Brazil's power crisis teaches vital lessons
February 13, 2008
By Tom Robbins
Cape Town - Power shortages could cut local economic growth by more than half, with the retail and construction sectors hardest hit, Avior Research has argued in a comparison with Brazil's short-lived energy crisis of 2001.
Avior, which provides research to asset managers, said the emerging market economies of Brazil and South Africa were largely similar in composition, with corresponding contributions from primary, secondary and tertiary industries.
Both countries relied on one significant source of energy, with South Africa 88 percent dependent on coal and Brazil 88 percent dependent on water through hydroelectricity.
Avior analyst Shamil Ismail said that local gross domestic product (GDP) growth could slow to as little as 2 percent this year from a previously forecast 4.8 percent, and even lower if the crisis persisted.
Economist Fanie Joubert was not as pessimistic: he expected growth to fall to 3.4 percent from a projected 4.6 percent, adding that companies were installing generators and building up inventories to cope with the emergency.
In a more positive vein, Avior said Brazil's experience showed that swift government action could limit the scale of blackouts by sharply reducing electricity demand.
In April 2001 the Brazilian government foresaw that if demand was not reduced considerably, the country faced possible blackouts in the following year as a result of drought.
Brasilia moved rapidly to take preventative action.
Penalties for exceeding new power usage limitations, as well as rebates for excess savings, were explained in a nationwide publicity campaign. This "resulted in a 20 percent reduction in energy consumption within two months".
According to Ismail, Brazilian GDP growth fell sharply to 1.3 percent in 2001 from 4.3 percent in 2000, "mainly" due to the electricity crisis, although the September 11 2001 attacks in the US and the Argentine financial crisis also contributed.
Brazil's energy crisis, aggravated by lack of investment in new power generation, lasted nine months, but South Africa's might last until 2012, "with potentially a more harmful impact on the economy".
One of the most vulnerable sectors is retail. Retail shares on São Paulo's stock exchange fell 14 percent between May and August 2001, although sales had already been falling. Retail stocks continued to lag in 2002, Avior said, probably due to a loss of consumer confidence.
Ismail said malls were most at risk, as consumers were deterred by dark shopping centres. Discretionary retailers were most at risk, but even large-format food retailers were vulnerable. Convenience chains located on high streets and open-air neighbourhood strip malls, such as Spar and Woolworths food stores, could benefit as consumers avoided overstocking fridges for fear of spoilage when the lights went out.
Pick n Pay's deputy chairman, David Robins, said that so far the company had managed the crisis "reasonably well". He expressed confidence that electricity users would reduce consumption, "hopefully obviating the need for load shedding".
If consumers were less inclined to shop at malls, the firm's franchised Family Supermarkets could pick up slack.
Shoprite chief executive Whitey Basson said the group had seen no material shift in shopping patterns away from its large-format supermarkets to its high street stores.
Avior said Massmart's Game and Builders Warehouse chains could benefit from a shift in household spending to gas appliances and rechargeable lamps, while sales of power-hungry items such as freezers could be hardest hit.
In bad news for job creation, the construction sector was likely to suffer due to a fall in business and consumer confidence, suggested the comparison with Brazil. Shares in banks and some mining firms could prove relatively resilient.
While mining output could drop substantially, this could be offset by higher metal prices in minerals such as gold and platinum, where South Africa was dominant, and a weaker rand. But steel shares might fall as output declined.
Shares in Brazil's information technology sector were hit relatively hard, and the same could happen here, although sales of uninterrupted power supplies were likely to benefit.
Other Brazilian sectors that proved resilient included agriculture, transport, and paper and pulp. Shares in local companies like Sappi, which generates some of its own power, could follow this trend.
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