Johannesburg - Economic growth will be one to two percentage points a year lower if Eskom?s proposed tariff increases of between 45% and 66% over the next three years get the green light, according to econometric analysis by the University of Pretoria (UP).
Tariff increases such as this will heavily impact investment, job creation and sectors like mining, manufacturing and construction, it said.
Last week, the Reuters news agency reported Eskom was planning enormous hikes in its tariffs, although the power utility has said it's unsure if this would be supported by government.
Reyno Seymore, a researcher at the African Institute for Economic Modelling (Afrinem) at UP, said increases of 45% or 66% a year for three years will not only put tremendous pressure on the inflation rate, but could also sharply cut back the economy's potential growth.
A 45% tariff increase could add 0.8 percentage points to the inflation rate next year, and one of 66% about 1.2 percentage points.
The economic growth rate could decline dramatically, since increased expenditure on electricity would seriously impact consumer demand, and at the same time render many investment projects in the private sector, in particular, unprofitable.
Seymore said a hike of 45%, if introduced at the beginning of the year, could result in the economy growing up to 1.3 percentage points less next year than it would without the increase.
A 66% escalation could reduce economic growth by 1.9 percentage points.
Seymore said that Eskom was on the horns of a dilemma.
The electricity provider needs massive tariff hikes to fund its R385bn expansion plans, but these tariff hikes could reduce electricity demand to such an extent that the utility would not generate sufficient income to finance its expansion plans.
Tariff increases of this magnitude will however hurt investment the most. Investment growth could fall 10 percentage points in the case of a 45% rise, and almost 15 points if tariffs are upped by 66%.
In particular, demand for unskilled labour would be considerably down, said Seymore.
He estimated that growth in unskilled employment could shrink by 3.3 percentage points in the case of a 45% hike, and 4.7 points if the hike is 66%.
Even experts and the professionals will be impacted in the form of smaller salary increases - heightening the possibility of emigration.
Seymore said salary increments could be 2.7 to 4 percentage points lower, depending on the size of the tariff hike.
- Sake24.com
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