1. Johann Fedderke & Zeljko Bogetic
FORECASTING INVESTMENT NEEDS IN SOUTH AFRICA’S ELECTRICITY AND TELECOMMUNICATIONS UNDER 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. International Evidence
Figure 1: Infrastructure Accumulation and Growth
( country averages, percent)
y = x R 2 =
-4%
-2% 0% 2% 4% 6% 8%
10%
12%
Growth in infrastructure stocks per worker G
Others
lac
eap7

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 , growth was 4.5 and 5%
In , 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)
1. SA COMPARES FAVORABLY WITH SSA AND THE WORLD AVERAGE,
2. BUT STILL LAGS SIGNIFICANTLY BEHIND THE UPPOR MIDDLE INCOME COUNTRIES—ITS INCOME GROUP AND ITS MAIN BENCHMARK

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)

14. 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 )

15. Underlying Estimation:

16. Quantity Forecast:

17. Cost Forecast Under Current Growth Scenario:

18. Forecast under the “current growth scenario” (3.6% pa): 2005 - 2010
South Africa – Annual Infrastructure Investment Needs Forecast,
The Current Growth Scenario*,
Average Annual Investment Flows
In billions of US$
In billions of rand
In % of GDP
Power:
Lower Bound:
Upper Bound:
Telecom:
0.29
0.52
1.98
1.87
3.37
12.90
0.11
0.20
0.75
Total(upper bound):
2.50
16.27
0.95
*Average annual growth projection (in %): 3.6%. Source: IMF and World Bank medium-term projection.
Source: The authors’ estimates.

19. The Accelerated Growth Scenario*, 2003-2010
Forecast under the ASGI-SA like, “accelerated growth scenario” (6% pa) until 2010
Table 4: South Africa – Annual Infrastructure Investment Needs Forecast,
The Accelerated Growth Scenario*,
Average Annual Investment Flows
In billions of US$
In billions of rand
In % of GDP
Power:
Lower Bound:
Upper Bound:
Telecom:
0.96
4.28
6.23
27.83
0.40
2.00
Total(upper bound):
5.24
34.06
2.40
*Average annual growth projection (in %): 3.6%. Source: IMF and World Bank medium-term projection.
Source: The authors’ estimates.

20. CONCLUSION 1:
We estimated a robust model of demand for electricity and telecom using panel data on 52 countries for the period
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

21. 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

22. 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