The impact of electricity supply on the manufacturing sector output in South Africa

Abstract

Uninterrupted and sufficient electricity supply is one of the most important determinants that boost manufacturing output in any economy. The availability of electricity plays a vital role in both the production and consumption of goods and services as well as in a country’s growth prospects. It is against this background that the main objective of this dissertation is to determine the impact of electricity supply on manufacturing sector output in South Africa from 1985 to 2014.Cointegrated VAR methodology was implemented to test the impact of electricity supply on South Africa’s manufactured output. The analysis showed evidence of two cointegrating vectors. A positive long run relationship was found between manufactured output and manufacturing employment and between manufactured output and electricity supply. The results imply that electricity supply and manufacturing employment play a role in bringing manufactured output to equilibrium. In this study the error term is -0.135, which implies that the cointegration relationship is stable. The speed of adjustment is 13.5 percent. This is a speed at which manufacturing output returns to equilibrium after a shock in independent variables like electricity supply. This indicates that 13.5 percent of the gap between manufactured output and its equilibrium value is eliminated in the short run. The policy implication of a positive relationship between electricity supply and manufactured output is that an expansion of the electricity sector will result in an increase in manufactured output. Policy makers in South Africa should continue to formulate and implement policies that are aimed at promoting and expanding the electricity sector. This will not only boost the manufacturing sector but will also create more jobs in the country. The results that have emerged from this analysis corroborate the theoretical predictions and are also supported by previous studies.