth quarter is just under 1% compared to the same period in 2021, well below most economists’ expectations.
Ramaphosa has promised Ramok Gopa, who previously served as an infrastructure and investment adviser, greater powers to coordinate the response to the power crisis.
But industry group Business Leadership South Africa said, “This attempt to hold the new electricity minister in overall responsibility could lead to turf wars that are not beneficial to smooth progress.” .
The South African Reserve Bank estimates that rolling blackouts will cost the economy about $50 million per day due to closed factories, closed shops and dysfunctional infrastructure. As a result, growth is expected to remain at around 0.3% this year.
The power crisis is also putting pressure on public finances after the South African Treasury said last month it would back Eskom’s $14 billion in debt over the next few years to prevent a financial collapse. have been forced to delay announcing targets to stabilize public borrowing.
South Africa’s weak growth is “not likely to improve anytime soon as severe blackouts and fiscal consolidation continue to weigh on the economy,” said Virag Foliz, emerging markets economist at Capital Economics. .
Many South African businesses are forced to stock up on diesel to keep generators running during power outages, often at the expense of other investments and jobs.
Shoprite, owner of South Africa’s largest supermarket, said on Tuesday that it will spend R560 million ($30 million) on diesel for power generation in the second half of 2022, making a profit despite a significant increase in sales. bottom.
“The ongoing costs in terms of economic growth and investment are devastating, and the impact on the daily lives of South Africans is devastating,” said Shoprite CEO Peter Engelbrecht. Most are already facing considerable difficulties.