Energy supply in South Africa has become one of the biggest constraints on the country’s economic performance. PwC estimates that intermittent energy shortages cost the economy the equivalent of 5% of real GDP in 2022. Businesses absorbed that cost through outages, diesel generators and lost working hours.
Productivity SA’s latest research report, The Role of Energy Supply in National Productivity Growth, puts a number on that damage. The study uses annual time series data from 1992 to 2022. It measures how energy supply in South Africa affects national labour productivity, and what this means for the country’s industrialisation and growth ambitions.
Why Energy Supply in South Africa Matters for Productivity
Coal still dominates South Africa’s primary energy supply. It made up 75% of the total in 2023/24, followed by crude oil (20%) and nuclear (2%). Renewables contributed just 8.8%. Eskom generates around 90% of the electricity South Africa uses domestically. Local production covers 92% of supply, but capacity has failed to keep pace with demand since the early 1990s. That’s when electrification extended access to millions of previously excluded South Africans.
The consequences ripple through every sector. Electricity shortfalls divert capital away from productive investment and into diesel generators and self-installed solar. Outages cost businesses semi-flexible inputs like labour hours and raw materials. Many firms outsource electricity-intensive processes instead, at a higher cost. Small and medium enterprises feel this hardest. One study cited in the report, covered by the Journal of Energy in Southern Africa, found that 89% of SMMEs depend heavily on steady electricity supply, and outages severely affect 69% of them.
Key Findings from the Report
The report uses a Cobb-Douglas production function and multivariate regression analysis. This tests the relationship between energy supply and national labour productivity, controlling for capital productivity, multifactor productivity, GDP growth and wages.
Electricity supply drives labour productivity: The regression results confirm that electricity supply has a statistically significant, positive effect on labour productivity. Every unit increase in electricity supply lifted labour productivity. Inadequate supply and outages, in turn, reduced working hours and dragged productivity down.
Overall energy supply is not the same as electricity supply: Total energy supply (which includes petroleum products) was not statistically significant in the model. During outages, businesses substitute electricity with diesel. The report flags this shift as costly and unsustainable, particularly for SMMEs. Larger firms can absorb the added expense; most SMMEs cannot.
Capital, multifactor productivity and wages also matter: All three control variables showed a significant, positive link to labour productivity. This reinforces that reliable energy supply works alongside — not instead of — capital investment, skills and technological efficiency.
The findings align with regional and international evidence: The results echo Khobai et al.’s (2017) research on the long-run relationship between electricity supply and economic growth in South Africa. They also align with Ellahi’s (2011) findings from Pakistan, where electricity supply similarly boosted industrial productivity.
What This Means for Energy Supply in South Africa Going Forward
The report’s conclusion is direct. South Africa needs an affordable, reliable and increasingly renewable power supply to recover economically. Only then can the economy reach its potential output over the long term.
Based on its findings, the report recommends that South Africa should:
- Upgrade and build new energy infrastructure to close the persistent gap between installed and operational capacity
- Diversify the energy mix through wind, solar and other green energy sources
- Make energy prices fair and market-related to ease the burden on industry and households
- Prioritise energy efficiency technologies to reduce demand and reliance on outsourcing to independent power producers
- Strengthen demand-side management, including time-of-use tariffs, to flatten peak demand and improve grid efficiency
- Implement a revised Integrated Resources Plan (IRP) to fast-track electricity capacity and cut red tape for private investment
Read the Full Report
This research supports Productivity SA’s broader mandate: evidence-based productivity and competitiveness policy for South Africa’s key economic sectors. The full report goes further. It breaks down South Africa’s energy sector in detail, reviews local and international literature on energy and productivity, and sets out the complete regression methodology and results. It closes with policy recommendations for building a more sustainable, productive energy future.
