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South Africa’s weak economic growth and exceptionally high unemployment rate remain its greatest economic challenges. As The Common Sense has previously argued, the country needs to grow its economy at a rate of between 4% and 5% if it is to bring unemployment down towards emerging-market averages – a question investors and policymakers continue to raise is whether South Africa can generate enough electricity to support that growth, and what would need to be done to achieve it. The answers are that it can do so via refitting much of the defunct coal fleet.

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

The chart below examines this relationship in more detail, showing the relationship between the annual change in electricity production and South Africa’s annual economic growth rate over the past 30 years.

Years with relatively strong increases in electricity production tend to align with years of relatively strong economic growth, while years of relatively weaker electricity production tend to align with years of weaker economic growth.

If the analysis is taken further, splitting 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 in the chart below.

The chart shows that during 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 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 to economic growth is one to one. Certainly, the relationship is not going to be materially different from 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 within reach of an economic growth rate of between 4% and 5%.

That is shown in the chart below.

Insofar as that relationship holds true, the chart suggests South Africa would need to increase 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 why requires understanding a few concepts. The first is installed capacity, which measures how much electricity the country’s power stations could generate if they operated at 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 the capacity factor, which measures what a power station should typically generate given its age and type.

At the time of the original analysis, the total installed capacity of all Eskom power stations was around 55 000MW.

Peak daily output from Eskom was 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 the figure used in the analysis. That, at least, is the theory.

Separately from that estimate, advisory firm Frans Cronje Private Clients has calculated that there were 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 to that 15 000MW estimate delivers the fairly confident estimate that around 10 500MW of power could relatively easily and cheaply be added to peak daily production.

This would take that number from the 26 000MW figure used in the analysis to around 36 500MW. This begins to approach the 40 000MW The Common 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 progressively increase its growth rate to 2%, then 3%, and then 4% over the next decade. And that is before accounting for additional private generating capacity that could come online.

In 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 could rise from the baseline of around R74 000 used in the original analysis to more than R100 000 by 2037. The Common Sense's previous estimates on job creation suggest that the unemployment rate could be roughly halved over the same period.

This is, of course, dependent on a range of other economic policy reforms being introduced – and in the fullness of time vast new nuclear, coal, and gas builds. But into the shorter term, from an energy perspective, it can be stated quite definitively that South Africa already possesses much of the generating infrastructure needed to support substantially faster economic growth over the next decade. Restoring that capacity, alongside further private investment, could remove one of the country’s greatest economic constraints and help create the conditions for a sustained recovery in growth and employment.