Monday, August 31, 2015

South Africa Economy is Ill, Admits Zuma
August 31 2015 at 07:30am
By Dineo Faku

Johannesburg - President Jacob Zuma on Sunday acknowledged that the South African economy was “sick” as he launched the first unit of Eskom’s new Medupi power station in Limpopo.

Zuma threw down the gauntlet to labour and business to put the country first as the domestic and global economies faced headwinds. “Should we not come together and recognise the economy is sick? You cannot say it is business as usual when the economy is sick… Should we not talk about business and labour tightening the belt?” asked Zuma.

The country’s economy moved close to recession, which is a drop in gross domestic product (GDP) in two consecutive quarters, in the second quarter with GDP contracting by 1.3 percent after growing by 1.3 percent in the previous quarter.


Two of South Africa’s partners in the Brics group of five countries, Russia and Brazil, are both already in recession. Statistics SA figures showed that only the government, transport and retail sectors had grown in the second quarter while agriculture, mining and manufacturing declined.

The mining and manufacturing sectors, in particular steel, have announced plans to cut thousands of jobs amid declining commodity prices and subdued demand from China.

The rand’s decline, which saw the unit hit record lows to the dollar last week, is also a headache for the economy.

“If the private sector says let us cut labour because the economy is not doing well, I don’t think it is good,” Zuma said.

“With regard to labour, for it to say we don’t care what happens, we want higher wages. This will impact on the government,” he added.

The first Medupi unit, known as unit 6, will add 794 megawatts of power to the national grid and is the first new power station to open in South Africa in 20 years. Its planned operational life is 50 years. Once completed it would be the fourth-largest coal-fired plant and the largest dry-cooled power station in the world, the government said.

Zuma said that while energy shortages remained a “serious challenge” for South Africa, the opening of the Medupi unit showed progress was being made. “Shortage of energy does not only cause enormous inconvenience, it is a serious impediment to economic growth,” Zuma said.

“Pressure is being alleviated. There is light at the end of the tunnel,” Zuma said.

“There’s no time to waste,” Zuma said, adding that the utility appreciated the need to bring the rest of the station online without further delay. “We must move faster as a country.”

The first of six units at the plant will help Eskom address blackouts that have hobbled South Africa’s economy for 99 days this year. Its launch also came after 22 days of no power cuts at Eskom despite the Koeberg power station being shut for maintenance.

However, South Africa is not yet out of the woods.

“We are not saying there will be no load shedding. We will keep load shedding to a minimum,” Eskom acting chief executive Brian Molefe told journalists yesterday on the sidelines of the launch.

The utility would adhere to strict project management principles to avoid delays and cost overruns that saw Medupi power station’s price tag swell to R105 billion, he added.

The increase in the budget is due to labour disputes and construction delays and mean that the project was now due for completion in 2019, seven years behind schedule.

“We will ensure that timelines are adhered to,” he said.

Medupi, which saw construction start in May 2007 to address power shortages, was delayed by a seven-week long unprotected strike last year over bonuses, which threatened to prolong load shedding.

Abram Masango, Eskom’s executive for group capital, blamed under-estimation for the escalation of costs at Medupi. Masango noted that only 10 percent of the costs at Medupi had increased as a result of cost overruns, adding that it was normal for costs to escalate in capital projects.

* Additional reporting by Bloomberg and Reuters

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