What Happened

South Africa's inability to produce power will continue to wreak havoc on its economic growth for at least the next two to three years, negatively impacting its ability to escape its current economic malaise. South Africa's Council for Scientific and Industrial Research (CISR) recently released data showing that the country lost anywhere from $4 billion to $8 billion due to productivity losses amid countless power cuts over the course of 2019, Fin24 reported Jan. 22. CISR also said it found that the average South African dealt with roughly 530 hours of power cuts and that the situation was unlikely to improve in the next two to three years given the electrical grid's deep problems, as well as the time it will take to get new power generation plants online and resolve other issues.

Why It Matters 

The CISR data underscores the tremendous strain that South Africa's economy is facing amid the struggles of the public electricity utility, Eskom. The many billions lost in productivity will weigh on the country's already-tepid economy and exacerbate job losses, pushing more people into the country's black market. (South Africa's official unemployment stands at an eye-popping 29 percent.) The two- to three-year timeline provided by the national research council supports Stratfor's assessments that Eskom's woes — and, by extension, Pretoria's — are not going away anytime soon. What's more, it suggests that the utility's problems will continue to tie up a disproportionate share of the government's attention to the detriment of other emerging and existing problems — including water scarcity and stubbornly high violent crime rates.

What to Expect 

Ongoing hits to productivity caused by Eskom's problems will push more costs onto households and businesses alike. This will force Pretoria to take on more debt so it can boost investment into the country's electrical grid as it struggles to keep the lights on. The lingering problems will continue to worry foreign investors about the risks of putting money into South Africa given the uncertainty surrounding key inputs like electricity. These risks will become all the more visible if Moody's Financial Services, the last of the big three credit rating agencies not to downgrade South Africa's debt to junk status, decides to do so in November given Eskom's perpetual crisis.