Stage 6 load shedding – the worst since 2019 – sparked by a wildcat strike at ailing power utility Eskom could stamp out the SA economy's recent tentative green shoots, analysts have warned.
Amid spiralling unemployment, high inflation and rocketing fuel prices, there have been small pockets of good news. Tuesday saw a marginal uptick in formal employment in the first quarter, while sovereign rating agencies have been looking at the country in a slightly more favourable light.
In April, Moody's adjusted its outlook for South Africa from negative to stable, and in May S&P adjusted its outlook from positive to stable. The adjustments were attributed to a renewed commitment to structural reforms and honouring debt commitments.
But on Tuesday, amid labour unrest that had culminated in intimidation that included torching vehicles and petrol bombings of some workers' homes, Eskom announced that already severe Stage 4 load shedding would be escalated to Stage 6 – an almost unprecedented move.
Stage 6 has only been implemented once before, in December 2019 – a move that prompted President Cyril Ramaphosa to return from a trip abroad to address the issue.
As striking workers prevented access to maintenance sites, several units were lost and over 17 600 MW became unavailable due to breakdowns.
Minister of Public Enterprises Pravin Gordhan told reporters during a virtual briefing on Tuesday evening that workers were expected back at work on Wednesday, while the National Union of Mineworkers and the National Union of Metalworkers of South Africa called on membership to return to work and "give talks a chance" ahead of an expected fresh wage offer on Friday.
Gordhan meanwhile said Eskom leadership had engaged the South African Police Service at the highest level about the intimidation of Eskom staff that were trying to work.
But economists believe significant damage has already been done during the strike. Old Mutual Wealth Investment strategist Izak Odendaal said the severity of Stage 6 load shedding would have a proportional effect on its impact.
"If it is just a day or two, the overall economic impact, as well as the impact on sentiment, is limited compared to a scenario where it runs for a week. Similarly, the impact on credit ratings will depend on how long it lasts," said Odendaal.
Odendaal said rating agencies are well aware of the issues in South Africa. While things were currently "very dark", the various reforms that allow more significant private generation over time gives them comfort that this will not be a permanent feature, providing hope for "light at the end of the tunnel".
Economist Thabi Leoka said the introduction of Stage 6 load shedding was a massive setback after a hard-fought recovery from the Covid-19 pandemic, where companies and factories expected to ramp up their activity and employ more people.
"The problem with current levels of load shedding with three stints every two hours, if you have factories with machines with costs of business, you can't run that machine throughout the day, and you can't produce what you are producing because of intermittent electricity supply," said Leoka.
Leoka said the problem seemed to be progressively worsening as it added to the many issues South African households faced, such as high unemployment, rising fuel prices, and a host of troubles.
"The strike and protests are a microcosm of the discontent at rising costs and constrained income. The general sentiment everyone is feeling is quite negative. People strike to make a place ungovernable," Leoka said.
She said there was a risk to South Africa's sovereign credit ratings and those of its entities.
"We do risk a downgrade because if you look at the past, electricity problems do shave off from GDP. GDP will be lower, and if you look at anything measured against GDP, that will also be worse. "Everything matched to that will look bad and there is a lot of risk in terms of rating agencies," she said.
National Employers' Association of South Africa CEO Gerhard Papenfus said most businesses had suffered an indescribable setback due to the Covid-19 lockdown, and the implementation of Stage 6 load shedding at very short notice would cause significant further operational impact. This would include increased costs for employers, which could have a knock-on effect on unemployment and financial hardship.
He also expressed concern over the power utility's long-term sustainability.
"The current unprotected strike is contributing to speeding up the utility's demise. Eskom is both operationally and financially too vulnerable to simultaneously absorb labour's demands and keep the lights on," said Papenfus.
Papenfus further said the cost of living was directly linked to the price of electricity, and daily survival was becoming increasingly difficult for many South African households. He said policymakers needed to redirect resources towards capital-forming initiatives and development projects to improve the country's sovereign risk rating to reignite growth.
Cosatu spokesperson Sizwe Pamla said Stage 6 load shedding was a blow the economy could not afford, as companies would struggle to operate, hindering their ability to pay workers or create jobs.
"It's a blow to workers, their families, the economy, and the country just cannot afford as we emerge from Covid-19, seek to rebuild the economy grappling with a painful recession, and are now paying the price in fuel price hikes and inflation because of the Russian attack on Ukraine," Pamla said.
Pamla said the government and Eskom needed to take urgent action to keep load shedding in check, otherwise the ANC administration "must expect to be a one-term administration in 2024".
"The credit agencies are not in the business of extending goodwill to anyone, including South Africa. While Moody's did give space to SA before Covid-19, the others did not. In fact, they threw SA under the bus in the midst of Covid-19," said Pamla.
He said the reality remained that the government needed to fix Eskom, Transnet, Prasa, local government and the state if it hoped to improve the economy and rebuild a functioning public service and state-owned entities.