Insights

STUART THEOBALD: Why are things in SA not a lot worse?

June 26, 2023
Insights

Why are things in SA not a lot worse? The doom and gloom are palpable across the media and when talking to both business and government counterparts. Yet last week, trading updates from banks indicated record earnings.

Earlier this month, GDP figures showed the economy is now bigger than it was pre-Covid, despite the first quarter having experienced record load-shedding. Trade statistics show we are exporting and importing more than ever, with exports dominating over the past three years. These are not the signs of a country imploding, though the rhetoric around it would leave you expecting it to be.

Of course, there is lots to be angry about. Load-shedding could have been completely avoided had we done what everyone knew was needed, and we are doing now, back in the early 2000s, in opening up the electricity system to private generators who can compete. Our mining sector, the foundation of our economy, is crumbling under the weight of regulatory confusion and incompetence.

Levels of unemployment are completely unacceptable and pose a serious risk of social instability. And more proximate issues tend to dominate thinking: our ambiguous stance on Russia, which risks our trading relationships with the markets that consume the most value-added goods and services we produce; the dysfunction in local government that means potholed roads and increasingly erratic water supply. These are serious issues and resolving them must not be belittled. But we must also understand that the rump of the economy manages to keep ticking over despite them. In that lies opportunity: there is a critical mass of economic activity that enables us to solve problems if we harness it appropriately.

I’m sure many readers have stopped even noticing when load-shedding kicks in. Even if the lights go out, it passes without comment and people get on with whatever they are doing, whether powered by batteries or generators, or, increasingly, solar energy. Back when load-shedding started, it was devastating, forcing shops to close, offices and factories to send workers home for the day. Now, almost everyone has a plan that has become so routine it works without comment.

That is why, despite officially recorded electricity production in the first quarter having been the lowest in two decades, the economy is almost 30% bigger. We don’t have precise figures for how much electricity is now consumed out of solar, diesel and various forms of storage, but I would not be astounded if it is in the order of 30% on top of that moving officially through the grid, from next to nothing two decades ago.

Estimates put the size of residential rooftop generation last year at about 250MW, and that was before the tax incentive now in place for businesses and individuals. Analysis by Reuters found that we imported R2.2bn worth of solar panels in the first five months of last year, enough to create 500MW, though much of that is destined for utility-scale plants. There is much more research needed to understand just how the economy has adapted to load-shedding, but adapt it has.

To be clear — the economic performance could obviously have been much better. One of the most damning statistics is that per capita, South Africans are no better off than they were in 2007. The outlook is also not pretty, with the IMF forecasting that SA will be the only major economy that will continue to see per-capita economic output shrinking over the next five years.

This is the country’s fundamental problem — worsening income levels, and with it climbing inequality. Our electricity adaptation is contributing to that. Those who can afford it go off grid or supplement it, but only a small proportion of the population can. Inequality is driven by unemployment, which in turn is driven by the appalling performance of the education system. These cannot be fixed as quickly as the electricity crisis, though it is a necessary condition.

Employment in the formal sector has fallen by about 4%, or 400,000 jobs, since pre-Covid. That background level of depravation feeds politics, which is why impossible-to-implement policies such as National Health Insurance have been rushed through parliament, and social grants are all-but-permanent for those in need.

Political competition, mediated through our democracy, and enabled by institutions like the media and judicial system, is key to fixing these deeper challenges. People must vote for those they believe can deliver change.

That this is possible is another remarkable strength of the country. The good news is that change is imminently possible. The surprising resilience of the economy shows that despite all the obstacles, South Africans are making a plan. When we fix the fundamental constraints on our economy, that resilience can turn into real progress.

•Stuart Theobald is chair of Intellidex. This article first appeared in Business Day