BLUEPRINT FOR RECOVERY 2024
Part 6: Electricity and the green economy – a once-in-a-century opportunity
In 2017, Pravin Gordhan urged South Africa to ‘join the dots’ between corruption and the Zuma administration. John Matisonn joins those dots in this eight-part series. In this instalment, he spells out that as the most industrialised country in Africa, South Africa has the opportunity to become a powerhouse of green energy.
Opposition parties are eyeing the economic ministries if they get into a coalition government. Which ministries could best kick-start significant job creation to spark a South African revival?
Only once the results are in on next year’s elections will it become clear what concessions opposition parties might be able to extract. Everything will come down to the numbers. As I write in September 2023, opinion polls suggest the ANC is fairly close to 50%, despite the disappointment voters feel.
A lot depends on whether any party changes the landscape during the campaign – if any opposition party catches the public imagination to surge, or the ANC does something even worse to disappoint and dive.
Neither looks especially likely so far, though the Multi-Party Charter introduces a new dynamic.
So this is an academic exercise now – but for voters who dream of a return to the rainbow nation, it’s worth exploring. If a coalition partner gets one or more Cabinet seats, where could they make the most difference?
There are three possible outcomes in the vote: First, the ANC scrapes by with 50.1% and continues to govern alone. Second, it gets within a few percent of 50 and takes in one or two weak parties who change nothing fundamentally.
Third, if it gets somewhere in the mid-40s, it may take on a sizeable opposition partner. In this case, many think it will choose the EFF, but I doubt it, especially while Cyril Ramaphosa still heads the ANC.
There are signs the ANC wants to take in a party that brings governing skills to the table. In this case, many assume if it’s not the EFF or one or two tiny parties, then it’s the DA, but this is not guaranteed.
The IFP has bargaining chips. Growing at the ANC’s expense in KZN since Jacob Zuma was replaced, it may well have enough to get the government over the 50% threshold.
The IFP has been getting closer to the DA, so they may stick together and negotiate as a team in the Multi-Party Charter, but considering US President Harry Truman’s apt view of Washington politics – “if you want a friend, get a dog” – the temptations for both the IFP and ANC will be strong.
The IFP will want to be in the driver’s seat in the KZN provincial government, and the ANC may be sorely tempted to trade control of KZN for a more nominal role in central government.
Whoever comes in, what can new blood achieve in leading one or more ministries?
These last three economic episodes in the Blueprint series carry the same theme as I tried to show with Defence and Foreign Policy, to expand on what’s missing – a strategy that gives people a vision of the future and the executive a roadmap.
We need a clear-eyed domestic strategy for each of the economic sectors in which experts show the tremendous progress in job creation that can realistically take place.
South Africa has failed to exploit its advantages for a long time. The country has been deindustrialising for several decades. This is confirmed in official reports. Trade and Industry ministers are aware of it but do not trumpet it from the rooftops for obvious reasons.
The most important task the economy faces to start a jobs binge is to reindustrialise. This should be a national project on which government has a laser focus.
Job creation and rising wages depend on industrialisation more than almost anything else, because it is in adding value to goods that most increases jobs and wages.
Since Finance is the ministry that functions best, we can assume the ANC will keep it.
Treasury seems the most professional department, the least corrupt, and one that takes decisions responsibly in the national interest. Treasury and principled finance ministers saved the day on the Russian nuclear deal under former president Zuma and did their best as State Capture threw the kitchen sink at them. Treasury even tried to stop the notorious Arms Deal, though it was overruled by a powerful president, Thabo Mbeki.
The problems that arise in Treasury, especially in unnecessarily obstructing procurement practices, should be addressed by a well-functioning government. If other departments become more reliable, Treasury will have more faith that they can handle more flexible rules to serve the public interest and not their own.
That leaves electricity, mining, communications, transport, agriculture and trade and industry.
Electricity is the most urgent given the damage load shedding is doing to the economy. Some genuine progress has been made this year, mostly in the private sector uptake of renewable energy to relieve strain on the national grid.
A new government should adopt the following principles:
- Electricity should have a single minister.
- Eskom needs special priority policing that includes top-rate investigators and prosecutors.
- The whole Cabinet must sign on to an agreed energy mix.
- Renewable energy is a big part of the future.
- It’s not just about green energy – it’s about an entire green economy.
- We need an African strategy to take South African green economy solutions to the continent.
- Green energy should be linked to reviving our badly damaged construction sector.
