Economic impact of load-shedding in Cape Town discussed

27 March 2019

Alderman James Vos, the City’s Mayoral Committee Member for Economic Opportunities and Asset Management, recently met with various small business representatives to see how they were coping with load-shedding.

The sentiment was unanimously shared across the sector that load-shedding has been crippling small businesses as most are unable to afford the costs associated with investing in a generator.

‘Without a doubt, the cost to the economy is real and it is certain to cost billions of rands. In addition, the potential for businesses shedding jobs to keep trading is the intrinsic unquantifiable cost which we need to mitigate wherever possible,’ said Alderman Vos.

Cape Town contributes more than 70% of the Western Cape’s Gross Domestic Product (GDP), and in turn, the province contributes around 14% to the national GDP. It is therefore clear that the economic burden of load-shedding will be felt by Cape Town, as well as other economic hubs in the country. This is especially the case because industries, such as the manufacturing sector, are reliant on electricity as they are located in large urban areas.

Economist Dr Azar Jammine has said that the direct impact of load-shedding on the South African economy was between 0,1% and 0,2 % of the GDP.

In the Western Cape, the City’s green economy partner GreenCape conservatively estimates that over the past two weeks and counting, load-shedding cost the economy R75 million an hour.

According to the March 2018 Western Cape Energy Consumption and CO2 Emissions Database, energy consumption by sector for the Western Cape in 2015/16 was as follows: residential was the biggest consumer of electricity (42%), then industry (31%) and commercial (17%) and agriculture (6%).

One small positive is that the services sector is the biggest contributor to Cape Town’s and the province’s GDP, and this sector is less reliant on energy for economic activity. That said, however, there will be a detrimental economic impact on productivity, among others.

Alderman Vos highlighted the resilience of the people of Cape Town but said: ‘The longer term effect is far more worrying for me. We need to be deeply concerned about investment decisions that are potentially being deterred by load-shedding. The uncertainty of supply places small businesses and manufacturers in the supply chain at risk.

The City is acutely aware that it needs to diversify its supply of electricity. One way to do this is by purchasing electricity directly from independent power producers (IPPs). At present, National Government policy allows IPPs to only sell electricity to Eskom, which is controlled through the issuing of generation licences.

The City is challenging National Government in the courts, on an urgent basis, for the right to purchase renewable energy directly from IPPs.

‘We encourage young people to become entrepreneurs and to start their own businesses but Eskom’s load-shedding raises the big question of how their businesses will survive without electricity, which of course impacts negatively on their household income,’ said Alderman Vos.

Issued by James Vos, City of Cape Town Mayoral Committee Member for Economic Opportunities and Asset Managment, 27 March 2019