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Corporate and Investment Bank
Standard Bank Group
12 June 2019

Steady power crucial to growth

  • The ongoing uncertainty over consistently reliable power supply is the single biggest risk to SA’s economic growth. We are however confident that the new administration under President Ramaphosa will soon be implementing a viable turnaround plan for Eskom.
  • Electricity production and manufacturing production are correlated. The 2.0% q/q manufacturing production contraction in Q1 due to rolling blackouts reversed in April, to 2.8% m/m. Domestic demand is poor though, unable to prop up SA manufacturing production; still, reliable power supply would support production activity, ensuring that this sector can realise earnings from manufacturing exports. A survey by the Manufacturing Circle SA confirms that near 90% of manufacturers rely on electricity as main energy source.
  • To demonstrate, manufacturing output in April shot up 4.6% y/y (2.8% m/m), from 1.3% y/y (0.9% m/m) in March, due to both base effects as well as sufficient power supply in that month, showing how crucial steady electricity is to manufacturing output.
  • And, electricity production increased by 1.5% y/y in April (after five months of contraction), and electricity available for distribution increased by 1.3% y/y in April (after two months of contraction); steady power supply is undeniably crucial for SA’s economic growth.

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