Ed: I wrote the below piece in 2008 and it did indeed explain the load shedding from that time. And then. came the wrecking-ball called Zuma…
If you haven’t read my first blog, not to worry. It merely lead to me deciding to elaborate on a short bit of our history in order to explain how we landed in the power pickle that we are in…well sort of.
Let’s just look at the country since 1994. Popular belief amongst most South African is that the country was economically under pressure from years of economic sanctions, but had a reasonably strong treasury despite. In fact most white South Africans will tell you to this day that we were economically stronger that we are today, which just are not.
Our country had by then been involved in (too) many years of warfare against what was termed “Die Swart Gevaar” and later “Die Rooi Gevaar” being the blacks and communists respectively – not that these were seen as different entities rather that the latter were backing the former.
In reality while FW and Madiba were negotiating a new government of national unity, the country were in its worst economic state ever. Our annual budget deficit were hovering around 10%, inflation and interest rates were at an all time high and rising (>15% in both cases). The only thing that seemed respectable was the Rand vs. Dollar and that kept most white South Africans happy. At the same time, white utilities, schools, road and medical infrastructure were in line with first world standards – again as a white South African this was a great country from a standards point of view.
The new government embarked on their respective election campaigns of jobs for all, houses for all, no more poverty, etc. with a whole different picture in mind. They were not in touch with the level of the national treasury or the general bad state of the economy. While Trevor and Tito may have understood the realities a bit better, the general new government did not. Joe Slovo certainly did not when he promised 1 million new houses in one year to the masses shortly after arriving in office.
Not only was the situation dire, the global market who we long did not care about and they not about us (because of sanctions) had changed in the years we were isolated. In particular the emphasis shifted from the exchange rate as major economic health indicator to inflation. While our exchange rate were reasonable, our inflation was starting to get out of control.
Trevor Manual (with help from Tito no doubt) soon realized that the inflation had to be under control for the global investment community to take South Africa seriously as an emerging economy.
So the new government, post 1994, were no faced with two tough realities, which were opposing in nature:
• Matching their election promises with delivery thereof
• Getting the economy onto a growth path and out of trouble
It should be clear that matching election promises would cost money and lost of it, but the economy was about to collapse so that money did not exist. Let’s say it’s like a father promising each of his kids a new bike, clothing and a playstation and then discovering his business is on the brink of being bankrupt.
So what call did they make? Well a harsh one on the surface, but the best one under the circumstances. They placed their emphasis on long term economic health, which could only be achieved if the global investment community views you as a healthy emerging economy and not a battling African economy. We were closer to the latter in 1994 than most people appreciate.
So in order to bring down inflation and interest rates, the government stopped spending on infrastructure. It’s crude, but again was the right thing to do. In my mind the thinking went like this: We’d rather have some run down hospitals, schools and roads, but have the global investment pouring in than keeping infrastructure in tact, but soon collapsing into a typical African state. The view they took was long term. Once investment came to the country, this would spark economic growth, which in turn would generate more taxes and a healthier economy from which they can then spend money on the infrastructure again.
Again crude, but effective. The plan worked and it worked well. We did get our inflation and interest rates under control, the investors did arrive and that did send us into a un-matched 9 years (and counting) growth phase which was previously unheard off. The price? Well the decade in which very little was spend on infrastructure would cause major run-downs (which they anticipated), but this would take more than double what they saved and twice as long to recover, which is the phase that we are currently in.
Before you start screaming that the current situation is worst again i.e. high interest and inflation rate, still pot-holes etc. I’ll get to that in another blog.
So with money little, a population screaming and an economy battling to get of the ground, the government placed a moratorium on further electricity expansion by Eskom around 2000 when Majuba the last coal fired station was being completed. The thinking was that power generation must be more privatized and increasingly shift toward pebble-bed (nuclear) generators rather than coal based which most of our grid is. It’s just that from a priority point of view this was not executed as well as it should have been.
While our money was being spend to get the economy into a better state, the execution of the privatization was very poor and at least 5 if not more years were lost in the typical planning cycle in Eskom. Consider that Eskom needs to plan at least 20 years ahead as building a power station takes at least ten years. Loosing 5 plus years is not easily recoverable.
In the mean time the economy is growing stronger than ever, the middle-class is developing nicely as a result, we’ve attracted foreign investors and ALL of this places more pressure on the power demand. With planning now 5 years behind and demand reaching the upper barriers of what was anticipated it is not difficult to see that we were (and still are) heading for trouble.
It does off course not help that in order to save and to become more BEE compliant, Eskom outsourced its coal-transport requirements to BEE companies. Too many of these companies had never owned a truck before and so when tendering for contracts did so at rates that were not economically viable. Their (BEE boys) plan were always that they will outsource this to some existing contractor and just take the arbitrage and get wealthy. Only because the tender value was not viable, not contractor would touch the contract (off course I am exaturating a bit). Not to long and coal delivery to Eskoms power plants in Mpumalanga were not receiving the amount of coal that they used to, which lead to the shortage recently exposed by Carte Blanche and conveniently called “wet” coal by Eskom officials as stated reasons for not generating.
So our government is guilty, there is no doubt, but give them credit. It was partly because of the mess they inherited in 1994 and partly due to new previously disadvantaged people in important positions, not having sufficient experience to do the right things. The big mistake was the skills vacuum that was left after implementing BEE and Affirmative Action to aggressively post 1994.
For me the upside is that South Africans are resilliant and in the weeks following January it was clear that we would moan and groan but that we were not going to led load shedding get us down. I loved seeing people shopping in half-dark shops, eating in restaurants that can only serve cold drinks, etc.
As indicated earlier, I’ll try and show what caused the current situation and why this is not as bad as it may appear.
Until next time.
Louis
Copyright (C) 2008 Louis van Niekerk. All Rights Reserved
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