South Africa can raise its growth ceiling to reach emerging market rates of between 4% and 5% by the end of the decade, provided it is supported by energy production, says political and economic analyst, Frans Cronje.     

Speaking during a webinar hosted by Cinnabar Investment Managers, Cronje said the growth ceiling, partly imposed by electricity availability, stands at around 2%. However, he said if Eskom and the Government of National Unity (GNU) continued with its coal refitment strategy, this could support emerging market growth rates of between 4% and 5% by the end of the decade.

“Eskom is actually coming right and doing very, very well," said Cronje, pointing to the energy availability factor, which details what share of Eskom’s plants and equipment are producing electricity. This number sat in the 60% range between January 2021 and July 2022, but dipped below 50% thereafter, hitting a low of 48.7% in January this year. In May it rose to 63.2%.

This was not driven by Eskom cutting corners on maintenance, which some have suggested, but by lower levels of breakdowns, according Cronje. Breakdowns reached a peak of 35.5% at the end of 2023, but have since stabilised at around 24%.

“The reason for this is that Eskom’s goal managers are getting the support from the energy minister that they weren’t getting during the era of Andre de Ruyter,” 

Cronje however cautioned that to maintain a high-tech services model of growth, the country would need to take energy production to between 35 000 and 40 000MW. For a heavy industrial growth model, this would need to be closer to 45 000MW. Actual production - measured a few weeks ago, had reached 25 0000MW - so the amount of dispatchable energy available on the South African grid would need to double.

“This cannot be done through a coal to solar transition,” he said, adding that the grid would not be able to support it.

Average growth rates

Average growth rates of 5% were last measured in South Africa between 2004 and 2007, driven by confidence and fixed investments. This growth, along with a “complete revolution of living standards”, delivered in the early days of the ANC’s rule in South Africa, had driven the party’s major successes at the polls.

“We said, if this is ever reversed, if growth collapses, the ANC is going to get absolutely smoked in future elections. All that has happened over the past eight weeks is that our democracy worked exactly as it is intended to: if you govern South Africa well, you will be rewarded and if you govern it badly, you will lose command,” said Cronje.

He likened this to an immune response, which is still present in South Africa today.

“Should this GNU not succeed early on, in raising basic standards of living… unable to achieve modest successes in sustaining confidence, raising fixed investment, getting growth up and jobs and living standards behind that, it is going to be a victim of the same immune response that brought it to power,” he said.

He said the GNU had been born into a supportive global environment which means that it may succeed.

His firm has built out scenarios for the country’s future on a matrix based on two questions. The first is whether South Africa undertakes a 20 year coal refitment to clean nuclear energy transition versus a rapid, coal to solar transition. The second, whether public opinion remains moderate, or whether there is a move to more radicalised thinking.

In the best case scenario, coal refitment, coupled with moderate public opinion, economic growth rates would reach 5% through the late 2020s into the 2030s, unemployment would drop below 10% by 2040, and the country would be a leading global democracy with an outsized global interest.

On the opposite end of this matrix, with a forced, rapid solar green transition the country would “flirt with recession” and poverty would increase, allowing mass radicalisation to take hold. A populist government coming into power in this circumstance would result in high inflation, printing of money and middle-class flight.

Achieving the best case scenario would result in “absolutely spectacular” returns in South Africa.