South African businesses and households are preparing for another increase in electricity tariffs, a recurring issue affecting the nation’s economy. The National Energy Regulator of South Africa (NERSA) has recently approved Eskom’s tariff adjustments for the upcoming financial year, indicating a rise in costs for both businesses and residents. While stabilising Eskom and ensuring a reliable power supply is essential, and indeed, what is worse than expensive electricity is no electricity at all, it is important to examine the economic effects of these rising costs, particularly their impact on GDP growth and unemployment. 

From an economic perspective, the relationship between rising input costs – such as electricity – and macroeconomic performance tends to be inverse. For businesses, electricity is a crucial input across all sectors. An increase in its cost, especially if it exceeds general inflation rates, results in higher operational expenses. This reduction in profit margins forces companies to make choices: absorb the additional costs, pass them on to consumers, or reduce other expenditures. In competitive markets, passing on costs can make products and services less competitive, leading to decreased demand. Lower profit margins can hinder investment in expansion, innovation, and job creation. Companies facing unsustainable cost burdens may downsize, stop hiring, or even cease operations, contributing to unemployment figures. This downturn in business activity depresses aggregate supply and demand, slowing GDP growth. Consistent and disproportionately high increases in electricity costs can impede economic dynamism and growth, which are necessary to address South Africa’s unemployment issues. 

Consider the City of Cape Town, often noted for its economic resilience and lower unemployment rates. Data shows that Cape Town leads among South African metros in economic growth and job creation. Various factors contribute to this success, including municipal tariff policies. The table below highlights differences in proposed tariff increases across metropolitan areas for the upcoming financial period: 

Cape Town’s proposed electricity tariff increase of 7.2% is markedly lower than Johannesburg (12.4%) and Durban (12.7%). Similarly, water and sanitation tariffs are lower in Cape Town (4.5%) compared to Johannesburg (13.9%) and Durban (12.9%). Although property rates are higher, Cape Town aims to reduce financial burdens on residents and businesses. This approach fosters investment and supports economic growth. 

Businesses across South Africa must speak up on public policy issues, particularly electricity tariffs. Allowing tariffs to exceed inflation without strong opposition threatens economic recovery and job creation. Effective communication and lobbying are crucial. Companies should present economic arguments to NERSA, the Department of Public Enterprises, and decision-makers, highlighting the impact of high utility costs on national prosperity. Crucially, this engagement should extend beyond merely pushing back on tariff hikes; businesses must actively advocate for policies and support mechanisms that encourage greater investment in renewable energy sources. This proactive stance ensures not only a more sustainable energy future but also contributes to long-term energy security and cost stability, reducing reliance on Eskom’s volatile pricing structure. 

While the critical need for Eskom’s financial stability and additional revenue to truly remedy South Africa’s electricity supply challenges is understood, Cape Town’s more reasonable tariff increases indicate that there is room for policymakers to give both consumers and businesses the financial headroom needed to absorb costs, stimulate investment, and ultimately, drive economic recovery and job creation. South Africa’s economic future and unemployment battle depend on the business community’s active engagement in shaping policies to avoid stagnation. 

– Mauritz Venter
Junior Account Manager