The law of unintended consequences pervades everything we do in government, sometimes for better, mostly for worse. Last week was rather special.
Almost each week, we grapple with an unforeseen negative consequence of a well-intentioned policy. Last week was different in that we had occasion to celebrate the positive consequences of two calamitous events in the recent past.
One was the imposition of intermittent electricity load shedding between 2006 and 2015, which cost the South African economy an estimated R300-billion.
The other was the decision by South African Airways, in mid-2012, to cease its direct London/Cape Town flight. This was an enormous blow to the province’s tourism economy, because the United Kingdom has always been the single strongest source of tourists.
Both these decisions were the result of management failure in two parastatals: Eskom and South African Airways (SAA). And both these calamities looked certain to derail the province’s number one objective: economic growth and job creation.
But we had under-estimated one key factor: the market economy abhors a vacuum. Entrepreneurs rushed in to fill the void left by incapable state entities, with extraordinary results. Both local and provincial government in the Western Cape did everything possible to facilitate private sector assistance. The outcome has probably been a greater level of investment and job creation than we would have experienced had there never been load shedding or the SAA flight snub.
The Western Cape is now home to 60%-70% of SA’s booming green economy, which has been described by Moody’s as the fastest growing green economy in the world. In hard figures this amounts to investments of R17-billion since 2009.
That growth would be even stronger if Eskom would only take the obvious next step of signing more power purchase agreements with independent power producers. Predictably though, instead of encouraging this new job-creating industry, Eskom is determined to curb its growth, in order to protect its own interests.
The unintended consequence for Eskom will be its own demise. More and more people will generate their own electricity and go off the grid entirely (instead of strengthening the grid by feeding in new sources of energy, providing sufficient power for new consumers, and fuelling economic growth). State monopolies always prevent win-win solutions because they think they can win alone. Then they lose. But that doesn’t mean the economy necessarily has to.
In fact, another unanticipated consequence of the green energy explosion has been the plummeting cost of electricity – to the point that Eskom will soon lose its capacity to compete. Hence the need to block competition. As President Zuma continues to pursue a corrupt nuclear deal that the country cannot afford and does not need, the private sector is harnessing the sun and the wind, which could mean as much to our economy in the future as oil once meant for many economies in the Middle East.
There are many positive spin-offs of the energy revolution. One of the recent highlights was last week’s announcement by the Czechoslovakian company (Pegas Nonwoven Textiles) of a R1.3-billion three-phase investment in Atlantis outside Cape Town, which will create over 200 direct jobs. Making the announcement at a press conference, Frantisek Rezac, Pegas’ managing director, said one of the main reasons his company had chosen to invest in the province was a guaranteed supply of electricity.
Shortly after the Pegas press conference, I attended an evening function hosted by Wesgro, the Western Cape’s investment and trade promotion agency, to celebrate another milestone – the record-breaking 10-million air travellers who visited Cape Town last year. As a result of the tourist boom, three major international hotel groups are investing in eight large new hotels in the Mother City, creating hundreds of new jobs.
This growth was spurred by the Air Access Project (a collaborative initiative between Wesgro, the private sector, provincial and local government). It was a direct result of SAA’s decision to suspend direct flights between London and Cape Town, in order to sell a Heathrow berth for R300-million to deal with SAA’s cash-flow crisis.
Realising the risk this decision posed to the province’s tourism industry, the “Air Access” team was established. It has achieved spectacular success. A range of airlines now operate 21 direct flights each week between Cape Town and destinations across Africa and Europe – including three weekly direct London flights. This adds up to 600,000 new two-way seats to Cape Town over 18 months.
It is said that for entrepreneurs to create a really thriving industry, they require a really big crisis.
But the private sector can only step in if government facilitates their access. And for this to happen, government first has to realise that the problem is beyond its capacity to solve alone.
Now the province faces yet another crisis: a lack of water. And again, the entrepreneurs are popping out of every crevice offering a range of potential solutions.
This provides yet another opportunity for a facilitative state (in local and provincial government) to enable the private sector to build a thriving new job-creating industry to deal with a major challenge.
It will be fascinating to look back in five years’ time. Watch this space. DM