Seifsa chief economist Henk Langenhoven
Photo by: Duane Daws
Yielding to State-owned power utility Eskom’s “massive” tariff hike requests will cripple a critical engine of the South African economy – the metals and engineering sector, the Steel and Engineering Industries Federation of Southern Africa (Seifsa) has warned.
The sector, which was already weighed down by “fierce” international import competition, labour challenges and increasing production costs and power outages, would not be able to absorb a further 25.3% electricity price increase for the financial year to March 2016, as Eskom was requesting.
Seifsa has appealed to the National Energy Regulator of South Africa (Nersa) to decline Eskom’s request on the basis that it would have a devastating impact on the already struggling economy, said the federation’s chief economist Henk Langenhoven.
“The possible overall impact of the envisaged electricity price increase on inflation had been captured by the South African Reserve Bank. Its assumption was that any increase would only materialise in September, and that increases will return to about 13% in 2016/17 and 2017/18.
“In this scenario, headline inflation will be 0.1 to 0.4 percentage points higher at an average of 5% and 6.5% for 2015 and 2016 respectively. Most of the impact would be felt through the direct effects of the electricity price, which has a weight of 4.13% in the consumer price index basket,” he added.
Langenhoven estimated the indirect effects at 0.1 percentage points in 2016.
Further, he pointed to a continued erosion of profit margins and an uncontrollable rise in input costs.
“The stability of electricity supply and its costs were almost as crucial as its availability,” he stated.