Will our energy crisis lead to a Soviet style meltdown?
When Nelson Mandela was released from prison in 1990, the world and South Africans were optimistic about South Africa’s political future. Gone were the days of a minority dominated government, as 1994 saw a government that was representative of the people. While there were fears over the political landscape of the “New South Africa”, political activities were conducted with maturity and dignity, which saw major economic growth.
Fast forward 21 years later, and the only words that come to mind when looking at the current landscape are petulance and political showboating. Nelson Mandela surely would have shed a tear if he saw what the country has come to.
This is a time for introspection. The government needs to stop the political bickering to focus on a challenge which is fast turning into a crisis, and that is Eskom’s current inability to regularly keep the power on. If this does not get resolved, the country faces a potential Soviet style meltdown.
Wheels of destruction
At the height of the Cold War, Russia was one of the strongest nations in the world, which was built off the back of a strong history of industrial production. The wheels of industry funded the expansion of The Union of Soviet Socialist Republics (USSR) into a mighty nation that could literally bend countries to its will. However, after the Cold War ended, many of the countries which formed part of the USSR broke away from the union, and the Mighty Mother Russia was not so mighty anymore. Industrial production slowed to a virtual standstill (when compared to production at the height of the USSR), and the superpower toppled to a struggling nation which is only now starting to rediscover its place in the world.
What can South Africa learn from this? South Africa’s place as the former strongest economy on the African continent was also built off the back of a booming industrial sector. Mining companies were fighting for positions in the country and the metal industry was taking significant advantage of the fact that there was good supply which could meet global demand. In 2008, and South Africa saw a glimpse of how fragile the industrial industry is if there is no steady supply of electricity.
The situation is tense and is a major aggravation point in the political halls of government. During load-shedding, major power users are required to decrease their energy consumption by 10%. Because these companies are major contributors to the country’s Gross Domestic Product (GDP), growth aspirations need to be revised and will not reach the 3% growth target that government was hoping to achieve. The wheels of production could become the wheels of destruction if something is not done.
A hostile nation
With decreased production comes unemployment; during the Cold War, military production employed one in every five citizens in the USSR. Following the end of the war, dismantling of mass military production left hundreds of millions throughout the former Soviet Union unemployed.
While this will not be the case in South Africa, it is permissible to let the unemployment rate rise above 45%? The mining sector is South Africa’s major employer, as was military production for the Soviets, and mining companies have been forced to significantly cut their production. True, this is also because of decreased global demand, but this has not disappeared entirely. Demands from Eskom have virtually brought the industry to its knees.
While companies are in dire straits, cost cutting needs to take place. When payroll is one of the biggest costs, unemployment is an unfortunate result. The public is already asking government how they are going to create jobs and they have become increasingly hostile to foreign businesspeople who they think are taking their jobs.
Will the situation get better?
Looking at the situation, South Africans need to ask if it is going to get any better. If Eskom is currently struggling to meet the current demand, what would happen if the demand were to increase?
Global management consulting firm, McKinsey & Company, recently released a report titled Brighter Africa: the growth potential of the sub-Saharan electricity sector, which highlights how Africa could meet a demand for electricity that is expected to quadruple in the next 25 years.
Adam Kendall, Principal at McKinsey & Company, mentioned that this needs to be resolved as a matter of urgency. “Interest in the topic is growing due to governments’ increased openness to private sector participation, large gas discoveries in East Africa, and initiatives such as the United Nation’s Sustainable Energy For All and the United States’ Power Africa,” he said.
Kendall added that sub-Saharan Africa’s residential and industrial sectors that suffer electricity shortages also struggle to sustain GDP growth, and the inadequate electricity supply slows GDP growth by one to three percentage points annually, while leaving 600 million Africans without power.
“In spite of this, we expect electricity demand to quadruple by 2040, creating a nearly 1,600 terawatt-per-hour opportunity. Instead of just forecasting an uncertain future, our analysis attempts to outline and assess the impact of a few extreme development pathways that could meet this demand,” said Kendall.
“For example, national self-reliance will require more than $830-billion in investments, however, greater focus on renewable energy, such as solar and wind, would cost $153-billion more but could save 21% in CO2 emissions,” he said.
“The stakes are enormous. Indeed, fulfilling the economic and social promise of the region, and Africa in general, depends on the ability of government and investors to develop the continent’s huge electricity capacity. This report, which rests on McKinsey’s electric power experience across Africa and in developing countries, serves to help governments, the private sector, and multilaterals navigate the sector’s development over the next 25 years,” concluded Kendall.
Editor’s Thoughts:
History has a way of repeating itself, and we can learn many lessons from the fall of the Soviet Union. Let us hope we can move beyond our current political situation to work towards a real solution. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
