Business Maverick


Eskom’s Stage 8 warning is a chilling prospect for SA’s economy

Eskom’s Stage 8 warning is a chilling prospect for SA’s economy
Underground workers ride inside the lift shaft at the Gold Fields South Deep gold mine in Westonaria on 12 October 2022. (Photo: Michele Spatari / Bloomberg via Getty Images)

If Eskom’s worst-case scenario of Stage 8 power cuts this winter becomes reality, the consequences for an economy already in meltdown will simply be chilling. And if it gets worse than that, the Minerals Council SA warns that production in the mining sector could grind to a halt.

Eskom’s warning on Thursday to brace for the grim prospect of the utility having to slash as much as 8,000 megawatts from the grid to prevent a complete blackout will put paid to any faint hopes for economic growth this year, while simultaneously fuelling the flames of inflation.

Capital Economics warned in a commentary that this threatened to engulf South Africa with a “period of stagflation”. But a case could be made that South Africa is already caught in the trap of stagflation and that the looming surge in Eskom power cuts this winter will worsen and extend this unenviable state of affairs.

Stagflation occurs when an economy is contracting or barely growing, unemployment is high and inflation is on the boil. South Africa’s economy for several years now has been marked by the first two of this troubling trio, but that combination has helped to contain the third – inflation– by suppressing demand and wages.

But consumer inflation since May last year has been above 6% and food inflation raced to a 14-year peak in March of 14%. With an unemployment rate that has been well north of 30% over that period of time – a shocking level – and an economy that contracted 1.3% in the final quarter of 2022, stagflation would appear to already be a reality. 

If it looks like a duck and quacks like a duck, chances are that it ain’t no goose.

And if Stage 8 becomes a reality against that backdrop, the consequences for an economy in meltdown will be chilling as the cold of winter sets in. 

For example, the Minerals Council SA, the main industry body for the mining sector, provided the following glum assessment to Daily Maverick:

“Currently, at Stage 6 load shedding we are curtailed by 20% of contracted supply for 10 hours from 14:00-24:00. The industry (mining and smelters) consumes about 10,000 MW (30% Eskom supply) so we give up 2,000 MW,” said Christian Teffo, the Minerals Council’s deputy head, techno economics, in an emailed response to our queries.

“If Eskom goes into Stage 8, I estimate that we would have to be load curtailed by 2,666 MW over the same number of hours at the same times of day as above. This will result in further losses of production as some of our members stop operations to be able to drop the required load.”

The rotational power cuts have been estimated by the South African Reserve Bank (Sarb) to slash as much as two percentage points from economic growth, while consultancy PwC believes it may be as much as five percentage points.

So any increase in power outages from current levels will just cut economic growth further. The IMF already sees growth of only 0.1% for 2023, so expect that forecast to get cut to a contraction. You really can’t have a lower growth forecast.

Inflationary costs

Of course, households and businesses are blunting this scalpel with the scramble for self-generation, which itself adds to the gross domestic product. 

But that comes with costs, and the Sarb estimates that the power woes are adding 0.5 of a percentage point to inflation because of the costs incurred by businesses, notably for diesel, to keep the lights on. 

Ramped-up power cuts will mean more diesel getting burnt and higher costs for businesses, which will have to be passed on to consumers at some point.

This, by the way, is a classic stagflationary quagmire. 

The power crisis has also been extracting a toll on the rand, which fell to a record low of 19.51/dlr last week, according to Bloomberg. The rand fell over 1% at one point Thursday morning – on the latest Eskom news – to 19.48/dlr and was still trading at over 19.40 late on Thursday. 

The first sign of Stage 8 might hurtle it toward 20/dlr, though some analysts reckon the currency is “oversold” and has a long history of rebounds. But its previous comebacks did not take place in the context of Stage 8. 

To top it all off, the currency’s crash will stoke inflation further and has likely sealed the case for yet another interest rate hike of as much as 50 basis points when the  Sarb’s Monetary Policy Committee meets next week. 

“… the chance of a 50 basis point hike in South Africa this month is growing on the rand’s collapse,” Investec chief economist Annabel Bishop said in a note on Thursday.

That, in turn, will choke economic activity even further.

You can see where this is headed. The cycles are vicious and feed off each other. And will Stage 8 be the limit? If it’s not, industries such as mining could grind to a halt.

“If the power constraints become too severe, we could go into essential loads where the mining industry would only receive 20% of contracted electricity supply. At that point, only essential services like fans and pumping will operate,” the Minerals Council’s Teffo said. 

“This means there will be no production from mines, nor processing, smelting or refining of minerals until electricity supplies are restored.” 

That would literally signal lights-out for SA. DM


Comments - Please in order to comment.

  • Laurence Erasmus says:

    Half of the train that the ANC is driving has hurtled over the cliff edge. The ANC is unwilling to change its policies to prevent the other half of the train continuing to hurtle at full speed over the cliff edge. Stage 8 is proudly brought to us by the ANC!

    • mahomed.w says:

      When will civil society remove the politicians from their comfy seats? The time for “commissions of inquiry”, “due process”, and “accountability” is over. South Africa needs to resect this malignancy if it is to survive.

