Presentation on theme: "Johann Fedderke & Zeljko Bogetic"— Presentation transcript:
1 Johann Fedderke & Zeljko Bogetic FORECASTING INVESTMENT NEEDS IN SOUTH AFRICA’S ELECTRICITY AND TELECOMMUNICATIONS UNDER ALTERNATIVE GROWTH SCENARIOSJohann Fedderke & Zeljko BogeticInfrastructure and Growth WorkshopEconomic Research South AfricaMay 29-31, 2006Cape 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 TelecomPART IIForecasting Demand for Infrastructure in South Africa: Electricity and TelecomInvestment Requirements in Electricity generation and Telecom Under Alternative Growth Scenarios
3 PART I. Why Worry About Infrastructure and Growth in SA? International EvidenceEvidence from South AfricaDecline in Infrastructure Investments in South Africa Since the 1970sSouth Africa’s Growth AcceleratingASGI-SA’s Emphasis on Infrastructure
4 International Evidence Figure 1: Infrastructure Accumulation and Growth( country averages, percent)y = xR2=-4%-2%0%2%4%6%8%10%12%Growth in infrastructure stocks per workerGOtherslaceap7
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 checks0.5 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 UpPlanned infrastructure spending plan of ~R372-billion (about US$60 billion, or 24% of 2005 dollar GDP) over the next three years
8 International Benchmarking of South Africa’s Infrastructure Performance Bogetic and Fedderke (2005, 2006b) use an international research database (Eustache & Goicoehea, World Bank, 2005) to benchmark infrastructure pefrormance of SA in electricity, telecom, water and sanitation, and transportIndicators: Access, Pricing/Affordability, Technical and Perceived QualityComparators: All world geographical groups and main income groups; Upper Middle-Income Group (Main benchmark for South Africa)Conclusion: Despite impressive gains on the electrification front, SA still lags behind its benchmark income group on several indicators of performance
9 Highlights of Benchmarking South Africa’s Infrastructure Performance: ELECTRICITY: ACCESS (% of population)1. SA COMPARES FAVORABLY WITH SSA AND THE WORLD AVERAGE,2. BUT STILL LAGS SIGNIFICANTLY BEHIND THE UPPOR MIDDLE INCOME COUNTRIES—ITS INCOME GROUP AND ITS MAIN BENCHMARK
10 Highlights of Benchmarking South Africa’s Infrastructure Performance: Electricity Transmission & distribution losses (% of total output)
11 Highlights of Benchmarking South Africa’s Infrastructure Performance: TELECOM: TELEDENSITY (total telephone subscribers per 1,000 population)
12 Highlights of Benchmarking South Africa’s Infrastructure Performance: TELECOM: PHONE FAULTS (Reported faults per 1,000 mainlines)
14 PART II: Forecasting Demand for Electricity and Telecommunications Earlier Studies by Fay (2001), Fay et al (2003), Heffley et al. (1996), Bogetic and Fedderke (2005, 2006a)Estimation by Fay (2001) and Fay et al (2003):(I/P) = F( Y/L , Ag/Y , Man/Y, Z )
18 Forecast under the “current growth scenario” (3.6% pa): 2005 - 2010 South Africa – Annual Infrastructure Investment Needs Forecast,The Current Growth Scenario*,Average Annual Investment FlowsIn billions of US$In billions of randIn % of GDPPower:Lower Bound:Upper Bound:Telecom:0.290.521.981.873.3712.900.110.200.75Total(upper bound):2.5016.270.95*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 2010Table 4: South Africa – Annual Infrastructure Investment Needs Forecast,The Accelerated Growth Scenario*,Average Annual Investment FlowsIn billions of US$In billions of randIn % of GDPPower:Lower Bound:Upper Bound:Telecom:0.964.286.2327.830.402.00Total(upper bound):5.2434.062.40*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 periodThe model performs well in characterizing historical demandWe 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
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