- In 1923, South Africa had over 40 municipalities and 18 private companies, each struggling to dominate the industry.
- Despite the efforts of the SA government to ensure no severe loss, the power outages alone have caused its economy’s GDP to reduce by 1.3%.
- Eskom is about $25.6 billion in debt, which stems from its days as Escom.
Eskom’s corruption and inability to provide suitable power is plaguing South Africa’s economy. The persistent power shutdowns, or load shedding as it is known in South Africa, has significantly hindered the country’s economic growth despite steadily leading Africa’s technological revolution. While weathered power plants have contributed to the meltdown, corruption has been the single biggest contributor to the current power crisis.
South Africa is the most industrialized country in Africa. According to Statista, South Africa had the second-highest GDP in 2021 and pioneered Africa in the 4th Industrial revolution. Unfortunately, it is also one of the prime examples that show the effects of corruption in Africa today. Despite the numerous attempts by various political figures within the emerging economy, the tentacles of corruption still grip Eskom. Here is a brief look at how Eskom poses the greatest threat to South Africa; ‘s economy.
From Escom to Eskom; Genesis of the power crisis in South Africa
Before Eskom crumbled from years of mismanagement and corruption, it had a long-standing history of supplying power to South Africa as one of the oldest state-owned utility firms in Africa. It was also one of the biggest power companies in the world in terms of profits and electricity generation.
In 1923, South Africa’s government published an amendment called the Electricity Act that formally established Escom. South Africa had over 40 municipalities and 18 private companies at the time, each struggling to dominate the industry. However, after these amendments, Escom was placed at the top of the electric sector as the main power supply of South Africa.
Initially, Hendrik Johannes van der started Escom to ensure the delivery of cheap electricity to railway lines and mines. The change brought new responsibilities for the power plant. The government requires it to supply electricity to public services and the public interest. South Africa greatly owes its current economic state to the Escom.
Also, Read Dimming lights for South Africa’s Eskom: Reports ZAR 20 Billion ($1.2bil) loss for 2020.
It became the central driving force for South Africa’s capitalist economy. In addition, it generated affordable power for the growing mining, transport and manufacturing sectors. In addition, South Africa also had the privilege and luxury of cheap, good quality electricity that powered the entire country.
Eskom acquired funding from the national government that significantly aided its growth. By 1948, it had assimilated most of the private and independent power stations taking out its relative competition. At the end of the year, it had monopolized South Africa’s energy industry. Unfortunately, this also spelt the first downfall of the utility.
The initial Red Flag
As years passed, Escom continued to borrow from foreign markets to expand its programs. However, the size of its projects proved problematic. As a result, the government passed a new law that allows Escom to set up a Capital Development Fund. Escom could retain earnings while placing excess cash into this fund. This marked the first loophole that would later hinder South Africa’s progress.
When the global energy crisis hit in 1970, Escom felt the pressure as the only energy solution in South Africa. Soon it started increasing the electricity prices while still facing the pressure of increased energy consumption within the country.
The government began questioning its decision to develop power from nuclear sources. As a result, the de Villiers Commission investigated the operations in Escom. Unfortunately, this was only a light show to appease the angry citizens. Under recommendation from the commission, Escom changed its name to Eskom, but only a minor cosmetic change occurred.
Eskom weaknesses emerge
Eskom’s corruption is initially rooted in its previous company name, Escom. Unfortunately, many could not truly see it at the time as the government also focused too much on improving SA rather than dealing with operational problems. To understand the detrimental factors plaguing South Africa, we must give an overview of the sheer draining power of corruption.
According to statistics, Africa loses a staggering $150 billion to corruption each year, driving away investments and high-value projects. Economic Commission for Africa Executive Secretary Ver Songwe concurs with this statement by stating that widespread corruption is essentially “eating away” at Africa’s economic growth.
She noted that the rate of corruption would only increase, reducing Africa’s GDP by 0.13% yearly. Unfortunately, corruption is a plague that ravages even developed continents. The only difference is that both sides of the globe funds embezzled have different purposes. The effects of corruption in Africa are more severe, mainly because the funds appropriated were to aid in development projects.
