Call Centre: 0861 00 8272

High electricity prices turn targets of New Growth Path to pie in the sky

Government should not expect mass job creation, or job creation at all

UASA is most concerned about the effect of the rising cost of electricity, as demonstrated again by manufacturers who will appeal to the National Energy Regulator of SA (Nersa) for relief on its planned, steep electricity tariff increases.

UASA is convinced that this is another reason why, if government is serious about the targets of the New Growth Path, it should consider alternative methods of financing the additional supply of electricity. UASA does not expect mass job creation or job creation at all when companies are forced to close their doors because government makes it impossible for them to stay in business.

Since June 2008 the price of electricity increased by more than 108% (according to the seasonally adjusted producer price index calculated by the South African Reserve Bank).

This means that the cost of electricity more than doubled for producers. Put differently, if electricity costs comprised 10% of total costs of a producer in June 2010, it would now be more than 20% if all else remained constant.

This has major consequences for the South African economy and serves as another reason why the targets of the New Growth Path will remain a pie in the sky. From the production/supply side it makes companies less competitive and forces them to consider, and indeed retrenching workers in an attempt to neutralize the impact of electricity tariff increases.

A case in point is the Blyvoor mine which applied for a Business recue in terms of section 16 of the companies Act in July 2011. Meanwhile, ESKOM raised its tariff by 30% in line with their so-called "winter tariff" which effectively neutralised all the gains made to rescue the mine. Blyvoor requested a concession based on the financial position of the mine but ESCOM refused. The result is that the mine has now given notice that it will have to retrench 500 employees in order to cut costs.

From the demand side, it reduces consumers’ spending power and actual spending at retailers, which in turn forces retailers to reduce the number of workers due to lower selling.

Against this background, the same government that implemented the hefty electricity price increases should not expect mass job creation, or job creation at all. Furthermore, as the electricity price increases will continue, no relief on the job creation front should be expected.

At least the increases of 25% and more should be reduced to levels of 10% and less. Not only will it relieve the pressure on inflation, but also on retrenchments. It might also provide a stimulus for more spending in the economy which should aid production and job creation.