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Eskom tariff hike will dent growth and job creation, Busa warns

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Eskom tariff hike will dent growth and job creation, Busa warns

Busa's Jerry Vilakazi and Raymond Parsons speak on South Africa's economic outlook for 2010.

10th December 2009

By: Esmarie Swanepoel
Creamer Media Senior Deputy Editor: Australasia

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Business Unity South Africa (Busa) warned on Wednesday that, should State-owned electricity producer Eskom's push for a 35% tariff increase be approved by the regulator, it would have a detrimental effect on South Africa's growth and employment outlook.

Speaking to journalists at a function to provide the organisation's outlook for 2010, Busa deputy CEO Raymond Parsons said that South Africa's economic growth could be shaved by 0,5% during the first year of the tariff hike, 0,7% during the second year, and 0,3% during the third year.

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Employment rates would also be shaved by an estimated 0,2% during the first year of the tariff hikes, 0,3% during the second year, and 0,1% during the third year, Parsons noted.

"We must be very careful not to administer any shocks to the [economic] recovery, which is still in a vulnerable and fragile stage. One of those shocks could be Eskom. That is why Busa, with others, is very cautious about how we should fund Eskom."

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Parsons said that the issue of a new funding model for Eskom would be raised in Busa's submission to the National Energy Regulator of South Africa (Nersa), which would be delivered ahead of the new comment deadline on December 14.

Nersa would host public hearing across all nine provinces in January and make a final tariff determination on February 24, 2010, for implementation from April 1, 2010, through to March 31, 2013.

"We must look beyond the recession. We want to boost the recovery and we also want to make sure that it will be sustained and stronger," Parsons noted.

He added that should South Africa play its cards right, and continue with its current trends, the country's growth trajectory for 2010 could reach as high as 2,2%, while the current account deficit would remain manageable.

POSITIVE SIGNS, BUT JOBS TO LAG

Busa CEO Jerry Vilakazi noted that South Africa had technically ended its recession, with an economic growth of 0,9% in the third quarter of this year, with inflation also dipping into the target band from 3% to 6%.

"These are positive signs, but must not detract from the reality that our economy remains weak. Any recovery from this crisis is likely to be gradual and we must acknowledge that there is still much that needs to be done."

Vilakazi noted that the recovery was likely to be slow, and would be heavily reliant on the pace of the global recovery. He added that spending related to the 2010 FIFA World Cup, as well as the tourism and tax income generated, would support the recovery.

However, employment growth was likely to lag the economic recovery.

"Today's difficult economic environment underscores the importance of not losing sight of long-term competitiveness fundamentals amid short-term urgencies. Competitive economies are those that have in place factors driving the productivity enhancements on which their present and future prosperity is built."

Vilakazi noted that a competitiveness supporting economic environment could help national economics to weather business cycle downturns, and ensure that the mechanisms enabling solid economic performance going into the future, were in place.

"Unless constraints identified in initiatives such as those in the Accelerated Shared Growth Initiative for South Africa and other research are effectively addressed, the South African economy will continue to grow at less than its potential."

 

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