Imagine living near the sea, where the weather is nice all year round, where a four-bed-room house with a lovely garden and direct beach access costs you a mere £100,000 and where the kind of cash that buys you a few hours baby-sitting in Britain gets you a full-time housekeeper. Sounds nice, right?
Then imagine that in this seemingly perfect paradise the electricity doesn't work very well. Sometimes it is on and sometimes it is off. So your ice-cream melts every few days; your air-conditioning never works when you want it to; your electric garage door won't open when you need to leave for the school run; every now and then you get trapped in your house by your own security system; and constant blackouts disrupt your country's economy.
Yes, it's South Africa, where the electricity supply has been overrun by demand and the state electricity group Eskom (which provides 95% of the country's inadequate supply) is to start rationing power to all its customers. Most businesses are being asked to cut their usage by 10%-15% and the company has also made it clear that the blackouts are likely to continue for years while it works to build new power stations.
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It isn't just in South Africa where power is a problem. Thirteen Chinese provinces - including some of those in the vital industrial areas to the south - are already rationing supplies and there have been endless reports of shortages in various South American countries, from Cuba to Argentina, as well as in Africa and, of course, in Iraq.
We are hardly immune from such problems in Britain - out of 59 coal-powered plants, 15 or so are often out of order. And nor for that matter is America. Remember New York city in 2006? Then 100,000 or so people in Queens were left entirely without electricity for nine days.
None of this is good news - not for Africa's farmers, not for small shopkeepers in Queens, not for the rich Cape Town residents locked in their houses, and not for the global economy.
In South Africa the government says the economy won't be hit but how can it not be? It has already hit the supply of gold, diamonds and platinum (mining all three is very power-intensive and it isn't safe to send miners many miles below ground if you aren't sure you can get them up again). And the power shortage isn't doing farmers any good, as they need to keep their fridges running full time if they want their produce to make it to Europe in good shape.
The power cuts in China are clearly no good for its own growth, but they don't help the rest of us either. Lower productivity means higher costs for finished goods and we'll feel that in our pockets when we visit the already ailing clothes and electronics shops on our high streets.
So what's going on? And why isn't it getting sorted out? The problem is similar to many of the others I have written about here in the past few years: shortage of supply caused by underinvestment meets a huge rise in demand.
In South Africa, bickering about the financing of new plants meant none was built for years, and 20% of capacity is out of action due to maintenance problems. In America and Britain there has been a woeful lack of investment for decades. And in much of the developing world the basic infrastructure is inadequate in both quantity and quality.
Yet demand is rising fast, with the gap between usage in the developing and the emerging worlds narrowing, and BP forecasts electricity demand to double by 2030. This doesn't seem an outrageous prediction ? just think how much power is needed to keep the huge new cities of China going, or even just the five-star hotels in Dubai. Then chuck an air conditioner for every family in India and a washing machine for every one in Brazil into the mix.
Booz Allen Hamilton, the consultancy, estimates that the total amount the world needs to spend to get its power sorted out by 2030 is around $9 trillion (£4.6 trillion) - and if we want to sort out water and transport, too, we'll need to spend another $30 trillion.
China alone is investing $125 billion in power plants over the next five years and another $130 billion in distribution paths for the power they produce while India - whose infrastructure is just as dire - plans to increase its own capacity by a good 50%. At the same time Brazil, where preventing power cuts is a top political priority, is looking to double power generation by 2030.
All this throws up opportunities for investors. For starters, it is worth sticking with the precious metals. Supply is very tight already and the threat - and reality - of regular blackouts is just one more factor that should keep prices high. Note that as news spread of last week's problems in South Africa - which still supplies 75% of the world's platinum and 15% of the world's gold - both gold and platinum hit record highs.
On the stock side, Tim Price of financial-services firm PFG suggests US-based engineer KBR (KBR), which operates in the chemicals sector but is also heavily involved in the power sector and has won a number of good contracts in the Middle East in the past year. He is also a fan of Aggreko (AGK), the world's largest supplier of temporary power generators, and points to the iShares/FTSE/Macquarie Global Infrastructure 100 ETF (INFR) which is over 50% invested in the electricity sector.
Otherwise there is Swiss-listed ABB (ABB), one of the world's leading suppliers of electricity networks and power equipment. It is seeing huge rises in orders from China and India and trades on a forward price/earnings ratio of 18.67 times, according to Bloomberg. In Brazil it might be worth looking at CPFL Energia (CPL), which generates and distributes electricity and trades on a very reasonable p/e of 9.15 times as well as offering an 11% yield.
First published in The Sunday Times
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