Another Perfect Storm For South Africa: Load-Shedding And Strikes
The South African Reserve Bank's bullish Q1 Bulletin seems written in a different era. Q2 consumer confidence plunged to -25 in Q2, while the latest combination of Stage 6 load-shedding and strikes raises downside risks to our 2022 growth forecast of 1.6% and our year-end rand forecast of USD/ZAr 14.5.
With a political crisis in the making, as South African President Cyril Ramaphosa struggles to stay in power, the last thing South Africa needed was an economic crisis. Yet Stage 6 load-shedding, which means that South Africans face at least six hours of darkness per day, is just that. The country has only reached this stage once before, despite a long history of power cuts. While part of the problem is the loss of 10 generating units by Eskom, two of which have just been returned to service, the main issue is that strikes, which are as much of a perennial obstacle to South African economic growth as a weak infrastructure but had recently been scarce, have been added on to the pre-existing Eskom crisis. Indeed, on 22 June, Eskom declared a dispute after wage negotiations deadlocked following the National Union of Metalworkers' request for a 12% wage hike. The national electricity regulator only allows up to 5.5% increase, which means Eskom would have to fund any increase beyond that from savings. At least 50% of employees did not show up. While employees have now returned to work because negotiations will resume on 1 July with a new offer from Eskom, this is clearly not the last of the strikes. Furthermore, the damage of stage 6 load shedding for small and medium businesses with limited access to emergency generators will be reflected in output, even if eventually the stage of load-shedding comes down and Eskom reaches agreement with the unions.