• The SARB published its Financial Stability Review this week and it’s clear that power cuts are a major threat to the stability of our financial systems.
• Plans to protect against these cuts will only start having an effect in the medium term.
• However those protections are going to cost businesses and ultimately consumers.

What was once an inconvenience that was implemented on really bad days, loadshedding has now become a constant plague on South African citizens and businesses.

This week the South African Reserve Bank (SARB) published its First Edition 2023 Financial Stability Review. The review takes a look at the stability of the financial system and the SARB makes no bones about it – loadshedding is a danger to the stability of financial systems.

“… It is evident that an insufficient and unreliable electricity supply is a growing risk to financial stability in South Africa. The prevalence of higher stages of loadshedding poses an immediate risk to the efficient functioning of infrastructure such as automated teller machines (ATMs) and cellular networks, which are crucial for the smooth functioning of the financial system,” wrote the SARB.

While businesses are making plans to mitigate the impact of loadshedding, the cost of doing this is being passed on to the consumer. For context, the SARB notes that the cost of municipal power is R1.33 per kWh versus R6.75 per kWh to run a diesel generator. That extra cost needs to be accounted for and everybody is, and will, continue to feel the pinch.

While generator imports are climbing, South Africans are turning to renewables. The SARB reports that in the first quarter of this year solar panel imports amounted to R3.2 billion compared to R1.4 billion in Q1 2022. However, the SARB also says that plans to mitigate the threat of loadshedding will only start having an effect in the medium term while Eskom’s plans to alleviate power cuts will only materialise in the next 12 months.

However, the need to adopt alternative power solutions has drawn a clear line between the middle and upper income classes and the lower income classes in South Africa. Those who are able to afford generators, backup power solutions and the like can build resilience while those who can’t are left at Eskom’s mercy watching food spoil and left to the mercy of a cold winter. The bad news is that the situation will only get worse.

“SARB analysis shows that loadshedding may add 0.5 percentage points to headline inflation in 2023. Loadshedding will likely adversely impact other macroeconomic variables, for example the contractionary effect on growth could hamper a sustained recovery in employment, while loadshedding concerns will continue to weigh on investor sentiment, in turn raising South Africa’s risk premium and placing pressure on the exchange rate,” the reserve bank wrote.

This creates further issues for government which is unable to collect as much revenue as those who can, explore alternative energy. Over the long term this is going to affect the lower and middle income classes as government will need to make up this shortfall somehow.

But businesses and South Africans can’t be blamed for trying to guard against the worst case scenarios. The SARB is itself planning for the “improbably but not impossible scenario of a national electricity grid shutdown” and should that happen, Eskom says the country would be without power for weeks.

With Stage 6 loadshedding currently in effect for the foreseeable future, it’s tough to find something to be positive about and looking to the future, at least from the SARB’s perspective, doesn’t offer much respite from that dread.

[Image – Janusz Kanabus from Pixabay]