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The cost of electricity shortfalls in South Africa

Free Market Foundation

Estimating the economic cost of electricity shortages is an exercise in enormous uncertainty. To reduce the uncertainty, or, rather, to get a sense of its range, I relied on a variety of methods.

Firstly, several economists have attempted various ways to calculate the direct costs. Typically, they assumed the loss by each industry would be equivalent to 3 hours (the time span of undelivered electricity) of production in a normal working day. But, the length of a working day differs across industries; some work 8-hour days and others the full 24-hours over three shifts. They then weighted the loss in each industry by the contribution each one makes to the whole economy before accounting for the number of working days. The estimated cost over the three months of load shedding ranged from R50 billion to R119 billion at the time (early 2008). These estimates would suggest a potential drop in nominal GDP growth of 2.5-6%, if the unmet electricity needs were sustained at a rate of every fourth day for a year. In general, these direct costs are considered to be underestimates of the total costs because they do not account for the effect on confidence.  Read more

 

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