Power woes compromise export competitiveness

Exporters will be forced to pass on the cost of spiralling electricity prices to customers – which places businesses at a distinct disadvantage in a fiercely competitive global market. Economists have warned that the government needs to urgently prioritise resolving Eskom’s woes and make it far easier for private energy producers to sell electricity to drive economic growth. PricewaterhouseCoopers economist Dr Christie Viljoen said recovering from loadshedding was a relatively simple process for households, with appliances and lights turned on once power was restored." But large industrial processes take hours if not days to return to full operational capacity due to the complexity of these systems. As a result, loadshedding of a few hours can result in days of productive downtime.” Viljoen said exporters had also been hit by electricity price hikes. Eskom's tariffs will increase by more than general inflation – 9.4% in 2019, 8.1% in 2020 and 5.2% in 2021. According to Statistics South Africa CPI was 4.4% in April, down from 4.5% in March. "Like every business in South Africa, practically all

exporters are impacted by electricity price increases. And for those focused on manufactured goods, the share of their costs going to energy expenses is so much higher,” Viljoen said. “The announcement last week by Energy Minister Jeff Radebe that businesses will be allowed to generate their own electricity and feed excess power into the grid is great news for companies stuck with this challenge,” Viljoen said. However, he said Eskom’s troubles needed to be addressed urgently as they impacted exporters’ appetite for investment in their businesses.

 “Not only do Eskom’s woes result in investors questioning the viability of investment in the country due to uncertainties over the availability of electricity, it makes them question the nature of management at all state-owned enterprises, raises questions about corruption in government, and emphasises the challenges to South Africa of being competitive exporters in a global context,” Viljoen said. Efficient Group economist Dawie Roodt welcomed the decision to allow private power producers to generate electricity and sell it back into the grid but cautioned

that the government needed to relax regulations around registration. On the subject of costs he commented: “The most obvious solution for exporters and other businesses is to try to get customers to pay for electricity hikes by passing them on but unfortunately we live in such a competitive world that it is very difficult to pass on increases. If an exporter is paying their expenses in rands it is good but our inflation here is higher than countries where we export so that erodes the benefits and the bottom line,” Roodt said.