A single minister
Electricity is where the breakdown in joint Cabinet responsibility is most apparent.
It’s obvious that energy needs to be put under a single minister who would also be responsible for Eskom, instead of the competing centres of power at the ministries of Energy and Mining, Public Enterprises and Electricity.
If the current three Cabinet portfolios with power over energy remain, it would be an exercise in frustration for an opposition member to take one of those to compete with politically powerful ANC rivals. Policy squabbling and conflicting loci of power damage this vital sector.
Even with only one energy minister, the risk of potential conflicts with ministers responsible for law enforcement would be severe, since lawlessness at Eskom is key to its prior failure. Police and justice reforms discussed in the second episode of this series are essential to repairing the energy sector, and they need to trust each other.
What coalition talks should push is the devolution of powers over electricity, as well as police and transport, to provinces and municipalities that can demonstrate capacity.
The separation of Eskom into three entities must proceed with urgency so that transmission, distribution and generation run independently.
By the time a new government is formed, Eskom will likely have a new CEO for the hottest seat in the country, and the transmission company will be running separately from Eskom with a board in place. The year-long delay in appointing a board is hard to excuse.
A special Eskom police task force under an experienced security leader must take responsibility for stamping out looting, corruption and sabotage by entrenched syndicates and individuals.
The reinstated independent priority crimes unit must ensure prosecutions and convictions, including a first-rate, professional investigation into the attempted assassination of Eskom CEO André de Ruyter.
The relevant ministers will need to provide regular oversight to ensure this and similar cases retain the highest level of support and ensure effective guarding at every generation and transmission plant.
Cabinet agreement on the energy mix
The agreed mix must meet our responsibility to reduce our impact on the climate, managed with attention to the consequences in communities. Retraining workers for new jobs must be put in place, and well-planned ahead to afford a just transition.
It is obvious that both Eskom and coal will be with us for decades. Their decline must be managed with the interests of all stakeholders in mind, including miners.
Some decisions are likely to offend environmentalists, even if they are defensible in the interests of jobs and reliable service. Keeping the lights on is vital to the well-being of citizens.
Koeberg’s nuclear plant should contribute power as long as it is viable. Though nuclear power can be used safely, more and more South African experts say the continuing rapid fall in the cost of solar, wind and other renewables rules out nuclear on cost grounds.
To address intermittency, when the sun stops shining or the wind blowing, various battery options are viable, but for prolonged intermittency, gas is recommended. This means mining policy must support South African gas options in preference to imports.
Once the energy mix has been arrived at with proper consideration of academic and industry views, all of government, including Eskom, must be on the team.
Green energy is a vital part
South Africa is blessed with several wonderful opportunities to deliver substantial job creation. Among the biggest is renewable energy. Southern Africa’s high irradiation rate indicates our weather conditions are better suited for solar power than the world’s top solar producer, Germany, and wind power conditions are excellent along much of the coast.
It’s the kind of opportunity “that only presents itself once in a century or so”, according to economist Gaylor Montmasson-Clair, a facilitator of the South Africa Renewable Energy Masterplan.
But investors who trusted government were badly burnt 10 years ago, so this time trust is harder to earn. They remember that 11 years ago some of the globe’s biggest players, with deep pockets and vast expertise, took the plunge.
By 2014 several factories were producing solar products in South Africa and employing local staff. By 2016 the benefits of the embryonic sector were obvious. Renewables had attracted investment of R193-billion, R53-billion from abroad.
They blame Eskom, under CEO Brian Molefe and chairperson Ben Ngubane, for putting them out of business. The victims thus burnt included the world’s biggest names in solar as well as local BEE companies.
SMA Solar, the world’s biggest manufacturer of solar power inverters, opened its multimillion-rand manufacturing facility in Cape Town in 2014. It included a production line and quality test centre for SMA’s Sunny Central inverters, warehousing, as well as the African branch of the SMA Solar Academy training centre.
It closed its doors in 2016 after Eskom’s announcement that it would no longer sign power purchase agreements with private producers. Normally reticent businesspeople were baffled and angry.
Citing what he called “shocking statements” from Eskom CEO Brian Molefe undermining renewables, SMA’s sub-Saharan division manager Thorsten Ronge said the government failed to commit “to create a sustainable business environment and promote foreign direct investment.
“There were always delays about the bids and lack of commitment to the programme. The factory stood idle for a while and this affected our customers. The environment was unstable.”
