SA can weather power storm – S&P
Fri, 28 Mar 2008Due to South Africa's sustained economic growth the country was in good shape to deal with the electricity crisis, according to a ratings agency's report released on Thursday.
"Standard & Poor's believes that an extended period of sustained buoyant economic activity since the turn of the century will hold the sovereign (the country's creditworthiness) in good stead to tackle this power crisis head-on," said Konrad Reuss, the company's managing director for South and sub-saharan Africa.
The report is entitled "South Africa In Good Shape To Tackle Power Crisis Head On, Shored Up By Period Of Buoyant Economic Growth".
The Treasury had estimated that the power constraints would knock 0.6 percent off the country's growth in 2008, a figure S&P said was "plausible". In the longer term the electricity supply shortage would hamper efforts to raise economic growth above its current level of four percent to 4.5 percent.
The likely impact on growth had also compounded factors that were already affecting foreign investors' confidence in the country, including the change in political leadership and the rising current account deficit.
"In the context of the global credit squeeze, therefore, the power shortage has contributed to the forces weakening the rand's exchange rate since the beginning of 2008."
Some industries could also bear the brunt of the power rationing more than others. Heavy users of electricity such as mining would be disproportionately hit. Manufacturing and service sectors could make up for lost production by working during off-peak times, but this would increase wage costs.
The power crisis would be more of a "stress test" and less of a ratings driver for the country's creditworthiness and other local rated companies. These included the major banks and companies like Transnet, Telkom and Sasol.
Much would also depend on their market positions and the dynamics of the sectors they were in.
According to the report the proposed tariff hikes would lead to a drop in demand for electricity as consumers adjusted their behaviour and conserved energy. This would provide Eskom with added "breathing space" until it brought new capacity on line.
High global demand for metals and minerals and a lack of supply, which were pushing prices up to record levels, meant South Africa's abundant natural resources would continue to prop up economic performance. This would partly offset the impact of the power constraints on growth.
