PwC has long held the view that load shedding’s toll on the economy is harsher than is widely presumed, and this makes sense. An industrialised economy needs a reliable supply of power. Without it, things fall apart. 

“Load shedding on 208 days reduced real GDP growth by up to five percentage points in 2022,” PwC said in its latest South African Economic Outlook report. “… economic growth could again have been close to 7% last year were it not for load shedding.” 

Or “potential” economic growth could have been close to 7%. 

“We previously estimated that South Africa lost 2.9 percentage points of real GDP growth in 2021 due to the adverse effect of load shedding, based on an estimated 2,521GWh of power outages. 

Source: Pwc

“We estimated that the cost of load shedding was R50/kWh — this is roughly half of the modelled total effect of the cost of unserved energy. Given that the economy grew by 4.9% that year, our estimate suggests the country’s potential economic growth was at least 7% in 2021.

“This includes the base effects from the deep 2020 recession where the economy contracted by 6.4%,” the report says. 

Stifled by a failing state

Potential growth of 7% may seem like a rapid pace for an economy that is literally strewn with so many potholes, but that is the point: the economy has a lot going for it, but it’s constrained by a failing state.

One way to look at it — and this is not a point explicitly made by PwC — is that load shedding is an indicator of an economy that is trying to grow, but simply can’t at the rate it should because of the power crisis (as well as other features of state failure). 

Source: Pwc

Eskom held up reasonably well during the Great Lockdown of 2020, when the economy was melting down and all but essential businesses were closed. But it has been unable to meet the spurt in demand that has coincided with the subsequent rebound.

PwC also notes that measuring the impact of load shedding is a moving target and involves factors that are also positive. 

Solar panel boom benefit

“Behavioural change has seen the South African public adapt to and mitigate the impact of load shedding. For example, in 2022, the country imported more than R5bn worth of solar panels — up from around R4bn in the preceding year.

“We estimate that these panels will provide an additional 2,000 MW of generating capacity in 2023,” the report says.

“Put differently, based on varying usage patterns, these off-grid solar panels could be saving the rest of the country from an additional stage of load shedding at any given time.

“Furthermore, load shedding has increasingly been implemented outside normal business hours and on weekends, thereby reducing the impact of power cuts on the production side of the economy. As such, we are of the view that the R50/kWh estimate applied previously is probably too high in the current circumstances,” it says.

So the impact may be less in future — but still extremely high. 

Other estimates, by contrast, seem to have underestimated the toll extracted by rolling blackouts and are now catching up. 

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The South African Reserve Bank, for example, said last week that load shedding would deduct as much as two percentage points off economic growth in 2023, compared to its previous estimate of 0.6 percentage points.

PwC admits that its model is not painting the whole picture. 

“… our calculations do not capture the economic pain experienced by, for example, small businesses, non-governmental organisations and the majority of households who cannot afford off-grid alternatives. 

“The reduced impact of power cuts on GDP is being driven by the adaptability of large companies and wealthy households.”

The bottom line is that its impact is massive; getting an accurate estimate of it is a work in progress — and its overall effect is only being diluted by a scramble for renewable energy by companies and households that can absorb the costs of alternative, cleaner power sources to replace or supplement Eskom.

So if you know someone who has made the switch to solar panels, buy them a Bells. They are doing their bit. DM/BM