      • Lisa Gordon-Davis says:

        The point is… HOW?? Sanity needs to prevail within the traditional ANC voter base… those of us who want change need to talk to those within our sphere of influence, and explain the consequences of continued ANC government, and persuade them to vote actively against the ANC (not just not pitch at the polls). Talk to everyday people: the people filling our tanks, packing our groceries, shop assistants, domestic staff… Get them to understand the utter devastation wrought by the ANC, and then influence others within their circles to also vote actively to stop this.
        We need to do this… each and every one of us; take responsibility to garner votes against the ANC (and EFF).

  • Chris Skinner says:

    It would be so great if the ruling party would come vlean and admit publicly that they, single handedly, are responsible for the mess that Escom has become, and the lack of capacity that should have been addressed two decades ago.

  • Katharine Ambrose says:

    The other big consequences are no security systems, no street lights and no wifi signal means home owners will be sitting ducks for criminals

  • Annemarie Hendrikz says:

    What’s wrong with mining and big business in general? Why isn’t it keeping itself going by investment in solar or/and wind energy?

    • Dillon Birns says:

      I’m no expert – but from what I’ve gathered it’s because renewables like wind and solar can’t be counted on to provide a constant source of energy (not that Eskom can either!). That, combined with other, more technical factors like ROI and policy that are more dense reading.

    • Bob Dubery says:

      I think the mines are, but they can’t supply anybody but themselves. And Eskom’s modelling will already include these reductions in demand. I see a lot more solar installed where I live the last 6 months or so, and reports are that that solar power is one business area that is booming. But with those decreases in demand in place, we still have stage 6 during the weeks and staring at stage 8.

  • Craig A says:

    It’s a good thing that the gravy train doesn’t run on electricity. That train is going ahead at full steam. “A better life for all”. Viva ANC.

  • Alan Jeffrey says:

    On the face of it my question seems somewhat naïve as surely this has been considered from page one, but, what if a Nationwide appeal is made to the Public to voluntarily cut their consumption by say 20% to assist or face the reality of Stage 8 if they don’t take it seriously? Would this simple move be of huge significance if most complied? Anyone have the answer please?

    • francesviet says:

      To be blunt most of us that can are and many that can’t are simply surviving with less. Those who can go gas have (or are). Those who can afford solar have (or are). Currently, we are going without power in our area for 8 to 10 hours a day. Much of it during critical work time. We work until our laptop batteries die and then we work after hours when the power is on to make up for lost time. Additionally in the time when the power is on we scramble to do what is not possible when the power is off. We’ve lost a fridge and computer to load shedding. I’d love a heater, but we make do with more blankets, we don’t have an aircon and our geyser is on a timer. Like many of us, we ask what more can we do?

    • Bob Dubery says:

      I’m not sure it would work, though it can’t hurt to try. It’s hard sell. Some townships are already getting “load reduction” on top of load shedding. This is over and above shedding, usually at peak demand times, and is Eskom turning off whole areas so as to protect their infrastructure. And then us upstanding folks in the suburbs might not be keen when we see people stealing electricity with impunity.

      I like schemes like they have in parts of the UK and in Cape Town where they have smart meters and proper monitoring and can thus incentivise those who heed the call when it is made. Cape Town has a program called “power heroes” which offers a financial incentive for cutting back. The property owner knows that they cut back, and they know that the City knows. I think those might have some bite.

  • Jeremy Collins says:

    We can blame the ANC for getting us to this point, but we will only have ourselves to blame if we let them continue. As SA citizens, are we too fractured and siloed to see that it is only our collective efforts that keep this country moving forward? We pitch up every day, do the work, pay the taxes, take the knocks and complain about the weight of the fat oligarchs we’re carrying on our shoulders. We can stop anytime.

  • Alistair Eyres says:

    What I find absolutely crazy is that Eskom keeps supplying customers who don’t pay them while load shedding customers who do.
    I don’t know of any viable business that sells product to one non-paying customer and then tells the paying one that there is no stock left. It is a recipe for disaster.

  • Petrus Kleinhans says:

    Food inflation of 14% and massive unemployment. Stage 8 load shedding falling like a rock on small and medium business. They should be the largest contributor to new job creation. Now their legs are cut at the knee. The impact on ordinary South Africans is stark and tragic. Can anyone still put faith in the corrupt. In a country like this even atheists should learn to pray. Nothing less than a miracle is required.

    • Gary Vipond says:

      It speaks volumes the minister Gordhan, in commenting on De Ruyter’s book, chooses to play the man and not the ball. Gordhan really has passed his sell by date but then so has the entire ruling party – as commented earlier the ANC are fully responsible for this entire mess. When will voters take a stand and vote the ANC out!

  • Brian Doyle says:

    The ANC should own up that we are in the current situation due to their incompentence. Any government who promises a million houses to people should have done their homework. Even if each household used only 5Kw a day, that adds up to 5000Megawatts a day. Planning for increased capacity should have started at that stage and not many years later, where they are trying to play catch up. Basic planning like that is unfortunately apparently not the strong suit of the incompetent ANC

  • Andrew Newman says:

    Stage 8 loadshedding means that those that are loadshed have no power for 50% of the time.
    Therefore Stage 16 loadshedding => 100% loadshedding.
    Stage 16 loadshedding is supposed to save 16000 MW of demand. But demand in winter is more than 32000 MW! That says to me than more than 50% of South Africa is not loadshed and is exempt from loadshedding. Who are all these users? We have a right to know.

  • Trenton Carr says:

    Good luck trying to get your battery charged during Stage 8 black out.

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