Given the electricity supply challenges facing the country, Intellidex has cut the average gross domestic product (GDP) forecast for South Africa for 2022 to 2026 to 1.8%, compared with the previously expected 1.9%.
The GDP forecast for 2019, 2020 and 2021 all saw downward revisions to 0.3%, 0.6% and 1%, respectively, down from initial forecasts of 0.4%, 1.1% and 1.5%, respectively.
However, despite these GDP forecast cuts, the financial consultancy stresses the downside risks for this year, especially.
In referring to the holiday period over December, Intellidex notes that models “struggled to cope with complex underlying reform timelines, deep and shifting uncertainty and load-shedding of varying stages over extended periods”.
This, the consultancy emphasises, is particularly problematic considering that the average view of the cost of load-shedding is about R750-million per stage, per day, making it difficult to turn the forecast around.
However expensive, this model still provides a framework and backbone to expectations across the country, which is why they are still being used as a basis for forecasts, the consultancy explains.
More importantly, growth forecasting comes down to several key issues, according to Intellidex – whether the pace of reform and clean-up is fast enough to move forwards and boost business confidence.
The current pace is not fast enough, the consultancy says, reiterating that its baseline is that reform and clean-up to continue, but at a slow pace.
The consultancy further questions whether load-shedding during this year “will be broadly similar to last year”, even when the times and stages cannot be confirmed.
Additionally, the consultancy questions whether State-owned power utility Eskom’s war room and requests for information will be able to successfully bring new capacity onto the grid during the year.
With load-shedding likely to continue, albeit for prolonged periods and more volatile, Intellidex says the effects on South Africa’s GDP will only be clarified after the first and fourth quarters of this year, and after the first quarter of next year.
The consultancy, however, advises that it assumes some bound in mid-year growth that offsets the impact in the first and fourth quarters of 2020, making the “overall impact of load-shedding lessened” in its assumptions for the GDP forecast.
Overall, Intellidex has factored in 65 stage days of higher stage load-shedding for this year.
New energy capacity is likely to be procured “exceptionally slowly”, given “deliberate blockages”, combined with the country’s lack of capacity and technology biases.
“We think investors underestimate the long lead times of approvals and planning required before construction can even start and, as such, [the second half of] 2021 is likely to be when any serious amount of power could realistically come on at the earliest,” Intellidex states.
However, given a 5 GW gap and that the coal fleet’s energy availability factor (EAF) is rapidly declining, Intellidex forecasts at least another three years of challenges.
No wider scope for stimulus from fiscal, monetary or other public sector investments is available, Intellidex says, highlighting that no rate cuts would have a significant impact, even though this would mean a scope of new investment plans as being limited to make any sort of order of magnitude difference to the GDP forecast.
“…the narrative is the same – negative per capita income growth and an economy that simply is failing to accumulate investment, total factor productivity growth or absorb labour,” the consultancy laments, adding that equally deep inequality keeps an “elite” economy ticking over at the margin together with positive real wage and positive real credit growth rates and a weak rand.
Overall, Intellidex forecast only marginally stronger growth in the second and third quarters of the year, when the load-shedding risk is lower.