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The Common Sense has previously written, and every serious economist agrees, that South Africa needs to grow its economy at a rate of between 4% and 5% if it is to knock its unemployment rate down to emerging-market averages. One of the questions on whether this is possible is that of electricity supply and whether there is enough to do that, and what should be done to ensure it happens.

The chart below shows the relationship between per capita GDP and electricity production over the last 30 years, and makes clear how closely the two indicators are associated with each other.

The chart below gets into this in more detail and shows the relationship between the annual change in electricity production and the annual economic growth rate for South Africa over the past 30 years.

That relationship is quite solid. Years with relatively strong increases in levels of electricity production tend to align with years of relatively strong economic growth rates, while years of relatively weaker electricity production tend to align with years of weaker economic growth.

If you take that analysis further, to split South Africa into two eras, one from 1994 to 2008 and the other from 2009 to 2025, the extent of that relationship becomes quite explicit. This is shown on the chart below.

The chart shows that for the first era electricity production rose by an average of 2.7% a year, while the country’s economy grew by an average of 3.6%. The second era, from 2009 to 2025, saw electricity production fall by an average of 0.6% a year, while the economy averaged a growth rate of 1.1% over the same period.

Taking the full 30-year period into consideration reveals a relationship where a one-percentage-point lift in electricity production translates into a 0.8-percentage-point lift in economic growth.

A relationship of that sort would be expected in any economy and the nature of that relationship would change over time, depending on the structure of the economy and innovation around electricity production.

Research by The Common Sense into a series of comparable economies found that a fair rule of thumb is that the ratio of electricity production and economic growth is one to one. Certainly, the relationship is not going to be materially different to that.

Assuming in South Africa’s case that the relationship remains at 1:0.8 it becomes possible to estimate how many megawatts the country needs to produce to put it in reach of an economic growth rate of between 4% and 5%.

That is shown on the chart below.

In as far as that relationship holds true, the chart suggests South Africa would need to up its peak daily electricity production from 24 000MW to something closer to 40 000MW if it wants a realistic chance of reaching an economic growth rate of between 4% and 5%.

Fortunately, that is more easily achievable than it might seem. Understanding that requires understanding a few concepts. The first is a number called installed capacity, which measures how much electricity the country’s power stations could generate if they could generate 100% of their maximum output 24 hours a day. The second is peak daily output, which measures the peak amount of electricity generated during the peak hour of a day. The third is a number called the capacity factor, which measures what a power station should typically generate given its age and type.

For South Africa, the total installed capacity of all Eskom power stations is around 55 000MW.

Peak daily output from Eskom is currently around 26 000MW.

Assuming a capacity factor of around 70%, which should be broadly true for the type of fleet that Eskom operates, Eskom should be able to generate 39 000MW at the peak hour of a peak day – in other words around 13 000MW more than it does. That at least is the theory.

Separately from that estimate, Frans Cronje Private Clients has calculated that there are around 15 000MW of defunct Eskom coal plants that could be brought back online cheaply and speedily. These plants are already connected to the electrical grid and capacity on that grid is sufficient to carry the power they might generate.

Applying the 70% capacity factor number to that 15 000MW estimate delivers the fairly confident estimate that around 10 500MW of power could relatively easily and cheaply be added to the peak daily production number.

This would take that number from the current 26 000MW figure to around 36 500MW. This begins to approach the 40 000MW TheCommon Sense estimates is needed to see South Africa reach a 5% rate of economic growth. It is certainly enough, however, to put South Africa in a position to slowly up its rate of economic growth to 2% and then 3% and then 4% over the next decade. And that is short of what private capacity will still come online.

On the chart below we have plotted the likely impact on GDP per capita if that defunct Eskom capacity is brought online and supported by additional private capacity.

The chart shows that in real terms South African GDP per capita would lift from the current rate of around R74 000 to reach over R100 000 by 2037. The Common Sense’s past estimates on job creation suggest that the unemployment rate would be roughly halved over the same period.

This is of course requisite on a range of other economic policy reforms being introduced, but does show that electricity provision is not a hard cap on the growth rate of the country’s economy.