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South African Power Cuts Threaten Economic Growth; Jobs

In South Africa, severe electrical power outages have disrupted daily life and caused millions of dollars of losses to commerce and industry. Experts are warning the outages, which could continue for years, threaten economic growth and jobs. Southern Africa Correspondent Scott Bobb reports from our bureau in Johannesburg.

Electrical power cuts in South Africa have darkened neighborhoods, snarled traffic and hit virtually every aspect of the economy.

Hardest hit has been the mining sector, which accounts for one-third of South Africa's foreign exchange earnings. Many mines closed, last week, because of safety concerns after the state-owned power company, Eskom, said it could not guarantee power supplies.

Manufacturing, agriculture, commerce and the service industry have also been affected. And, Eskom has had to cut electricity to customers in neighboring countries, causing outages across southern Africa.

The director of the Econometrix consulting firm, Azar Jammine, says as a result South Africa's economic growth will slow.

"The hope of the government that South Africa would achieve a six percent annual growth rate in its gross domestic product from 2010 onwards is quite forlorn," Jammine said. "And, together with that, job creation possibilities are also impaired."

The power cuts began after Eskom took some power plants offline for routine maintenance and others went down because of unforeseen technical problems.

Jerry Vilakazi heads a confederation called Business Unity South Africa. He says some businesses lost up to one-half of their revenues because of the power cuts.

"We feel as business that we are paying the price for bad decisions that were made by policy makers or failure to make decisions when decisions should have been taken by policy makers," Vilakazi said.

Eskom officials began warning a decade ago that South Africa's growing economy would require more electricity. But the government delayed building more plants, while it debated whether to privatize part of the industry, a proposal it eventually rejected.

Economist Jammine says the power cuts seriously hurt small businesses which do not have the capital to buy their own generators or alternate energy sources. Yet, he says small businesses are the biggest source of new jobs.

"This is worrisome because hand-in-hand with an inability to generate enough jobs is the growth in inequality and that in turn generates social tensions and keeps the crime rate high and the incidence of HIV/AIDS also relatively high," Jammine said.

The South African economy has created more than three million jobs in the past seven years. But unemployment remains high, at 25 percent, and nearly one-half of the population lives on less than two dollars per day. This has aggravated social and political pressures on the government.

The government has responded saying it will ration electricity in the near-term. It will also accelerate a $40 billion program to build new power plants and re-activate older, de-commissioned units. But officials warn the shortages could last for years.

Business leaders have welcomed the plan, saying it will help restore confidence that was badly shaken by the chaos of the power cuts. Vilakazi says the South African economy is resilient and will recover.

"We are confident as the private sector that we have met challenges in the past and this is one challenge that we trust and hope that [we can meet] working, collectively," Vilakazi said. "That is why we have called for a pact between all the social partners."

He says the government should abandon its monopoly over electricity and allow the private sector to help.

"That would require government to play a critical role in terms of incentivizing, in terms of creating a regulatory framework which will allow business to invest in other sources of energy," Vilakazi said.

He says, with the right incentives, the private sector could produce electricity which could be sold to Eskom for use by other customers.