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Economic 360 for South Africa: Growth Prospects and Emerging Opportunities in the Energy Industry
Frost & Sullivan, Feb 2011, Pages: 92
South Africa is a democratic republic with a stable political system. The economic environment is forecast to remain stable, with policy focus on employment creation through growth and stability. Energy consumption is steadily increasing with economic development. Demand and supply of energy is dominated by coal, as it is an abundant natural resource in the country. The Integrated Resource Plan of 2010 placed a high emphasis on renewable energy in the future. The country faces considerable challenges in meeting electricity demand and rolling blackouts are expected from 2011 to 2014. Opportunities exist for independent power producers to supply electricity shortfalls in the short term and to supply through renewable sources in the long term.
Research Overview
South Africa’s economy has shown moderate growth since 2004, weathering the global economic turmoil well to indicate a modest recovery in 2010. The economy is forecast to post GDP growth rates of between 3 and 4 percent in the forecast period from 2011 to 2014. Greatest growth is expected in the manufacturing sector, as well as in sectors, such as finance, real estate, and business services. Key drivers of economic growth in the forecast period have been identified as the burgeoning local manufacturing sector, due to the government’s commitment to development and the relatively high levels of foreign direct investment (FDI) inflows, stimulating the finance, real estate, and business services sectors. The recovery of the building and construction sector also helped push growth. The government is committed to boosting the country’s export sector, which has traditionally been a poor performer. Fortunately, the country’s relatively high levels of FDI have limited the effect of climbing trade deficits on the current account. High levels of unemployment remain the greatest concern in the economy and act as a major restraint for sustained economic growth.
South Africa has abundant resources of coal and is a net exporter of energy due to its large coal exports. Electricity is produced largely from coal-fired power stations, with minimal use of renewable energy sources. The country has a large coal-to-liquids industry, which converts coal into petroleum products. The majority of crude oil is imported and hence, South Africa is greatly influenced by global oil prices. South Africa also has a gas-to-liquids industry, which converts natural gas, obtained from undersea gas fields off the coast of South Africa, into petroleum products.
The country is currently facing an electricity shortage due to insufficient supply to meet the growing demand of the expanding economy. Development and expansion led to this situation. The state-owned electricity provider, Eskom, is currently instituting plans to include greater use of independent power producers into the national grid. Various demand-side measures were also implemented to minimise the load on the national electricity grid. The changes in legislation, which currently allow independent power producers to sell electricity to Eskom, present an opportunity for manufacturers in the solar and wind markets. Various incentives are being provided for households to install solar water heaters, opening up new opportunities for manufacturers and installers of such systems.
The analysis of the economy and energy industry is presented by considering the key growth trends and factors contributing to the strength or weaknesses in various economic sectors and policy environment. The political climate will remain stable in the forecast period and will not have any negative impact on the levels of economic growth. Fiscal and monetary policy commitments are unified to promote economic growth and reduce the high levels of unemployment. Major trade partners are also analysed and reveal a shift in trade toward China as the most prominent trading partner to South Africa. An analysis of key trade trends reveals a marked shift in the composition of exports and imports. The share of manufacturing exports is steadily increasing, while that of mining exports is declining. The relative share of manufacturing imports is decreasing; indicating a strengthening of the manufacturing sector to become more competitive and export-orientated in the long run.
South Africa’s high dependence on coal in electricity production and the current shortage of electricity supply has led the government to re-evaluate the energy industry in South Africa with the new Integrated Resource Plan in 2010. This long-term plan provides a goal for increased use of renewable forms of energy in the energy mix of the country. An analysis of the energy industry is presented, taking into account the challenges or opportunities in South Africa and in the energy industry. The analysis of the energy industry includes an assessment of industry segments, an evaluation of key trends and growth patterns, as well as opportunities for the industry.
Economic 360 for South Africa: Growth Prospects and Emerging Opportunities in the Energy Industry is a 'must have' executive level decision-making guide that provides a focused analysis of this industry by analysing the economic climate of South Africa. Besides enabling decision makers to assess the impact of non-market forces on industry performance, it also helps in identifying new market opportunities. This service provides a strong base for preparing contingency plans based on probable scenarios. In addition, investors can assess the industry-specific risk factors as well as conduct a more in-depth micro research on the South African energy market.
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