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Harvard Professor Hausmann Blames South Africa's Woes on Power Issues

Until South Africa can solve its electricity issues, it's largely a no-go zone for foreign real estate investors. Professor Hausmann has advised South Africa's government for years and is one of the top experts in the field of development finance. According to him, the ANC's biggest sin is ignoring electricity challenges and that sin has led to South Africa de-industrializing at a rate in "orders of magnitude worse than anywhere else [in the world]." Emerging Real Estate Digest has previously written about Professor Hausmann's views on economic complexity as a determinant of how a country performs.

Cyril Ramaphosa laughing all the way to the bank

Harvard Professor Hausmann attributes South Africa's woes to one key factor: the woeful delivery of electricity to the country by the ANC government. Nearly two decades of power cuts, and the inability of Pretoria to solve the problem, have finally caught up to the nation.

South Africa has expanded by less than two percent every year for the past decade and the unemployment rate hovers around 30% consistently. De-industrialization is occurring in many nations but Professor Hausmann notes,

"the speed at which this has happened in South Africa since the global financial crisis of 2008 is orders of magnitude worse than anywhere else,” he said in an interview with the Johannesburg-based Centre for Development and Enterprise. "We found very strong evidence that this decline was strongly linked to the collapse in electricity provision."

Lack of investment in new power generating capacity is the cause of the problem. Other nations, such as Chile and Colombia, faced similar power challenges as South Africa but quickly worked themselves out of the "hole". It was only in 2022 that South Africa permitted private sector investment in generation and selling into the grid.

Watch Professor Hausmann discuss South Africa's electricity woes:

South Africa's government has faced virtually zero consequences from the voters for the dramatic collapse the country has undergone. By almost every measure the country is worse off now than it was twenty and even thirty years ago. Beyond electricity, the ANC-managed ports are some of the worst managed in the region which has permitted Mozambique to take a good portion of Durban's shipping market share. Corruption is rife in all areas that the state has captured, and talented foreigners are excluded from helping by heavy-handed protectionist immigration policies aimed at protecting the majority to the detriment of the country.

Quantifying the impact of electricity mismanagement in South Africa is difficult. Direct costs would certainly be in the billions of dollars range due to lost productivity, missed investment, damaged equipment, and business disruptions. Some studies suggest the impact could be as high as 1% of GDP annually. The uncertainty deters investments from foreigners and makes locals think twice. Gold production was down 8% in 2023 and the culprit for the decline, according to mining analysts, was the inability of the mines to secure reliable power supplies.

Unemployment and economic stagnation are but two results. Healthcare disruptions to hospitals and clinics impact life-saving services and access to medical equipment. How can schools function with no electricity? And how much food and produce has been lost due to waste from refrigeration losses?




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