Triple blow for South Africans this week
As South African households prepare for weeks of load shedding ahead, they should also brace for a few more economic punches heading their way.
According to economists at the Bureau for Economic Research (BER), South African households will be hit by higher petrol prices this week, compounding the financial woes brought by municipal electricity tariff hikes that took effect from 1 July.
South Africans can also expect a weaker rand due to the subdued economy, thanks largely to the ongoing load shedding. This will invariably feed into the wider economy, having a knock-on effect on the cost of living and various price points in general.
Load shedding
The most obvious blow to households this week is load shedding.
State power utility Eskom announced load shedding at various stages this week, starting with stage 4 load shedding during the day on Monday, escalating to stage 6 during the evening peak, before falling back to stage 4 overnight.
This rollercoaster schedule will be in effect for most of the week, with the power utility expressing some hope that the situation will stabilise to around stage 2 load shedding by the weekend.
The BER noted that, while much of South Africa – including businesses and households – had adapted to and effectively managed lower stages of load shedding, they simply cannot cope with anything beyond stage 2.
“Many battery- or other household-based alternative power solutions struggle to keep up with extended periods of no power or do not have sufficient time to recharge in between blackouts. Even more permanent solutions such as diesel generators run into trouble after consecutive days of stage 4 or more load-shedding,” it said.
Petrol prices
The Department of Mineral Resources and Energy is yet to publish the latest fuel price adjustments for July, which is expected to take effect on Wednesday (6 July).
Month-end data from the Central Energy Fund pointed to a R1.60-R1.80 per litre hike for petrol and a R1.55 per litre hike for diesel on the cards for the month. However, with the halving of the government’s R1.50 general fuel levy intervention for July, another 75 cents per litre is expected to be added back to the price on top of this.
This could see petrol prices being hiked by as much as R2.35-R2.55 per litre, and diesel by R2.30 per litre.
Civil action groups have been pushing for the government to extend its interventions further, but there has been no word from the department in this regard.
Whether the interventions are extended or not, the BER noted that there is more petrol pain to come, with a hefty fuel price increase expected on Wednesday.
“The levy relief is expected to fall away completely next month (August). The under-recovery part of the fuel increase is largely due to higher international oil product prices, with a somewhat stronger rand at the start of the month capping the rise slightly.”
Electricity prices
Beyond high fuel prices, households will also feel the effect of the municipal electricity tariff increase that came into effect on Friday, the BER said.
Major metropoles – including CapeTown, Johannesburg, and Durban – introduced their municipal electricity tariffs on Friday (1 July) after energy regulator Nersa approved a 7.47% increase earlier this year.
This figure constitutes a 3.49% increase for the 2022/23 year, and this is separate from the 9.6% annual increase for Eskom customers that kicked in on 1 April.
The City of Johannesburg has confirmed that its electricity prices will increase by 7.47% from 1 July, while the City of Tshwane and City of eThekwini has also confirmed that they will match these increases. The City of Cape Town has tabled expected average increases of closer to 9.5%.
Low confidence
Even before this and the recent intense bout of load shedding, the Q2 FNB/BER Consumer Confidence Index (CCI) already foreshadowed a marked slowdown in consumer spending in coming months, the BER said.
This is reverberating across the economy, with some economists even suggesting that South Africa may be looking at a recession.
On the economic activity front, the June Absa PMI suggests that after a stellar performance in Q1, the manufacturing sector is set to be a drag on Q2 GDP.
“Positively, Naamsa new vehicle sales performed better in June. Nonetheless, vehicle sales were down on a quarterly basis, adding to the available high-frequency data suggesting that our current forecast for flat real GDP growth in Q2 faces downside risks, with an outright contraction increasingly likely,” the BER said.
In terms of estimating the economic impact, load shedding also results in foregone fixed investment, the BER said.
“This is near impossible to estimate in monetary terms and depends on your assumptions about the counterfactual reality without the electricity constraint. In addition to further depressing already subdued South African business and consumer confidence, the move to stage 6 also soured foreign investor sentiment towards South Africa. This likely contributed to the slide in the rand exchange rate.
“The rand lost about 4% w-o-w against the US dollar, closing weaker than R16/$ on four consecutive days last week. Local woes are not fully to blame for the weakness as the greenback saw broad-based strength last week, although the rand did underperform compared to its peers. The dampened sentiment towards South Africa was also seen in a sell-off in local bonds.”
Read: Expect load shedding for weeks to come, starting with stage 6 on Monday – here’s the new schedule
