Electricity supply shocks and industrial performance of the mining sector in South Africa: an econometric approach.

Abstract

Electricity is essential for economic growth, particularly in energy-intensive sectors like mining. In South Africa, electricity loadshedding has significantly disrupted economic activities and reduced productivity. This study investigates the effects of supply shocks on the mining industry, which depends on a consistent electrical supply for its operations. It identifies the factors contributing to decrease in electricity supply, such as aging infrastructure, constrained energy generation capacity, and inadequate investment in new power plants and alternative energy sources. The economic impact is profound, particularly in energy-intensive sectors like mining. The research employs a quantitative approach (ARDL approach) to estimate the impact of supply shocks on industrial production, with a specific focus on the mining sector. This study uses annual data from 1990 to 2022 to analyse the relationship between electricity distribution, GDP, mining production, Gross Fixed Capital Formation in mining and quarrying, and Total Factor Productivity in South Africa. Data sources include StatsSA, SARB, and OECD. The results indicate a significant long-term relationship between mining production and key economic variables, including electricity availability, GDP, and total factor productivity. The findings emphasise the importance of a stable electricity supply, investment in infrastructure, and technological innovations for maintaining mining productivity. The study reveals that a 1% increase in electricity available for distribution is associated with a 13.32% increase in mining production. Gross fixed capital formation in mining positively impacts mining production, with a 1% increase resulting in a 2.32% rise in output. Total factor productivity shows a negative relationship with mining production, suggesting that technological advancements may reduce the need for high levels of raw material extraction. The Error Correction Model indicates a rapid adjustment process to equilibrium, with an adjustment speed of 112.9%, highlighting the mining sector's resilience to disruptions. Addressing energy supply shortage requires substantial investment in energy infrastructure and diversification of energy sources to ensure a reliable electricity supply, which is crucial for the mining sector's sustainability and growth.