South Africa’s industrial sector is grappling with unprecedented challenges as the nation battles a staggering increase in load shedding. According to Absa’s South Africa Q3 2023 Quarterly Perspectives, a staggering 15,300 gigawatt-hours (GWh) were lost to load shedding in the first half of 2023. This represents a 30% worsening compared to the entirety of 2022 and surpasses the total load shedding experienced in the 15-year period from 2007 to 2021. The grim reality of this energy crisis has been revealed through the lens of economic data, with profound implications for the industrial landscape.

The Economic Toll

Despite Absa revising its 2023 GDP growth outlook upwards to 0.7%, the local economy has faced a series of adverse domestic supply shocks throughout the year. These shocks include disruptions to rail and port operations, weather events, and persistent electricity shortages, all of which have contributed to highly volatile economic activity levels. The escalation in the intensity and frequency of load shedding, particularly in the latter half of the previous year, stands out as the primary risk to economic stability.

Resilience Amidst Challenges

Remarkably, South Africa’s economy has demonstrated resilience in the face of these challenges. The GDP expanded by 0.4% quarter-on-quarter in Q1 2023, defying expectations of zero growth. This resilience appears to have carried into Q2 2023, with Absa forecasting a further 0.3% quarter-on-quarter GDP growth. However, the apparent economic stability is overshadowed by the persistent uncertainty and subdued growth outlook attributed to the ongoing electricity crisis.

Eskom’s Progress and Lingering Challenges

Eskom, South Africa’s state-owned power utility, has made some progress in addressing plant breakdowns, leading to the lowest monthly load shedding in June 2023 since August of the previous year. However, Eskom’s generation remains highly vulnerable and prone to breakdowns. The utility’s ongoing struggle to bring back generating units from long-term maintenance suggests that load shedding may persist in the near term.

Beyond Energy: Infrastructure Woes

While energy challenges dominate the narrative, Absa points out that South Africa’s growth impediments extend beyond electricity constraints. Mounting issues with rail networks and ports are weighing on the competitiveness and volumes of various exporting sectors, particularly bulk commodity exporters. Localized water unavailability, especially in Gauteng, and deteriorating municipal service delivery add to the multifaceted challenges faced by industries.

Business Confidence and Investment

The ongoing challenges are eroding private-sector business confidence, as evidenced by the BER Business Confidence Index falling for the fifth consecutive quarter to just 27 points in Q2 2023. Without a sustained improvement in business confidence, a broader recovery in private sector investment spending outside of energy projects is expected to be slow. Absa predicts that private sector investment spending may only return to pre-pandemic levels by Q2 2025 given the persistently low business confidence.

South Africa’s industrial sector is at a critical juncture, navigating the treacherous waters of load shedding and broader infrastructure challenges. While the economy has shown resilience, the specter of ongoing electricity shortages looms large, necessitating urgent and comprehensive interventions to safeguard the stability and growth of the nation’s industrial backbone.