Johannesburg - Steep power price increases will drive up inflation in sub-Saharan Africa as utilities try to boost electricity generation, weighing on growth on the continent.
From regional powerhouse South Africa, grappling with recession, to Kenya, households and industries alike are struggling to cope with higher electricity costs which are unavoidable if power generation is to meet increasing demand.
The World Bank's International Finance Corporation estimates economic growth would be 2% a year higher if it had adequate power supply.
South Africa's state-owned utility Eskom, under pressure to increase generation after a crippling power shortage in January 2008 forced it to introduce rationing, plans to spend R1.3 trillion by 2025 to double generating capacity.
The government has allocated billions of rand to help Eskom expand capacity, but the utility has had to pass on some of the cost to consumers; through a 27.5% tariff rise last year and a 31.3 percent increment this year.
The national energy regulator says Eskom might need further increases of up to 60%.
The latest increase has piled additional costs on a manufacturing sector - accounting for about 14% of GDP - that led the economy into recession at the start of the year as domestic and global demand fell sharply.
The central bank has slashed interest rates this year to ease pressure on the economy, but the power price hikes have negated some of the benefits, while adding to price pressures.
"It offsets the monetary easing that you're getting, on the one hand, and constrains disposable incomes, but unfortunately that's the reality of the situation that we're in," said George Glynos, managing director of market analysts ETM.
"The economy as a whole needs to build more power stations and so I think we've got to grin and bear it; this really is a re-balancing of many years of ultra-cheap electricity and unfortunately we have to pay back now."
Prices limit inflation slowdown
The central bank says big power price increases are one of the main factors behind inflation staying stubbornly high.
South Africa had boasted one of the world's cheapest electricity tariffs, with Eskom's average cost of 3 US cents per kilowatt-hour for the past financial year, compared with 8-9 US cents for OECD countries.
A 35% electricity tariff hike in August has also stoked inflation in Zambia, while Zimbabwe has discarded subsidies to try and boost power output.
Zimbabwe's government allowed state power firm Zesa to adjust its pricing model higher to improve viability, but local industries struggling to get back on their feet after a decade-long economic meltdown say their survival is threatened.
As the country struggles through a crisis that crippled infrastructure and drove unemployment to over 90%, many Zimbabweans can only afford paraffin-lit stoves and candles for lighting.
Analysts say power costs are even higher in the rest of Africa, but cheaper energy is not an option due to low supply.
"The installed capacity in most African countries is so small that it doesn't even cater for the households and commercial applications, never mind industry," said Cornelis van der Waal, Research Manager at Frost and Sullivan.
"So for any industrial activity taking place - in most cases they need to find alternative sources of electricity."
The Kenya Association of Manufacturers says a survey showed industries had cut production by more than a half due to power rationing, with between 12-36 hours of output lost a week.
Kenya's central bank says inflation is likely to be pushed higher as poor rains in east Africa's biggest economy, which mostly relies on hydro-electricity, ignites power prices.
A solution lies in harnessing Africa's vast resources of natural gas, coal, uranium and petroleum, analysts say.
But for a continent saddled with more pressing demands like fighting the HIV/Aids pandemic and improving basic housing, there simply isn't enough money to exploit those resources.
"We're between a rock and a hard place," said Mike Schussler, an analyst at Economist.co.za. "If we don't increase tariffs, we probably won't have the money to increase the supply of electricity."
- Reuters