CGE Microsimulation Analysis of Electricity Tariff Increases: The Case of South Africa

This paper analyses the economy-wide and distributional impacts of the increase in electricity tariff in the South African economy. Use is made of CGE-microsimulation to this end. The paper simulates both an actual price increase experienced in the economy and an increase linked to inflation. While the macro results show a negative impact on the economy in terms of a decrease in GDP, an increase in prices and an increase in unemployment, the micro results indicate that poverty, as measured by the headcount rate and poverty incidence curves, declines. This finding is similar to the finding by Boccanfuso et al. (2009) that when a significant proportion of households is connected to the grid, electricity sector reforms in the form of increasing tariffs to expand power generation can lead to poverty reduction.