Electricity hike threatens Nam’s recovery

SOUTH African power utility Eskom’s request for a 35 per cent tariff hike every year for the next three years can keep Namibia stuck in recession, economists have warned.

The beleaguered power supplier has asked the South African government to approve the astronomical hike for 2010, 2011 and 2012 to help finance Eskom’s R385 billion expansion plans.’The accumulated impact of electricity prices will be severe on the economy and inflation. It has the potential to delay the recovery from recession in both the South African and Namibian economies,’ Brian van Rensburg of Investment House Namibia (IHN) believes.NKC Independent Economists, a South African-based research house tracking African economies, agrees.’Inflation will in all likelihood climb next year as the direct and indirect effects of higher electricity prices reach Namibia via its import dependency on its southern neighbour,’ NKC Economist Christie Viljoen, told Reuters yesterday.Without the impact of the Eskom increases, the average inflation rate in Namibia in 2010 would have been in the vicinity of 6,2 per cent, according to IHN’s forecast.Now, depending on the final increase granted to Eskom, average inflation is likely to come in at between 7,0 per cent and 7,7 per cent, Van Rensburg said.Most local economists agree with IHN’s prediction.Romé Mostert of Simonis Storm Securities (SSS) forecasts an average inflation rate of 7,7 per cent, while Old Mutual Namibia Group Economist Robin Sherbourne expects an average of 7,0 per cent for this year.First Capital CEO Martin Mwinga said inflation ‘should stay below 7,0 per cent for most of 2010’, while FNB Namibia Group Economist Daniel Motinga is more optimistic with a forecast of 6,3 per cent.IHN said the 35 per cent Eskom hike, if approved, would filter through to Namibia directly and indirectly.The direct result will be higher electricity tariffs locally. Electricity prices account for 3,11 per cent of Namibia’s inflation basket, meaning that any increase will immediately put upward pressure on the inflation rate.More expensive power will, however, also push up the costs of manufacturers and suppliers. The consumer will also have to foot this bill through higher prices for goods and services, fuelling inflation.Not accounting for any price increase whatsoever, IHN forecast a year-end inflation rate of 6,8 per cent.Should Eskom get its 35 per cent tariff increase, it’s direct impact will add 0,8 per cent to IHN’s year-end forecast, pushing it up to 7,6 per cent.However, once the indirect impact is taken into account, IHN’s year-end forecast further increases by between 0,3 per cent and 1,2 per cent.’We believe that electricity costs are between 2,5 per cent and 4,0 per cent of total cost. Based on this assumption, our year-end forecast for inflation can increase from the current 6,8 per cent to around 8,4 per cent. Our worst-case scenario is that the Namibian inflation rate could reach 8,7 per cent at year-end,’ IHN said.This will be only marginally lower than the 9,1 per cent of December 2009.jo-mare@namibian.com.na