Also, Read South Africa dives back to economy-draining power cuts.
In researching Africa’s economic growth, an article stated that Africa’s corrupt state is rampant due to the weak political structure of various countries. The properly constructed, non-feasible and unsustainable institutional order in a different developing country is the fundamental cause of slow or digressing economic growth.
In the recent decade, South Africa’s government had to roll out power cuts to ensure its power plant did not completely crash. This heavily affects its economic growth, considering it is one of the most industrialized economies in Africa. These power cuts were initially enforced in 2007. At the time, the Minister of Public Enterprise Alec Erwin and Eskom CEO Jacob Maroga provided an overview of the overwhelming demand for power. According to their report, several factors led to their current crisis, including:
- Late start of the new Build Programme
- An insufficient reserve margin
- The medium-term planning effectiveness
- Demand growth increased from 1994 to 2007
Unfortunately, after a decade, fundamental reforms that were needed did not take off, and the state of power in South Africa seemed to grow worse. Even more suspicious is that Eskom was one of the top twenty power utilities worldwide regarding generation capacity. This begs the question, is it really about power outages, or is there something more?
Also, Read South Africa loses $8.3 billion through power cuts, research reveals.
Existing cases
Zondo Commission, led by Justice Zondo, the SA Chief Justice, stated that Eskom is one of the most corrupt organisations in the country. The commission released a series of voluminous reports of how the country’s public sector has also significantly contributed to the rot in Eskom.
He highlighted at least 533 pages showcasing the various corrupt activities that are rife at Eskom.
In one report, he stated that Eskom gave contracts on favourable terms to the Gupta family – accused of state-capture under Jacob Zuma’s administration. In under 12 years, Eskom has had 12 CEOs. They all share similar stories of their inability to deal or cope with the high corruption and inefficiency of the power plant.
Former Eskom CEO André de Ruyter is among the few exceptions who publicly stated his willingness to fight corruption within Eskom. Regrettably, his efforts were in vain. Before joining Eskom as CEO, Andre said his close colleague had warned that he would not be running a utility firm but one of the largest crime syndicates in Africa.
The words would haunt the former CEO as few took kindly to his investigations. There was an attempt to kill him by lacing his coffee with cyanide. He resigned on March 31st 2022.
Eskom’s Corruption hits South Africa’s economy.
When Eskom’s corruption resulted in up to 10 hours of blackouts, South Africa’s overall economic growth was bound to be affected. According to statistics, the severe power cuts cost an estimated $235 million a day in lost economic activity. Despite the efforts of the SA government to ensure no severe loss, the power outages alone have caused its economy’s GDP to reduce by 1.3%.
Due to electricity supply challenges, south African Finance Minister Enoch Godongwana stated that the country’s economic growth could be more impressive. He further said South Africa has one of the best policies, industries and innovators. Still, all these attributes are only meaningful if the country can supply adequate power to industries, businesses and homes. In addition, Eskom is about $25.6 billion in debt, which stems from its days as Escom. Auditors have warned the state that bankruptcy is almost inevitable after a net loss of $719 million in 2022.
The government announced an 18.65% increase in electricity bills to curb a total collapse starting April 1st 2023. According to the country’s Mineral Council, this increase would adversely affect the country’s mining industry. It will lead to a 33.7% increase in energy consumption, worsening South Africa’s economy.
Experts state that Eskom’s bloated staff is another factor that has led to the mismanagement of its facilities. According to Berteshaw, to curb the systemic degradation of services, privatizing electricity production will save the economy while still cutting down Eskom’s corruption.
Also, Read Eskom’s working power plant risks shutdown.
According to Bloomberg, the African National Congress plans to buy electricity from other countries. This would seem like an immediate solution to the current crisis, but it would also increase the country’s budget. Unfortunately, if Eskom goes through with the increase in electricity bills, history will repeat itself. Similar to how Escom grew its bills with little improvements in quality. Only this time, the citizens will suffer from the lack of power and high electric bills.
