Confidence in South Africa Wanes as Energy Crisis Continues

According to a recent survey, South Africa’s business confidence index dropped 2.3 points in June, marking the largest decline in over 16 years. The economy is undergoing a productivity issue, especially in the wake of high electricity prices and numerous power outages. South Africa’s tourism index also dropped in the second quarter, due to new visa restrictions that are keeping many tourists at bay.

According to a recent survey, South Africa’s business confidence index dropped 2.3 points in June, marking the largest decline in over 16 years. The economy is undergoing a productivity issue, especially in the wake of high electricity prices and numerous power outages. South Africa’s tourism index also dropped in the second quarter, due to new visa restrictions that are keeping many tourists at bay.

Lacking productivity and tourism are hurting South Africa’s economy, but the energy sector is a primary factor that is dragging the economy down. Analysts are concerned that the uptick in electricity prices would leave people with little cash to pump back into the economy while contributing to inflation. Finance minister Nhlanhla Nene stated that the government is addressing the issue, but no sign of progress is in sight, and citizens grow restless. Organization for Economic Co-operation and Development (OECD) issued a reported recommending that South Africa allow more independent energy production and co-generation in the private sector, but it remains questionable as to whether the government will follow through on such plans.

One of the problems with South Africa’s energy sector is a lack of infrastructure, but the government does not have the financial means to approve more projects, and authorities are dealing with a lack of tax money flowing into state coffers. Raising taxes is the obvious answer, but officials are concerned that doing so would further hamper economic growth. Despite the lack of funds, the government is investing in infrastructure for the 2015 fiscal year, but more needs to happen in the next few years. State-based utility company Eskom, a company that has suffered through years of mismanagement and money issues, wants to raise energy prices for the second time in 2015, but energy officials rejected the idea. With that, a double-digit tariff increase is still on the table.

The uncertain climate is of the reasons why business morale has fallen, but the state of the world economy is making many in the business community nervous, especially in regards to the Greek situation. South Africa is dealing with its own set of problems like any other nation, but the country has a few advantages when compared to other African economies. First, South Africa is the most diverse economy on the continent, and despite falls in business confidence and productivity, the nation is still one of the best when it comes to direct foreign investment and business ventures.

A report from the World Bank compared South Africa to nations such as Russia and Brazil and the African nation ranks at the top in terms of gaining access to credit, starting a business and investor protection.