Privatise electricity generation to solve South Africa’s electricity crisis

Sitting at home in candle-light with no hot tea while the food perishes in the fridge during load-shedding is the least of South Africans’ problems in the face of the energy crisis. The picture is much more complex than just ‘how to keep the lights on’.

Undoubtedly the biggest blow is to the advancement of South Africa. The majority of people here desire a better quality of life which requires a greater degree of economic freedom.

Energy is the life’s blood of an economy. The lack of power inhibits and reduces the industry of both big businesses and small. This reduces the amount of wealth being created within the borders of South Africa, which, in turn, reduces the amount of tax the government can collect to pay for essential services such as policing and the courts. An unavoidable consequence of the power deficit is that the number of jobs available to all people decreases accordingly.

Everyone feels the retarding impact but none more so than the unemployed. South Africa has lost at least half a million jobs due to the energy crisis. Mike Schussler of says South Africa’s economy would have been 10 per cent bigger than it is now were it not for power curbs to businesses since 2008. South Africa relies on energy-intensive industries such as mining and smelting. Kevin Crowley writes that, “Industrial companies such as BHP Billiton, ArcelorMittal and Sibanye are required by Eskom to cut usage by at least 10 per cent during rolling blackouts and at times when supplies are low.” In 2014, the Eskom energy shortages cost roughly 0.3 per cent of possible GDP growth. Free Market Foundation economist, Loane Sharp, estimates this will increase to 0.4 percent in 2015. In such an uncertain economic and energy climate, both foreign and local investment is slowing down and, in certain areas of the economy, ceasing altogether.

Neal Froneman of Sibanye Gold has said that, “We will find it very difficult to commit to deepening projects, which are energy intensive, because the cost of power’s going to be too high and we need reliability of supply.” The chief economist for a federation representing the energy-intensive steel and engineering industries, Henk Langenhoven, estimated that electricity disruptions will slash production by 23 percent in 2015.

Closer to the ground, small businesses feel the pinch even more. Not all businesses can afford to purchase and run generators to provide alternative energy when load shedding occurs. Not being able to operate productively during these times, a small enterprise working within a tight margin, survives with difficulty. For a small business, an energy shortage might not be as simple as cutting back on productivity and development, it might mean laying off workers or even closing down altogether.

Another long term concern is that in South Africa, for decades, the cost to users of energy has been artificially low. Energy costs have in recent years, however, been increasing at an alarming rate and will soon be exceptionally high for the future. In other words, to maintain growth, South Africa will have to do more with less. High energy costs going forward will inevitably affect every industry and reduce investments and returns. Extremely high energy costs can be expected for decades to come, according to government’s current projections.

An electricity shortage reduces the availability of jobs, industry, local and foreign investment, national growth and entrepreneurship opportunities on a massive scale. It will take the country many years to recover. If South Africa does not want to be stuck in the mire as a backward nation, it needs quick and dramatic solutions to avoid such a crisis. If South Africa would look to the examples of countries where energy is efficiently and successfully produced, it would not need to search very far for the solutions it so badly requires.

Those solutions can be summed up into one word, ’privatise’. Let the flexible, expansive, durable, innovative and industrious private sector solve the energy crisis for the country. This can only be made possible if the energy market is opened up to private generation and investment. To make privatisation feasible, and to ensure that South Africa can embark on a fully powered future, the focus of government’s efforts should be the removal of all laws, regulations, and monopolistic structures that prevent private enterprise from providing all of the energy this country needs in the years to come.

Author: Kate Louw is a researcher with the Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the FMF.

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