BERNARD MOFOKENG: Can the damage to SA Inc caused by rolling blackouts be repaired?
The extent of the damage to SA’s finances will largely depend on how and when the blackouts cease.
The incessant interruptions in SA’s power supply over the past 15-plus years have severely constrained economic growth. As the load-shedding situation has worsened so has the shrinkage of the economy. News headlines shout out frightening news, such as “Economic activity shrinks as power crisis bites”. At this point it is extremely difficult for anyone to predict if SA’s finances will recover from the effects of blackouts, when they will recover (if ever), and what the recovery might look like.
The difficulty of making this prediction is worsened by several factors, including government’s ability or otherwise to identify what the actual problems are behind load-shedding; the lack of clear plans from government on how to tackle and resolve the unreliability of Eskom’s electricity generation fleet (if that is indeed the main problem); the inability to decide SA’s energy mix; and its inability to implement whatever solution it may decide is appropriate.
Simply put, it is almost impossible to determine whether things are eventually going to improve when we don’t yet understand the root cause of our crisis, because that means we cannot remedy it effectively or fast enough.
The extent of the damage to SA’s finances will largely depend on how and when the blackouts cease. Revenue collection has been affected negatively for an extended period already, as business activity has reduced. Eskom is on record saying it will need at least two years to stabilise the electricity generation capacity to ensure rolling blackouts are consigned to history.
However, when finance minister Enoch Godongwana was in Davos for the World Economic Forum gathering recently, he said load-shedding should be gone in about 18 months. Neither Eskom nor the finance minister are precisely sure how this is going to be achieved. Both Eskom and government have fallen short when it comes to communicating to South Africans what the problems are, how they will be resolved, and why they think 18 or 24 months is enough time.
Whatever the solution, the economy will continue to suffer until it is implemented, and government finances will continue to dwindle. How low government revenue will fall will depend on when load-shedding stops. Should the blackouts cease in 18 months the extent of the damage will also depend on the severity of the rolling blackouts during that 18 months.
Permanent stage 2 to 5 rolling blackouts, as has been indicated as a likely scenario, will inevitably result in more job losses in various sectors, specifically agriculture, mining, manufacturing, the hospitality industry and retailing.
Interest payments on the national debt are set to rise to over 20% of government expenditure, leading to the payment of interest constituting one of the largest expenditures for SA Inc. Investor confidence will be eroded even further due to the blackouts and the uncertainty around government even meeting the 18-month timeline due to its questionable record in implementing its plans and policies. Tax collections will suffer owing to the slowdown in economic activity caused by wide-ranging joblessness, increased business failures and lack of investments.
If blackouts are to be resolved in 24 months the consequences for SA’s economy and its finances will be more severe as job losses and business closures will continue at a far faster rate, with no or little investment happening. Tax revenues will continue to fall as the tax base becomes smaller. Trade with SA will continue to contract, resulting in smaller amounts of duties collected and interest payments by government may increase to unaffordable levels.
In anticipation of this economic turmoil it is difficult to see how government can raise more revenue and from which areas. South Africans are currently being taxed on all fronts; we are in fact rated one of the most heavily taxed countries in the world. Apart from paying income tax, VAT, transfer duty, a fuel levy, a Road Accident Fund levy, security transfer tax, a Skills Development Levy, Unemployment Insurance Fund contributions, private school fees, private security fees, toll road fees, Eskom’s exorbitant electricity bills (for an unreliable electricity supply), and more, taxpaying South Africans are now forced to spend their already stretched financial resources to buy diesel and install alternative power supplies at their own cost. All because Eskom cannot deliver on its mandate to supply reliable electricity.
The finance minister’s 2023 Budget speech next month will be the most difficult since 1994. There is limited room to introduce new taxes or collect more tax from the already limited tax base, the economy is stagnant, and both investors and South Africans are sceptical of the government’s ability to resolve the current electricity crisis. Borrowing our way out of this crisis is no longer an option.
Borrowing from institutions such as the Brics Bank, IMF or World Bank will not sit well with other political parties or the SA public. Can SA continue to finance the independent power producers (IPPs), and if so for how long? Can the IPPs replace the generation capacity missing from Eskom, and at what cost, and is it sustainable considering the anticipated reduced tax revenues?
It should thus be obvious to all South Africans that the damage to the country’s finances is dependent on how the government and Eskom will solve the blackouts crisis, and how long it will take for a solution to be found. What happens between now and then will determine the future of this country.
We’re a country in crisis. But in any crisis opportunity exists. We can only hope that the current administration heeds the urgent call to respond effectively.
• Mofokeng is director and head of tax at CMS SA.
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