A DECADE ago I attended a conference on South Africa’s future energy needs. An Eskom speaker showed a graph with a flat line for electricity generation and an increasing one for consumption. The graph forecast these lines would cross a few years later. Despite Eskom presenting this evidence to all who would listen in government, no new builds were commissioned and it became unavoidable that consumption would outstrip generation.
In 2008 that moment came and South Africa experienced rolling blackouts. Why is it that no one in government listened to Eskom?
As Trevor Manuel said on leaving formal politics in December, too much policy making in government is a function of who shouts loudest. Evidence and logic are less persuasive. It has not escaped notice that taking to the streets and issuing threats of violence are far more effective at having your agenda noticed than calmly presenting an argument showing cause and effect.
I was reminded of that Eskom presentation when I heard Chamber of Mines president Mark Cutifani’s presentation last week on Eskom’s latest price hikes. Since 2008, every whimper by Eskom sounds to government like a deafening roar. It is now everyone else who is ignored. Cutifani’s sober reasoning struck me the way that Eskom presentation struck me a decade ago. His predictions are just as certain to come about.
Cutifani argued that if Eskom is granted its application for a 16% price hike every year for the next five years, "mines would be closed and jobs would be lost ". He said the hikes would trigger a "tipping point" for mining in S A that is already in "crisis". The hikes would mean that many more mines would no longer be viable, including coal mines that would be needed to supply Eskom.
He is not making an idle threat or being alarmist. The Eskom hikes would mean that electricity costs would have risen almost six-fold between 2007 and 2017. For AngloGold Ashanti, of which Cutifani is outgoing CEO, energy would have risen from 12% of costs to 40%. That cannot happen without dramatic consequences. Employment is an obvious one.
While some seem to believe that government can wave a magic wand and turn loss-making mines into viable ones, as it appears eager to do with Anglo Platinum, there is no escaping economics. An unviable industry can only be temporarily saved by the state before the costs and loss of tax revenue combine to leave government itself unviable.
Of course, a large part of the mess we face stems from the state ignoring Eskom a decade ago. But the utility is now using its new-found megaphone to make things as easy as possible for itself.
We should be careful to listen to those who speak softly of the potential consequences.
While Eskom will probably be restricted to more modest hikes and forced instead to save costs through efficiency measures, we are never going to be competitive in energy-intensive industries again. Our energy costs now put us in the top quartile worldwide. We should do what we can from a policy perspective to give such declining industries the longest possible lives, but let’s not kid ourselves into thinking they can be fully resuscitated.
Many South African policy makers seem to believe that mining and other forms of heavy industry are the solution to our unemployment crisis. They are not. We are in a sense lucky that mining and industry have been declining as a proportion of gross domestic product for two decades and, therefore, the rising energy costs are not as catastrophic to our overall economy.
Our economy has become increasingly based on services, particularly financial services. This is anathema to many in the policy world who seem to think financial services are the cauldron of capitalist excess. But such ideological blinkers will not help the country. The fact is South Africa is good at banking, insurance and associated industries. We are increasingly bad at mining and manufacturing. And Eskom is inevitably going to make that ever more the case.
We certainly have an unemployment crisis. Believing that this can be solved by absorbing unskilled labour into declining industries is like believing the lights will stay on without investing in new generating capacity.
Luckily there is one corner of policy making where evidence and reason are the main guides to policies. That is the National Development Plan. While it too will have to factor in higher energy costs, its overall approach is the one we need to maximise the opportunities we do have. Let us spend more time listening to those who speak softly and less to those who shout loudest.
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