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How Blackouts Could Derail the Economy of South Africa

The South African flag flies over a lit city. With the current infrastructure, however, the city might not always be lit.

Blackouts are very rarely a good thing.

They do, however, come in varying degrees of bad. For South Africa, blackouts present a massive issue that the country has yet to solve. The thing is, these blackouts aren’t the result of a catastrophic grid failure, but actually managed by Eskom Holdings, a state-owned utility. The grid can’t handle peak electricity usage, and Eskom has repeatedly asked consumers, both residential and commercial, to cut down on usage during this time. For industrial consumers, this could mean reduced production and decreased profits.

When consumers don’t comply, Eskom runs managed blackouts to keep the grid stable. As Bloomberg’s Paul Burkhart points out, Eskom just can’t keep up.

“The state-owned utility can’t provide reliable electricity to run Africa’s second-largest economy,” he writes. “It has a long-term plan to expand generating capacity by more than 40 percent, while facing a 225 billion-rand ($20 billion) funding shortfall through 2018. The company has faced supply shortages for years and has said it may be another five years before it can guarantee the lights will always be on.”

Eskom argues that these blackouts are necessary to keep the grid from completely collapsing.

“If South Africa experienced a complete blackout, it would take us two weeks to restart the system,” Dr. Steve Lennon, sustainability executive for Eskon. “The consequences would be severe across the entire country and in every sector.”

So, what would that mean for South Africa’s economy?

To put it plainly: not great things.

As previous stated, blackouts can derail industry production. On top of that, it also can drive industry from the region, as skepticism could cause businesses to think twice before moving in. This effectively halts any economic growth in the region.

“Eskom is in dire straits,” Teneo Intelligence’s southern Africa risk analyst Anne Fruhauf said. “South Africa cannot dream of reaching a higher-growth path without an increase in baseload capacity.”

As Eskom provides more than 95% of the country’s electricity, it’s very aware of the issue.

“Eskom is committed to keeping the lights on whilst at the same time maintaining a sound basis for sustainable operations,” the company told Burkhart in an email.

Under the direction of a new CEO, Eskom is looking to increase its capacity through new plants and upgraded infrastructure. However, these efforts have been marred by setbacks and construction delays.

There is certainly support behind the company, as failure simply isn’t an option.

“It has to succeed,” Eskom’s former CEO Jacob Maroga told Burkhart. “It’s the heartbeat of the economy.”

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