South African Power Outages Hurt Economy as Unemployment Climbs

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South Africa’s Power Outages
The power constraints have stifled factory production. Photographer: Dean Hutton/Bloomberg

South Africa’s economy grew at a slower pace in the first quarter as power outages curbed factory output and a drought cut harvests, undermining job creation.

Gross domestic product rose an annualized 1.3 percent from the previous quarter, when it expanded 4.1 percent, the statistics office said in a report on Tuesday. The median estimate of 19 economists in a Bloomberg survey was 1.5 percent. The unemployment rate climbed to 26.4 percent, the highest level in 11 years.

State-owned utility Eskom Holdings SOC Ltd. implemented 21 days of rolling blackouts in the first three months of the year as it struggled to meet electricity demand. The power constraints have stifled factory production, limiting a recovery in the economy from the slowest growth last year since a recession in 2009.

“The impact of Eskom’s shortages on production has been underestimated,” Francois Stofberg, an economist at Efficient Group in Pretoria, said by phone. “The question is how long it will be before investors look at our growth rate and decide to take their investments, and especially their capital investments, elsewhere.”

The rand fell to as low as 12.0227 against the dollar from 11.9592 before the data was released and was trading at 11.9832 as of 1:30 p.m. in Johannesburg. The currency has weakened 3.4 percent this year.

Manufacturing, which contributes about 13 percent to the economy, fell an annualized 2.4 percent in the first quarter, while agricultural output contracted 16.6 percent because of drought.

Gloomy Outlook

A recovery in Africa’s second-largest economy is struggling to gain traction. A five-month strike at the world’s largest platinum mines in 2014 was followed by stoppages at factories that reduced the GDP growth rate by 1 percentage point to 1.5 percent, according to the central bank.

“Manufacturing is not doing great,” Dennis Dykes, chief economist of Nedbank Group Ltd. in Johannesburg, said by phone. “It’s electricity constraints, policy uncertainty, labor uncertainty.” In the past month, rolling blackouts have “come back with a vengeance,” he said.

Adding to the gloomy outlook is the worst drought in more than two decades that will probably cut South Africa’s corn crop this year to the smallest since 2007, according to a Bloomberg survey of six analysts.

Growth also slowed last quarter because of the first contraction in government services since 2004. The industry makes up 15 percent of GDP and output fell because of a number of resignations of civil servants, such as teachers and nurses, Joe de Beer, deputy director general of economic statistics, told reporters. Possible changes to pension funds prompted some government workers to leave their jobs, he said.

‘Biggest Problem’

Employment in the community and social services industry, which includes state workers, fell by 51,000 in the first quarter, the statistics office said. That increased the total number of unemployed in the economy to 5.54 million.

“Since 2008, the economy has been going through a very difficult situation,” Statistician-General Pali Lehohla told reporters. “What the numbers suggest is that unemployment still remains the biggest problem in South Africa.”

Expansion in mining output and financial services helped to offset the slump in manufacturing and farming, increasing an annualized 10.2 percent and 3.8 percent respectively.

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