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Forecasting Investment Needs for Electricity and Telecommunications in South Africa under Alternative Growth Scenarios

This presentation examines the infrastructure and growth in South Africa, with a focus on electricity and telecommunications. It discusses international benchmarking of South Africa's infrastructure performance and forecasts the investment requirements for electricity generation and telecom under different growth scenarios.

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Forecasting Investment Needs for Electricity and Telecommunications in South Africa under Alternative Growth Scenarios

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  1. FORECASTING INVESTMENT NEEDS IN SOUTH AFRICA’S ELECTRICITY AND TELECOMMUNICATIONSUNDER ALTERNATIVE GROWTH SCENARIOS Johann Fedderke & Zeljko Bogetic Infrastructure and Growth Workshop Economic Research South Africa May 29-31, 2006 Cape Town, South Africa

  2. OUTLINE OF THE PRESENTATION PART I: • Why Worry About Infrastructure and Growth in SA? • Highlights of international Benchmarking of South Africa’s Infrastructure Performance for Electricity and Telecom PART II • Forecasting Demand for Infrastructure in South Africa: Electricity and Telecom • Investment Requirements in Electricity generation and Telecom Under Alternative Growth Scenarios

  3. PART I. Why Worry About Infrastructure and Growth in SA? • International Evidence • Evidence from South Africa • Decline in Infrastructure Investments in South Africa Since the 1970s • South Africa’s Growth Accelerating • ASGI-SA’s Emphasis on Infrastructure

  4. Figure 1: Infrastructure Accumulation and Growth (1960-97 country averages, percent) 6% G 4% 2% 0% Others -2% lac y = 0.4224x + 0.0007 2 eap7 R = 0.3487 -4% -2% 0% 2% 4% 6% 8% 10% 12% Growth in infrastructure stocks per worker International Evidence

  5. Evidence from South Africa • Aggregate time series growth model (Fedderke, Perkins, Luiz, 2005): • Output elasticity w.r.t. electricity: • 0.1 – 0.2 range under robustness checks • 0.5 once control for institutions (Property Rights)

  6. Decline in Infrastructure Investments in South Africa

  7. South Africa’s Growth Accelerating • In 2004-05, growth was 4.5 and 5% • In 1994-2003, it averaged 2.9% • Infrastructure Requirements of Accelerated Growth: Will Infrastructure Constrain Accelerated Growth? • ASGI-SA’s Emphasis on Infrastructure Scale Up • Planned infrastructure spending plan of ~R372-billion (about US$60 billion, or 24% of 2005 dollar GDP) over the next three years

  8. International Benchmarking of South Africa’s Infrastructure Performance • Bogetic and Fedderke (2005, 2006b) use an international research database (Eustache & Goicoehea, World Bank, 2005) to benchmark infrastructure pefrormance of SA in electricity, telecom, water and sanitation, and transport • Indicators: Access, Pricing/Affordability, Technical and Perceived Quality • Comparators: All world geographical groups and main income groups; Upper Middle-Income Group (Main benchmark for South Africa) • Conclusion: Despite impressive gains on the electrification front, SA still lags behind its benchmark income group on several indicators of performance

  9. Highlights of Benchmarking South Africa’s Infrastructure Performance:ELECTRICITY: ACCESS (% of population)

  10. Highlights of Benchmarking South Africa’s Infrastructure Performance:Electricity Transmission & distribution losses (% of total output)

  11. Highlights of Benchmarking South Africa’s Infrastructure Performance: TELECOM: TELEDENSITY(total telephone subscribers per 1,000 population)

  12. Highlights of Benchmarking South Africa’s Infrastructure Performance: TELECOM: PHONE FAULTS(Reported faults per 1,000 mainlines)

  13. PART II: Forecasting Demand for Electricity and Telecommunications • Earlier Studies by Fay (2001), Fay et al (2003), Heffley et al. (1996), Bogetic and Fedderke (2005, 2006a) • Estimation by Fay (2001) and Fay et al (2003): • (I/P) = F( Y/L , Ag/Y , Man/Y, Z )

  14. Underlying Estimation:

  15. Quantity Forecast:

  16. Cost Forecast Under Current Growth Scenario:

  17. Forecast under the “current growth scenario” (3.6% pa): 2005 - 2010

  18. Forecast under the ASGI-SA like, “accelerated growth scenario” (6% pa) until 2010

  19. CONCLUSION 1: • We estimated arobust model of demand for electricity and telecom using panel data on 52 countries for the period 1980-2002 • The model performs well in characterizing historical demand • We use the model to forecast future demand for electricity and telecom under two growth scenarios: “current” and “accelerated” growth, covering the range of likely growth scenarios for South Africa

  20. CONCLUSION 2:Significant new investments in electricity and telecom required • To support economic growth: • Under the current growth scenario: Rand 16 billion (3.5 billion in electricity generation and 13 billion in telephone mainlines) • Under the accelerated growth scenario: Rand 34 billion (6 in electricity generation and 28 in telephone mainlines) • In electricity, these investments may exceed those currently planned by ESKOM

  21. Further research needed: • Our paper establishes investment requirements of growth in electricity generation and telephony; it does not say anything how those requirements will be met (public vs private sector, financing options etc). Further useful research to assist the operationalization of ASFI-SA could focus on: • Policy assessments of alternative ownership, operating, efficiency, and financing scenarios

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