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Electricity and South Africa’s economic outlook

South Africa’s energy crisis constrains economic growth but may also hold opportunities for rejuvenating investment. Load-shedding occurs when there is too little electricity supply available to meet demand. The higher the incidence of load-shedding, the greater the cost to the economy. Its impact across sectors varies and is non-linear – it is easier to mitigate load-shedding in some sectors than in others. In the first instalment of a two-part series that looks at South Africa’s energy crisis, we focus on load-shedding and its cost to GDP.

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The FNB/BER Civil Confidence Index increased to a more than six-year high of 42 in 2023Q1, from 31 in 2022Q4. Sentiment has now improved for four consecutive quarters. Underpinning the improved sentiment was a marked increase in activity, which also boosted profitability.

After surprising on the upside in January, the seasonally adjusted Absa Purchasing Managers’ Index (PMI) declined to 48.8 index points in February. This was the first time since September 2022 that the headline index fell below the neutral 50-point mark, pointing to a marked deterioration in business conditions in the factory sector.

The RMB/BER Business Confidence Index (BCI) declined further from 38 in the fourth quarter to 36 in the first quarter of 2023. While the outcome could have been worse given the severity of power outages and the associated drop-off in business activity, the result is nonetheless disappointing. The business mood certainly remains gloomy.

Having recovered from -20 to -8 index points during the fourth quarter of 2022, the FNB/BER Consumer Confidence Index (CCI) plunged to -23 index points during the first quarter of 2023. The reading of -23 is the third lowest CCI reading on record since 1994 and indicates extreme concern among consumers about South Africa’s economic prospects and household finances.