What we win from loadshedding

Let us not lose sight of the revolution that is happening while we sit in the dark

It is no secret that South Africa has had no change in its GDP per capita in the last decade. We produce the same we did a decade ago and therefore earn the same as before. That is different from most other countries. Indian incomes were 50% higher in 2021 than 2010. Residents of Vietnam earned 68% more. Even other African countries, like Botswana (17%) and Kenya (27%), were doing better.

It is easy to be frustrated by these statistics: things could have been so much different if those in power had done their job. But it is also true that if we scratch beneath the surface of these poor statistics, we might just discover a few gems that hold promise for the future.

Productivity, measured as the number of outputs for each input, can increase in two ways. The first is to produce more with the same number of inputs. Let’s assume there is no loadshedding ( a difficult task, I know). A firm that wants to increase its outputs when power is already at 100% capacity would usually need innovations in technology or human capital or new management practices to drive productivity growth.

But a second way to increase productivity would be to produce the same with fewer inputs. Take the same firm. When loadshedding kicks in, and the electricity supply falls from 100% to 60%, the firm is likely to produce less. If not, then surely productivity has increased, as the firm now produces the same output but with fewer inputs.

This is a long-winded way of saying that the surprising thing about South Africa’s GDP statistics is that, despite the dramatic decline in electricity access last year, it is not collapsing. In fact, the expectation is that South Africa had a positive growth rate of 2.3% last year. This is, of course, nothing to write home about: it would have been preferable to achieve 4% to 6% growth, making a real dent in poverty. But it is also not something to ignore: despite 200 days of loadshedding in 2022 – or 192 720 minutes, according to EskomSePush – we produced more goods and services than the year before. Not bad.

Of course, these numbers should be read with caution. Much of the growth may simply be part of the post-Covid (and 2021 KZN riots) bounce back. And, importantly: to keep on producing, many firms had to find alternative sources of electricity, often resorting to expensive diesel generators. Shoprite announced two weeks ago that their shopping centres required R560 million of diesel in the last six months of the year; Pick n Pay announced that they spend R60 million on diesel every month. Many firms and households elected to purchase solar power and batteries with loans that must be paid back with interest. But the point remains: even with higher input costs, most firms could maintain their levels of production.

Those of us in the services sector are now also far more flexible than a decade ago. Most of us work on a laptop that do not require permanent access to electricity. Restaurants bring out a ‘loadshedding menu’ when the lights go off. And due to the Covid lockdown measures, flexible working hours are now normal. This saves time (and money) for both employees and employers. A new study of 27 countries shows, for example, that work-from-home allowances save, on average, 72 minutes per day. Of those 72 minutes, employers get 30 minutes of additional work (or 1 new employee for every 16 existing ones) and employees 42 minutes of extra leisure, childcare, and homework. Although South Africa was not part of the study, this saving is larger in developing countries like China, India, and Brazil.

Loadshedding has also contributed to the rapid growth of an entirely new industry: solar panel and battery providers and installers. It is estimated that at least 2 GW of solar panels has been installed in the last few years. And much much more is in development, both at the local level and as large-scale solar projects in the Northern Cape and Mpumalanga, for example.

For how long we will be able to maintain this level of production despite the increasingly erratic electricity supply is unclear. I suspect that there is a distinct difference between level 2 and level 6 loadshedding: farmers that irrigate can, for example, find ways around level 2, but this will be impossible with level 6. This is likely to increase food prices, lifting inflation. The higher levels of loadshedding in January and February have already forced the South African Reserve Bank to lower their growth expectations for the year to a feeble 0.3%. Were loadshedding to continue at the current level for several months, or worsen, South Africa is very likely to record negative economic growth.

Yet the last two years of loadshedding have undoubtedly made South African firms and households more nimble; we are far more efficient with our use of electricity compared to a decade earlier when it was cheap and abundant. Investments in solar can, moreover, soon deliver a dividend: the City of Cape Town recently announced plans to buy surplus electricity from firms and households. Not only will this push loadshedding levels lower in the city, but it would offer a valuable incentive for firms and households to invest in further generation capacity.

And herein lies the long-term benefits of loadshedding. There is no doubt that solar will be an important component of South Africa’s electricity supply network in the future; not the only source, but an important one. In 2022, Germany added 7.9 GW electricity to its network. Spain, a country with a similar climate, added 7.5 GW. One in four households in Australia now has a solar panel. Despite the high costs of transitioning, loadshedding is forcing many to take a jump they would not have made had there been a reliable source of electricity from coal-fired power stations.

The good news is that solar is getting cheaper. A January report in the US shows that solar is now cheaper than almost all of America’s coal-fired power plants. And although South Africa’s abundant coal reserves and relatively cheap labour force probably make this trade-off less favourable at present, there is no doubt that within a few years, solar will be cheaper than non-renewable sources.

Is loadshedding desirable? Obviously not. Should we end it as soon as possible? Yes! (For ideas on how to do that, see Roy Havemann’s guest post last Friday.) Without loadshedding, South Africa would have been growing faster, with all the derived benefits for poverty reduction and better living standards. But let us also not ignore the revolution that is happening in the last year: the high costs of loadshedding are forcing many to find sustainable alternatives, with solar in prime position.

In the long run, these short-term frustrations can yield large gains: a more independent source of power generation, more effective and environmentally-friendly generation and use, and, in the extreme, even a way to produce cheap and reliable power thanks to the one thing South Africa has in abundance: sunshine. Hopefully then we will see South Africa’s economic growth match, or even outperform, those of our peers.

An edited version of this post appeared (in Afrikaans) in Rapport on 12 February 2023. Photo by David Tomaseti on Unsplash.