Lights out on 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.


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.


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.


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.


Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/7339213.stm

Published: 2008/05/19 23:00:45 GMT

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