Frequent energy supply shortages and delays in the mitigation of these challenges were likely to change how South Africa was perceived as an investment destination, and would deter potential capital inflows into the country’s steel and manufacturing sectors, Steel and Engineering Industries Federation of Southern Africa (Seifsa) chief economist Henk Langenhoven warned on Thursday.

“On average, energy costs in the metals and engineering sector account for about 8% of intermediary input costs. It stands to reason, therefore, that without reliable energy supply, the sector cannot exist or expand,” he noted during an address at the Powering African Industry conference, in Johannesburg.

He added that it was “unfortunate” that the sector could not operate at full capacity as a result of, besides other things, energy constraints.

“Actual or realised economic growth in the South African economy has fallen substantially below its potential. While energy provision should support our growth
ambitions, there appears to be a real danger of the two gradually drifting apart,” he cautioned.

Langenhoven further asserted that the country was now “seriously in danger” of falling below a 2.5% economic growth average in the next ten years, owing largely to the fact that South Africa missed the last global economic supercycle, underestimating the economy’s accelerated energy demand over this period.

“Regrettably, electricity generation has become a significant physical constraint that hampers the economy’s ability to grow at a faster rate. It can be argued that this situation runs counter to the government’s stated intention to stimulate local manufacturing and value addition,” he noted.

“In fact, manufacturing’s share of the economy has been steadily declining over the last three decades. Reliable energy supply is absolutely vital to turn the situation around.”

According to the South African Reserve Bank, the sector was 29% larger today than ten years ago, 66% larger than 20 years ago and 71% larger than 30 years ago.

However, its share of the economy declined from 20% in 1983, 19% in 1993, to 16% in 2013. 

“This does not bode well for our economy. Increasingly, we have become a country that imports equipment and components that used to be manufactured here at home, in the process leaving many people unemployed,” he said.

Without a sufficient and secure supply of energy, it would not be possible for South Africa to be globally competitive, he warned.