Perhaps it was a case of “shock therapy”, but the IMF has finally been jolted into reality by the scale of South Africa’s power crisis. At the conclusion of a staff visit from 1 to 17 March, the IMF slashed its real gross domestic product (GDP) growth estimate for South Africa for 2023 to 0.1% – from a previous forecast of 1.2%.

“Real GDP growth is projected to decelerate sharply to 0.1% in 2023, mainly due to a significant increase in the intensity of power cuts, as well as the weaker commodity prices and external environment,” the IMF said in a statement. 

Its previous growth forecast in January of 1.2% frankly beggared belief, but a lightbulb seems to have been switched on by the sheer intensity of the rolling blackouts. An industrialised economy simply cannot grow in the face of such power constraints – it’s as simple as that.  

Read more in Daily Maverick: IMF raises 2023 GDP world growth forecast – even, perplexingly, for South Africa

And “growth” of 0.1% is barely growth at all. Because population growth in 2023 will exceed this, South Africans will be poorer at the end of the year – if the forecast proves accurate. It would also not take much to push such a marginal growth figure into a contraction. 

“In the medium term, growth is expected to rebound, though only to about 1.5% per year, with income per capita likely to stagnate as a result. This is because of long-standing structural impediments, such as product and labour market rigidities and human capital constraints, offsetting expected improvements in energy supply, higher private spending on energy-related infrastructure, and a more supportive external environment,” the IMF said. 

That’s a pretty gloomy prognosis, though one that is sadly rooted firmly in reality. And the IMF noted that there are downside risks galore.

“External downside risks include a deeper and more protracted global slowdown, further weakening of commodity prices, and a shift in global investors’ sentiment away from emerging markets. 

“Domestically, downside risks include delays in addressing the energy crisis and Eskom’s and Transnet’s operational and financial weaknesses, slower-than-expected progress or reversal in reforms and policies, including fiscal consolidation, and increased political uncertainty.”

South Africa can’t do much about the external risks, and the government seems incapable of addressing the domestic ones the IMF cited. Eskom and Transnet have both been in a state of collapse for years. The same government and the same ruling party hardly inspire confidence when it comes to fixing them. And who would bet against an increase in “political uncertainty” as the 2024 elections loom? 

“On the upside, decisive implementation of structural reforms combined with fiscal consolidation would help boost private investment, and ultimately employment and growth over the medium term. Similarly, stronger-than-expected private sector participation in the energy sector could improve the growth outlook,” the IMF said.

South Africa’s power crisis is now high on the radar of the IMF, which means it will not be lost on foreign investors and global financial markets. Expect other institutions such as major banks and the like to also slash their forecasts for South Africa’s economic growth. 

The economic outlook continues to dim at an alarming pace. DM/BM