News in South Africa 24th April:

1. Eskom warning from IMF:

The International Monetary Fund (IMF) has warned that South Africa’s electricity crisis poses a significant threat to the country’s fiscal health. It also said Eskom must reduce its reliance on government funding.

Eskom warning from IMF
Photo by Darius Krause

This was said at the IMF’s Spring Meetings with the World Bank in April this year.

As part of these meetings, at the 2023 Fiscal Monitor Press Briefing, Paulo Medas, deputy director of the IMF’s fiscal affairs department, said South Africa’s electricity crisis and Eskom affects the country’s fiscal health in two ways.

The first effect is indirect, as they impact economic growth and tax revenues. This undermines the country’s fiscal accounts.

In March, the IMF lowered its 2023 economic growth projection for South Africa to a paltry 0.1% – a 1.1% downward revision.

The IMF followed a host of organisations that have also taken a more bearish view of the country’s growth prospects, including rating agency Fitch, the South African Reserve Bank (SARB), and Absa Bank.

The second effect is direct, as Eskom requires government support, reflecting the IMF’s projections for South Africa’s debt numbers.

Medas’ warning joins those of other economists and government officials that have warned that South Africa’s rising debt is increasingly concerning without strong economic growth.

The country’s debt burden has risen steadily over the last decade but is set to increase even further following the government’s R254 billion Eskom debt bailout.

South Africa’s debt is expected to rise from R4.73 trillion in the current financial year to R5.84 trillion in the 2025/26 financial year.

“So, the solution has to be to, obviously, address structurally the problems in the sector which will contribute to higher growth and reduce the need for future government support,” said Medas.

However, the IMF does not project these trends to continue.

It expects more energy to become available in the country next year, setting growth expectations for 2024 at 1.8%.

“More renewable power, in particular, should be connected [in 2024],” said Leigh.

2. Dark winter looms:

South Africa, the continent’s most industrialised country, is in the grip of an energy crisis that critics say is much deeper than the authorities openly acknowledge.

The periodic electricity blackouts are expected to reach a critical stage as winter arrives in the Southern Hemisphere and sends energy demand soaring, experts warn.

Winter fears 

The South African winter, which runs from June to August, can get cold, with temperatures plunging below zero degrees Celsius in some areas.

Ramokgopa has already warned people to brace for a dark and cold winter.

Treasury, meanwhile, has said the debt-saddled Eskom cannot borrow more funds for the next three years and needs to find the resources for badly needed repairs and refurbishments on its own.

Ramokgopa told journalists in Pretoria last week:

I’ll be brutally honest. It’s going to be an exceptionally difficult winter.

Worst case 

The energy situation is so dire that experts warn the country could be on the brink of a widespread collapse of its electricity grid.

“Winter is going to be disastrous this year if nothing drastic is done now to return back to operation the current units that are out,” Nchabeleng told AFP.

“We are sitting in a catastrophe right now,” he said, adding that the grid risked being stretched “to the point of its collapse”.

Eskom, which provides the bulk of South Arica’s electricity, can guarantee supplies of 27 000 megawatts, the new electricity minister has said.

But summer demand peaked at 32 000 MW, and in winter it can soar to 37 000 MW – raising the prospect of dire cold for millions of people.

3. Service delivery conflicts:

The South African government faces a critical decision between controlling and ensuring proper service delivery. Over the past decade, the declining quality of service delivery in virtually all rural areas and many metros has made this abundantly clear.

Government cannot control and provide services. It needs to choose.

The recent events in Frankfort, where the Mafube Local Municipality failed to support a court application by its service provider Rural Maintenance (RM), highlights the government’s and Eskom’s lack of understanding of the situation at the grassroots level of the country.

There can be no dispute that Eskom and the government have failed South Africa as they cannot provide an essential service. So why would Eskom and (especially) the local authority penalise a community that has developed a plan to reduce load shedding?

The South African Independent Power Producers Association (Saippa) eloquently summarised the situation, saying that if Eskom’s argument prevails, all investment in independent power projects by the private sector and municipalities will dry up, as the plants will not be allowed to run economically.

4. SARS looking at how solar tax breaks can be expanded:

The National Treasury and the South African Revenue Service (SARS) have called on the public to comment on the draft legislative amendments to give effect to the two renewable energy tax incentives announced in the 2023 Budget.

The proposals, which were published on Friday, assist in partially addressing the country’s energy crisis and encourage private investment in expanding electricity generation.

“This initial batch of the 2023 draft Taxation Laws Amendment Bill (TLAB) covers these two specific tax amendments and are urgent due to the proposed early effective dates for implementation and to enhance certainty for individuals and businesses that would like to immediately invest in renewable energy.

“The publication of the initial batch of the 2023 draft TLAB enables an early and additional public comment process that will enable the more detailed second-round process of public comment when these provisions are incorporated in the more comprehensive 2023 draft TLAB in July 2023,” National Treasury said.

This initial batch of the 2023 draft TLAB is intended to solicit comments on the following two specific and urgent amendments and serves as notice to taxpayers for earlier effective dates of the proposed amendments.

Public comments may include proposals by body corporates on how the rooftop solar incentive could be applied to members of the body corporate if a body corporate were to install solar PV panels for members’ benefit.

5. Government drags feet on EV decision:

Motor industry leaders collectively complained that the government was threatening the future of the SA motor industry by dragging its feet on policy for electric vehicles (EVs).

The industry contributes a considerable amount of revenue to South Africa’s GDP, and future investments are already being put at risk from EV indecision.

Despite this, Trade, Industry and Competition minister Ebrahim Patel told parliament on Friday (21 April) that they may have to wait another year for a decision.

All information sourced from articles posted by: DailyInvestor, Fin24, Moneyweb, BusinessTech and BusinessDay.

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