Electricity Outages in Perspective

Contrary to popular view (incompetence at Eskom due to cadre deployment, AA/EE etc),  South Africa's electricity crisis is an outcome of the ANC government trying to clean-up the fiscal mess created by the National Party.

As early as 1998, Eskom warned government about the diminishing reserve capacity of power supply and advised that more power station needed to be built. In fact Eskom predicted that their reserve capacity would be depleted by 2008 needless to say that this prediction was accurate.

It is also common knowledge that government ignored this advice by Eskom and former president Thabo Mbeki later accepted responsibility "When Eskom said to the government: We think we must invest more in terms of electricity generation'... We said not now, later. We were wrong. Eskom was right. We were wrong".

It is however important to acknowledge challenges faced by government during this period, including the  Asian Crisis of 1998, that may have very well influenced government to defer Eskom's recapitalization.

During this period, government was on fiscal consolidation cleaning-up the fiscal mess left by the National party. In 1994, FW de Klerk's administration left "escalating fiscal deficits, extraordinarily high levels of domestic indebtedness by the public sector, and an escalating share of the budget being directed to service interest expense" (Cyrus Rustomjee, 2006).

An article published in The Economist (1999) titled "The painful privatization of South Africa" provides valuable insights about complex and painful choices faced by the ANC government during this period.

"When the African National Congress came to power in 1994, it inherited big debts and a bunch of public utilities that guzzled subsidies and, for the most part, offered rotten service at extortionate prices. The apartheid government burdened South Africa with a collection of state enterprises on an almost Soviet scale. This was partly done to provide jobs for otherwise unemployable whites".

In the late 1990s, especially under former President Thabo Mbeki, fiscal prudence was in the top agenda of government, reducing public debt, getting budget and current account balance in order.  

To raise money to pay public debt, among other things, government embarked on privatization of state owned enterprises.  It is open secret that government was looking to sell part of Eskom to the private sector during this period.

Between 1993 and 2008, the sale of public assets amounted to R53.7 billion in nominal terms and this money was used to pay public debt. According to Calitz et al (2013), had the government decided against using privatization proceeds to pay public debt, public debt would have been higher by 21 percent in 2008.

It is my contention that a simple analysis of the impact of Cost of Unserved Energy to the South African economy as a direct result of government's decision against recapitalization of Eskom prior 2008 is amateurish without considering the impact had the government decided to recapitalize Eskom.

Had government allowed Eskom to build more power stations in the late 1990s, electricity prices would have increased considerable as we have seen in the last two years and dollar denominated public debt would have gone north as well.

 Consequently, Economic stagnation and hyper-inflation that were coupled by volatile currency that the democratic government inherited from the National Party would have taken longer to over-come due to the lag between infrastructure investment and its impact on the economic growth. The economic boom would have come and gone with South Africa taking little advantage. South Africa's Fiscal position would have not been as healthier to absorb the shocks of 2008 world economic recession as it did.

Thus before you shout government incompetence, cadre deployment or Affirmative Action from your rooftop whenever you have to take that trip to a fast food outlet because of power outages, do some little thinking.

There is no question about the negative impact of power outages on the economy hence modern economies have devoted their resources in quantifying the Cost of Unserved Energy (COUE). However, a more thorough analysis is required to assess the otherwise cost to the South African economy or economic growth trajectory had the government decided to build more power stations in the late 1990s. Without this analysis, any conclusion that South African economy could have been in a better position today had government decided otherwise lacks critical thought.  

Put differently, without the fiscal mess, enormous social and physical degradation that spanned every facet of social development under apartheid regime, a decision to recapitalize Eskom in the late 1990s would have been easier.   

Linda Nobaza is a PhD candidate in the department of Mathematics and Applied Mathematics at UWC.

References:

1. The Economists. (1999). The painful privatisation of South Africa.

2. Rustomjee, C. (2006). Pathways through Financial Crisis: South Africa.

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