South Africa: growth jolt

Finance Minister Trevor Manuel will be presenting the 2008-09 budget amid ever gloomier circumstances on Wednesday -- particularly if the lights go out.

Unscheduled rolling blackouts -- termed 'load-shedding' by state power company Eskom -- swept the country in late January, the result of a combination of increased demand, diminishing spare capacity, unforeseen maintenance and coal supply problems.  The blackouts hit the mining industry particularly hard, and even now operators have pledged to work with just 90% of normal energy supplies. Household and other consumers are also being asked to cut back on energy consumption, and Eskom expects energy shortfalls for at least four years while additional capacity is developed.

The energy crisis has dented forecasts for growth in 2008, following average growth of around 5% since 2005.  A number of other factors are also at play, including a widening current account deficit and inflationary pressure, as well as a global economic slowdown.  Optimists see January's power cuts as a one-off event, and -- considering prospects for a good harvest, continued expenditure on infrastructure and high commodity prices -- expect growth of about 3.5-4% this year.  Pessimists fear further power disruption and falling investor confidence, leading to weak growth of 1-2% at best, or at worst a recession.

In either case, the government's target of 4.5% average growth between 2006-10 is certainly under threat.