Question

Load shedding effects on the people’s lives? In South Africa

Answer 1

Answer:

Eskom chief operations officer, Jan Oberholzer, publicly stated that the primary reason for load shedding was due to a lack of maintenance and neglect over the preceding twelve years resulting in an unpredictable and unreliable system.

Explanation:

The year has already gotten off to an eventful start, with the South African Reserve Bank (SARB) unexpectedly cutting the repo rate by 25 basis points to 6.25%, while lowering 2020 economic growth projections down from 1.4% to 1.2%.

Of the opinion that this revised growth estimate may still be over-optimistic, Jeff Schultz, senior economist at global bank BNP Paribas South Africa, predicts another tumultuous year for the local economy.

Speaking at a BNP Paribas quarterly economic update event at Melrose Arch in Johannesburg on Monday (10 January), Schultz cited the continued electricity outages as the main reason behind this seemingly pessimistic view.

“Assuming that the first half of 2020 could see a minimum of 15-20 days of Stage 2 load-shedding, we estimate this could shave a further 0.3-0.4pp off growth, which is why we have lowered our already sub-consensus GDP growth forecast to just 0.5% from 0.8%.”

Schultz put the likelihood of a recession at between 30-40%, dependent on the state of power supply management going forward.

While noting that the recent rate cut came earlier than anticipated, Schultz said that another cut in the second half of the year cannot be ruled out.

“We think that there is still room for the SARB to make another 25bp rate cut later on this year, although timing will depend on February’s budget and the Moody’s rating decision.”

On the topic of the upcoming budget, Schultz hopes to see fiscal restraint through lower wage adjustments but also predicts a continued rise in debt ratios on low nominal GDP.

“With the primary balance adjustments likely to fall short of expectations and a weaker nominal GDP growth outlook, we think a decision by Moody to downgrade South Africa’s last remaining investment-grade credit rating is possible.

“It is our view that this downgrade of the sovereign rating will be felt more in economic confidence than in local asset prices,” he added, noting that the downgrade is already relatively well discounted by markets.

“This is not to say that there would not be forced passive selling of SAGBs owing to South Africa’s likely exit from the FTSE World Government Bond Index. However, we believe the net effect is likely to be smaller than the $5-8 billion in potential outflows that the SARB has warned about.”

With all eyes sure to be on government’s plans for South Africa’s ailing state-owned enterprises – especially the restructuring of Eskom and SAA – Schultz believes economic reform could be highly beneficial.

“We expect to see some hope on medium-term growth prospects through progress on institutional reforms and corruption prosecutions.

“However, several events in mid-2020 might contribute to an increase in political noise which might impact the speed of the process,” he said.