Floods and electricity shortages threaten to reverse South Africa’s economy.


DURBAN, SOUTH AFRICA – APRIL 16, 2022: Huge wreckage of Durban harbor after heavy rains, landslides, rain and wind in Durban. The port serves as a stronghold for the city’s economy.

RAJESH JANTILAL/AFP via Getty Images

South Africa’s economy gained momentum in the first quarter of this year, but historic flooding and the threat of unprecedented blackouts in key regions are putting the brakes on recovery.

The port city of Durban and the wider state of KwaZulu-Natal in eastern South Africa suffered the worst flash floods in decades in April, killing hundreds and killing hundreds of cargo operations in sub-Saharan Africa’s busiest ports. This was stopped.

The Absa/BER manufacturing PMI peaked at 60.0 in March but fell to 50.7 in April, the lowest since the violent riots following the arrest of former President Jacob Zuma in July last year.

South Africa’s second most populous state, KwaZulu-Natal, is also home to the worst riots since the end of apartheid.

The S&P Global Composite PMI also fell to a four-month low, and Capital Economics last week highlighted a high frequency of data suggesting that mobility recovery has stalled.

According to JPMorgan economists Stembiso Nkalanga and Sonja Keller, figures for the first quarter are mixed, but seasonally adjusted, quarterly GDP growth is 3.5%.

However, the dismal PMI for April poses downside risks to JP Morgan’s Q2 GDP growth forecast of 1.5%. With the global backdrop of the Ukraine war, soaring inflation and supply difficulties from China, South Africa is also coping with the domestic shocks of flooding and electricity distribution.

Most of the decline in the manufacturing PMI was concentrated in port and manufacturing activity in KwaZulu-Natal, which fell to 39.6 in April from 60.5 in March.

Load shedding, the intentional shedding of power from parts of the power system to prevent failures in the event of overload, expanded significantly in April, and this year’s power savings are expected to exceed a significant amount already in 2021.

JOHANNESBURG, SOUTH AFRICA: Soweto residents picket up near the entrance of the state-owned Escom office in Midland Megawatt Park near Johannesburg on June 9, 2021 due to ongoing power outages. Eskom announced on June 9, 2021 that it would implement a nationwide blackout due to increased consumption due to cold weather and the failure of both power plants.

Photo by PHILL MAGAKOE/AFP via Getty Images

Although flooding has been significantly reduced, power outages pose a consistent problem for South Africa’s economy.

Capital Economics’ Emerging Markets Senior Economist Jason Tuvey said the state utility Eskom’s power availability coefficient (measured at the maximum amount of power it could produce) has been at an all-time low in recent weeks. said.

Public Enterprises Minister Pravin Gordhan has warned that Eskom could rely on eight-level load shedding involving power outages for up to 12 hours a day to prevent a complete collapse of the country’s power grid.

“Some shocks, such as floods, are clearly outside the government’s control, but even without these shocks, recovery will continue to be delayed unless issues such as those affecting the electricity sector are addressed,” Tuvey said.

The International Monetary Fund (IMF) expects South Africa’s real GDP growth in 2022 to be 1.9%, adjusted for inflation.

Eskom announced Thursday that it will implement two-stage load shedding between 5 and 10 pm.

“With the onset of winter, demand has increased, which will lead to capacity constraints during this period, especially during evening and morning peak hours. Unfortunately, load shedding is usually required to be implemented during evening peak hours,” he said.

Eskom reiterated that load shedding is “a last resort to protect the country’s power grid” and urged South Africa to continue to use “less” electricity, especially in the early morning and evening.

Q2 shrinkage potential

In response to the flood, the government declared a national disaster and started to recover the damage.

In their latest research note, JP Morgan’s Nkalanga and Keller said, “Considering road infrastructure damage and port delays, we expect the April decline to reverse more slowly than the sharp rebound seen since the July riots. do,” he said. .

“Meanwhile, significant declines in energy availability this year will increase the risk of long-term outages, and the consumer resilience that drove GDP growth in 1Q will wilt this quarter due to pressures on purchasing power.”

Against this background and the sensitivity of the South African economy to changes in external market conditions, including global supply chain issues, China’s potential slowdown in growth, and the war in Ukraine, and against this background, JPMorgan, “GDP growth slows or increases risk of contraction” 4 min of 1.”

.

Leave a Comment