In 2016, SMA closed their factory and moved their South African production to Germany and China.
Another global firm, AEG Power Solutions, closed its doors the same year. AEG had invested in a 200MW per annum manufacturing facility of utility-scale solar inverters and Skytron Combiner Boxes.
South Africa now buys these products from China.
At the South Africa Solar Show in Johannesburg this month, the Hinen Industrial Group was showcasing inverters and other products made in Dongguan in southern China. Hinen’s country manager, Andy Zhou Xiang Yang, promised to make renewable energy accessible and affordable for everyone.
Foreign investors weren’t the only ones burnt.
Former journalist Zwelakhe Sisulu’s Matla Solar Water Heating in East London’s industrial development zone was on track to produce 30,000 solar geysers a year and provide permanent jobs for about 100 workers.
He said the factory had been forced to close because it could no longer sustain itself on the number of heating units Eskom could procure or install as part of its solar water-heater project.
The row centred on reported comments to government by Ben Ngubane, then chairman of Eskom, that it would halt the signing of any more power purchase agreements with renewable IPPs.
Matla needed to produce a minimum of 1,000 units per month to break even and 2,000 to be profitable, but monthly sales dropped to under 100.
These are the extra dots to connect – how State Capture disrupted development and left it to more strategic-thinking countries, including BRICS members, to eat our lunch.
Not just green energy, but a green economy
As the most industrialised country on a continent experiencing a population explosion and foreign investment in mineral resources, the opportunity is waiting for South Africa to be a powerhouse of green energy.
Fast-tracking non-carbon renewable energy, including solar, wind and hydrogen, should be just a part of a new direction benefiting from falling costs and new financing opportunities as a result of the global pressure to decarbonise.
We need unambiguous government support to move rapidly to manufacturing solar, wind and other components, retrofitting old buildings for energy efficiency, and more.
A mining minister should be smoothing the path to extract minerals needed for renewable energy and smart technologies. These include platinum, manganese, rare earths, hydrogen and helium.
To maintain South Africa’s export markets for motor vehicles, government must urgently smooth the conversion to electric-powered vehicles or lose markets. Automotive technologies are developing at a breathtaking rate.
More than two-thirds of the cars and bakkies built in South Africa are exported to countries that soon won’t accept them. Deadlines for the end of internal combustion vehicles have been set.
“The world won’t wait for South Africa,” Mikel Mabasa, CEO of the National Association of Automobile Manufacturers of South Africa, told the Financial Mail. In 2017, only one in 70 new cars in the world was electric; last year, it was one in seven.
In Africa alone, Morocco, Ethiopia, Ghana and Egypt are among the countries marketing themselves as EV production sites.
The Just Energy Transition Partnership, which is underscored by a historic $8.5-billion compact between South Africa, the US, the UK, France, Germany and the EU, should be viewed as a test case – if we use it well, more will follow.
An Africa strategy for energy and construction
All these options exist to the north. South African construction companies were poised to move up the continent, but their home market collapsed and instead South African companies closed their factories.
The Zuma government promised to spend R4-trillion on infrastructure over 15 years; then the sector went into freefall. Infrastructure spending fell from R42.4-billion in 2013 to R10.5-billion the following year.
Between 2014 and 2015, the share prices of SA’s major construction companies fell on the JSE, between 42% and 72%. Their Africa business couldn’t save them.
Now the demand for new electricity requires an estimated 14,000km of new transmission lines across SA over the next decade, at an estimated cost of R21-billion.
The construction sector is ringing alarm bells, based on recent government construction awards heavily weighted away from South Africa and towards Chinese construction firms.
Philippa Rodseth, executive director of the Manufacturing Circle, which represents 50 of South Africa’s largest industrial businesses, said there is growing concern that the local manufacturing sector will be left out again.
South Africa needs local companies for the jobs, the training skills and the retention of profits at home to fund future ventures.
Is it possible SA won’t learn from this?
It’s up to us. DM
Next: Mining, and a possible gas bonanza?
South African journalist, author and policy consultant John Matisonn’s book Cyril’s Choices, An Agenda for Reform, explains how South Africa’s missteps led to the current malaise and how to change. It is based on four years in the Mandela administration, on the SABC interim board in 2017, work in the United Nations as chairperson of the Electoral Media Commission in Afghanistan and acting project manager of the UN’s election project, and a lifetime study of successes and failures in national economic turnarounds that started at the University of Chicago, where he studied the cases of Japan and Russia.