South Africa Hit By Record Blackouts, Raising Recession Risk

10 December 2019 – South Africa’s state power company intensified rolling blackouts to a record, signalling a deepening crisis at the debt-ridden utility and raising the risk of a second recession in as many years.

Eskom Holdings SOC Ltd. said on Monday it will move to Stage 6 load-shedding, meaning it will cut 6,000 megawatts from the national grid, after a technical problem at the giant new Medupi Power Station curbed supply. That’s the biggest cut yet.

The utility is curbing power for a fifth straight day as it struggles with breakdowns at plants and heavy rains that have soaked coal used as fuel. The blackouts have a debilitating effect on the economy by curtailing mining and factory output and causing crippling traffic delays.

“It does mean that the economy is heading for a recession,” Iraj Abedian, chief executive officer of Pan-African Investments and Research Services, said by phone from Johannesburg. “There’s no way that hot on the heels of the previous quarter’s negative growth in GDP with this type of humongous and material disruption to the continuity of business that the economy can register positive growth.”

South Africa’s statistics office announced last week that gross domestic product shrank an annualized 0.6% in the three months through September. Power cuts also dented the economy in the first quarter, when it contracted the most in a decade, led by a drop-in manufacturing, mining and agriculture output

Eskom’s announcement marked the end of a torrid day on Twitter for South African President Cyril Ramaphosa. His weekly letter to the nation highlighting how Medupi is a fitting symbol of the importance of state-owned companies was derided on the social-media site.

Municipalities were also caught off guard, with Johannesburg electricity distributor City Power saying it has no load-shedding schedule for Stage 6.

The one thing that could prevent GDP from dipping as deep as it did in the first quarter is the fact that many businesses are winding down as the Christmas holidays approach.

Growth would have to rebound about 0.8% in the fourth quarter to reach the government’s forecast of a 0.5% expansion in the three-month period, said Gina Schoeman, an economist at Citigroup South Africa. The economy is unlikely to grow that much, she said.

Weak economic growth could lead to a further deterioration in public finances and heighten the risk of South Africa losing its last investment-grade credit rating with Moody’s Investors Service. The company cut the outlook of the nation’s Baa3 assessments to negative last month.

Loadshedding at Stage 6 is “no cause for alarm as the system is being effectively controlled,” Eskom said in a statement. “Eskom’s emergency response command centre and technical teams will be working through the night to restore units as soon as possible.”

Mining companies say they are probably bearing the full brunt of load-shedding because they are among the heaviest users of electricity. Sibanye Gold Ltd., the country’s biggest private employer, has to reduce power use by 20% during load-shedding, said spokesman James Wellsted.

“It’s concerning and if it continues for a long time it will impact on production and the entire industry, not to mention the economy,” he said before Stage 6 load-shedding was announced. Source (Bloomberg)