By Tristan Stuart Walker
Electricity is the most basic input in a modern economy. Without reliable power, factories remain idle, businesses close early, hospitals are forced to rely on generators, and households seek out costly alternatives. Yet across much of Africa, electricity remains scarce, unreliable, or prohibitively expensive. Nowhere is this more evident than in South Africa and Nigeria—two of the continent’s largest economies, both endowed with vast energy resources, yet both constrained by chronic power crises. Their experiences illustrate a stark reality: without energy reform, sustained economic growth is impossible.
South Africa’s electricity crisis is evident. Load shedding—once a temporary emergency measure in which electricity producers cut supply to ensure that the energy grid does not collapse—has become a structural feature of the economy. Rolling blackouts have cut GDP growth, discouraged investment, and reduced productivity across nearly every sector. Small businesses, unable to afford private generators or solar installations, are disproportionately affected. Manufacturing output falls when power is interrupted; services slow; consumer confidence erodes. Electricity insecurity functions as an implicit tax, an estimated total cost of load shedding in 2023 was around R2.8 trillion (~$159 billion). This implicit tax on economic activity is both regressive and growth-destroying. This implicit tax destroys the livelihoods of the average South African. The implicit tax cuts the spending power of those living in poverty, as they need to allocate their monetary resources toward alternative fuels such as wood for heat in their homes or oil for lamps so they may have light. The tax also reduces profit margins for businesses because they must use generator units that consume large quantities of diesel. This, in turn, forces businesses to invest less in expansionary projects that could help reduce unemployment in South Africa, which already has the world’s highest unemployment rate at 31.9%, thereby reinforcing the soul-destroying effect of the energy implicit tax in South Africa.
Nigeria’s crisis is less centralised but no less damaging. Despite being Africa’s largest oil producer and possessing enormous gas reserves, Nigeria has one of the lowest per capita electricity consumption rates in the world. Its grid supply is unreliable, forcing households and firms to depend on diesel generators. The result is staggering inefficiency: businesses spend billions annually on self-generation, raising costs and lowering competitiveness. In effect, Nigerian firms pay twice—once through tariffs, and again through fuel and maintenance costs.
In both countries, the link between electricity access and productivity is clear. Reliable power allows firms to operate at scale, adopt new technologies, and integrate into regional and global value chains. Conversely, unreliable power traps economies in low-productivity equilibria. Firms remain small, informal, and risk averse. Investment gravitates towards sectors less dependent on electricity, limiting diversification and industrialisation.
At the heart of both crises lies the structure of the electricity sector itself. South Africa’s Eskom is a vertically integrated, state-owned monopoly responsible for generation, transmission, and distribution. Years of underinvestment, mismanagement, political interference, and corruption have left its utility financially insolvent and operationally fragile. Tariff increases, which have risen roughly 190% since 2014, have significantly outpaced inflation. It is now above the levelised cost of renewable energy generation, such as solar or wind, further burdening consumers and industry. While Eskom’s problems are uniquely South African, they reflect a broader issue: monopolistic electricity systems with weak governance struggle to adapt to rising demand and technological change.
Eskom’s crisis does not stop at South Africa’s borders. As South Africa transitioned toward democracy in the mid 1990s, Eskom entered into long-term electricity supply agreements with several of Southern Africa’s neighbours, positioning it as the region’s primary power exporter. Countries such as Zimbabwe, Mozambique, Namibia, Botswana, and Eswatini became partially dependent on Eskom imports to stabilise their own grids and support industrial activity. As South Africa’s domestic supply deteriorated, however, these exports were curtailed or suspended, transmitting the effects of Eskom’s failures across the region. The result has been heightened energy insecurity, increased reliance on expensive emergency generation, and delays to industrial projects beyond South Africa itself. Eskom’s unreliability has therefore become a regional economic constraint, underscoring how weaknesses in a significant utility can spill over into neighbouring economies and complicate Southern Africa’s broader development and integration ambitions.
Electricity supply from Eskom has declined and become less reliable
Nigeria pursued a different path, formally unbundling and privatising its power sector in 2013. However, the government historically spent roughly ₦200 billion (about $125 million) per month on electricity subsidies. This resulted in significant fiscal pressures because tariffs were not cost-reflective, leading to disappointing outcomes due to economic liberalisation without effective regulation. Energy-producing constraints, distribution companies suffer from poor revenue collection, and transmission remains a state-controlled bottleneck. The result is a fragmented system in which no actor bears full responsibility for outcomes, leading to chronic underinvestment, persistent supply shortfalls, and a cycle of fiscal bailouts that undermine both investor confidence and service delivery. Liberalisation, it turns out, is not a silver bullet—institutions matter as much as ownership.
This contrast highlights a crucial lesson. The debate is not simply between state control and market liberalisation, but about incentives, accountability, and credibility. Both public and private investors require regulatory certainty, cost-reflective tariffs, and confidence that contracts will be honoured. In South Africa and Nigeria, policy inconsistency and political risk have raised the cost of capital, slowing investment precisely when it is most needed.
Renewable energy and decentralised generation offer a partial escape from this trap. In South Africa, privately procured renewable energy increased by 73% in 2023, once regulatory barriers were eased. Solar and wind projects have been proven to be faster and cheaper than new coal capacity projects, while embedded generation, electricity that is produced close to where it’s used, rather than at a larger central power station feeding the national grid. These new environmentally friendly alternatives have allowed firms to bypass Eskom entirely. The use of embedded generation by consumers, bypassing Eskom, demonstrated what is possible if policy aligns with market incentives. This provides a sound rationale for implementing policy measures that support embedded generation schemes.
Nigeria, too, has significant potential for decentralised solutions. Mini-grids and off-grid solar power systems have already improved energy access in rural areas, while rooftop solar power grids are increasingly attractive for urban consumers. Given the limitations of the national grid, decentralisation may not just be a complement but a necessity. However, scaling these solutions requires regulatory clarity, access to finance, and integration into broader energy planning.
An example of Nigeria’s Mini-grids
Investment remains the binding constraint. Africa’s power sector requires hundreds of billions of dollars in new capital over the coming decades. Yet investors remain wary. In South Africa, uncertainty over Eskom’s future, grid access, and tariff structures dampens enthusiasm. In Nigeria, currency risk, weak contract enforcement, and political interference raise similar concerns. Without addressing these structural issues, neither public spending nor private capital will be sufficient.
Ultimately, the power crisis is not merely a technical problem; it is a political economy problem. Electricity reform reshapes existing incentives, benefiting some actors while imposing costs on others through reduced access, lost rents, or diminished state control. Governments, therefore, often delay reform to avoid short-term political backlash, even as long-term economic costs continue to accumulate. The result is a persistent cycle of crisis management rather than meaningful structural change.
South Africa and Nigeria demonstrate that energy abundance alone is insufficient. What matters is purposeful administration.
The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.