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Is Eskom the single biggest barrier to economic growth in South Africa?

ENCA reports that credit ratings agencies and experts have concluded that the single biggest barrier to South African growth is Eskom.

According to the report Eskom announced the completion of the fifth unit at Medupi power station this week – which means the facility is one unit off of completion and is over budget by more than R60 billion.

Eskom claims this is down to labour unrest, shoddy workmanship and the original cost of the project being underestimated. Kusile power plant meanwhile, if there are no further delays, will overrun by R70 billion.

Eskom has nearly R400 billion in debt, meaning last year interest alone cost it R2 billion.

Bloomberg reports that between 2009 and 2018 – “there are no good statistics” about the utility.

They also report that the company has had 10 CEOs over that period, and the new board has found  $1.5 billion (R21.78 billion) in irregular expenditures.

According to Business Tech, Eskom recorded an after tax loss of R2.3 billion in March, largely due to “corruption, management inefficiency and overstaffing”.

Their revenue is going down despite repeated price hikes – because sales are dropping.

These hikes haven’t been small, according to Power Optimal in 2017 had already hiked the price of electricity by over 350% compared to the 2007 price. Inflation over that same period was 74%, meaning the price of power went up almost five times as fast as inflation.

Eskom is also a bit of an environmental disaster. According to Infrastructure News in June, new environmental legislation could force the utility to comply or shut down.

The Centre for Environmental Rights meanwhile reported in March that the utility had said it has no intention of ever meeting the sulphur dioxide standard for 13 of its stations.

Instead it would apply for “rolling postponements” until the plants are decommissioned. This is just one example of the pollution issues around Eskom, and the pollutants involved are dangerous to human health.

Another environmental group, Groundwork SA, said Eskom’s pollution is responsible for the following:

  • 2 239 deaths per year: 157 from lung cancer; 1 110 from ischaemic heart disease; 73 from chronic obstructive pulmonary disease; 719 from strokes; and 180 from lower respiratory infection;

  • 94 680 days of asthma symptoms per year in children aged 5 to 19; and

  • 2 379 hospital admissions per year, and 996 628 lost working days per year.

My Take

I would still put Eskom in at the second biggest threat to our economy, rather than the biggest, simply because a lot of what has gone wrong with Eskom has been down to corruption.

So corruption I would say is the number one risk, simply because Eskom is a subset of that risk.

That said, we tend to forget when we look at economic issues that the environment is a major part of that.

When the Gupta family were selling substandard coal to Eskom, as per IOL, that wasn’t just bad for the machines, it was bad for the people living in the areas that have power plants.

To me, Eskom’s annual environmental waiver has made its treatment of eMalahleni’s debt particularly off-putting. eMalahleni in 2013 had the worst air quality in the world, in 2017 little progress had been made according to Times LIVE.

Yet eMalahleni has repeatedly been threatened with having its power cut due to how much the municipality owes the utility.

Anyway, even aside from Eskom’s financial issues – its environmental issues also impact our economy because sick people are not as productive as healthy ones. The damage to the environment is damage to human beings, straining our already weak public health sector.

In April the London School of Economics published a paper that said that air pollution was causing crime in London according to the UK’s Independent.

There is no reason to assume it wouldn’t have similar effects here, and what has happened with our tourism recently? The US put out a travel warning over our high crime rates.

We often see the environment treated as a competing interest to the economy, but a bad environment has a lot of economic impacts, that are very difficult to quantify.

And these impacts are not small. Part of what caused a recent hike in oil prices, was a bad hurricane season in the US. That was climate change in action.

You cannot solve the economy while ignoring the environment, because damage to the environment comes at an economic cost. Similarly you cannot collapse the economy and hope your environment does okay – because the first thing to go in cost cutting measures is generally maintenance, which leads to more environmental damage.

If we are to fix our environmental issues, we need to do things properly, which means dealing with corruption first and foremost so that when stuff gets done, it gets done right.

90% of our environmental issues, 90% of our crime issues, 90% of our issues in general do not require anything fancy to solve them. They just require people to do their jobs in an honest and efficient manner, doing the basics right would solve so many of our problems.

And corruption is getting in the way of that.

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