Hardly anyone noticed, but last week the Department of Trade and Industry under the now venerable Minister Rob Davies launched the 10^th iteration of the Industrial Policy Action Plan (IPAP10).

The various IPAPs are supposed to be annual “action plans” aligned to three-year cycles of government planning. The IPAP processes are supposed to help with planning for a more competitive and diversified economy with a higher global share of products.

Each IPAP is supposed to review achievements of industrial policy since the first IPAP was launched a decade ago. The current version places a strong emphasis on “supporting transformation led by the Department of Trade and Industry (DTI’s) flagship Black Industrialists Scheme inclusive of a bouquet of new and creative incentive measures set out in the incentive section”. It also “outlines a stronger emphasis on a stronger export effort focusing on existing lead and dynamic national export champions and new, especially black-owned entrants”.

The past achievements include incentives leading to investments in the automotive sector, agro-processing and so on. The IPAP is intended to contribute to radical economic transformation, whatever that now means. Minister Davies gives a clue and says that it is about “bringing about radical change in the structure of our economy in particular to contribute to bringing about structural change that reduces our dependence on the industries and sectors that were designed under colonialism”. So, the normal stuff that doesn’t mean anything much and nobody really takes that seriously – but mostly, everyone is still polite about it and they applaud at the right places.

The truth of the matter is that South Africa has been steadily de-industrialising and while this process had already started in the mid 1980s when it contributed 24% of GDP, it has accelerated since achieving democracy and now contributes just 13%.

Professor Ricardo Hausmann, an adviser to the Thabo Mbeki government, provided an analysis of what has happened in our economy. We have seen a shift from “tradeables” – items that we manufacture or mine to sell abroad – to non-tradeables; things like services and construction which cannot be exported. Professor Hausmann also explains why exports are so important to any economy. Manufacturing is a sector that can grow faster than the rest of the economy (because it can export) and drag the rest of the economy behind it. It also employs more low-skilled people at better wages and drive skills transfer over time.

Despite all the policy interventions, South Africa’s industrial output is not fundamentally different to what it was under apartheid. One of the many observations Professor Hausmann makes is that our slow growth and de-industrialisation are a result of no agreement over what the vision for South Africa should be. As a result, he says, the various tiers of government and the private sector are not working towards a common goal or co-operating to achieve outcomes that will benefit the whole country.

One study showed that the industry clusters selected by the DTI are not justified and that in 2012 only two of the 13 industrial clusters it identified showed any export potential. Some of those selected depend on ultra-low wages to be competitive and others on the existence of many highly skilled people and advanced technologies. South Africa cannot compete in either. Further, many that were selected only continue to exist because of extensive protectionist measures.

There is a pressing need to change direction if only because the tide is going out on the types of things that South Africa produces and exports. The key change is in energy. Increasingly, large funds of savings are talking about “stranded assets”. The Carbon Tracker Initiative, which popularised the term in the context of fossil fuels, defines stranded assets as those which “some time prior to the end of their economic life (as assumed at the investment decision point) are no longer able to earn an economic return (i.e. meet the company’s internal rate of return).

One shouldn’t underestimate the existing scale of the fossil fuelled global energy economy. The global oil sector is worth $1.7-trillion per annum, far bigger than all mineral/metals mining combined. Coal, worth about $700-billion per annum, still dominates world electricity generation and is used for a third of total energy supply. Renewables are still a pin prick in the total energy mix but, off a low base, renewables are now the cheapest way of adding new generating capacity for electricity. Previous projections by bodies such as the International Energy Agency on the growth of renewables have been far off as renewables have exceeded the over-optimistic projections of what could be possible by environmental activist groups like Greenpeace or the WWF.

For the most part, the growth in renewables has been at the cost of coal. Coal demand is now declining around the globe and its economics are looking poorer. The great hope for the coal sector was supposed to be the emergence of India (currently South Africa’s biggest coal export destination) but this growth prospect has all but fizzled out.

Oil is seen to have better prospects (for itself, not the environment) but this is also changing. Even the oil majors like BP are modelling peak oil. The reason for this is the emergence of electric vehicles. The growth of electric vehicles, driven by declines on the cost of lithium-ion batteries, makes them increasingly a viable prospect for more car owners. China, now the world’s biggest car market, is leading the charge and is now the biggest market for battery electric vehicles. One again, off a low base, the market for battery electric vehicles is forecast to grow from about a million cars to 4.5 million (or 5% of the global car market) by 2020.

Norway, which has introduced a range of generous subsidies for electric vehicles, has seen electric vehicles and plug-in hybrids achieve 40% of all new car sales.

It is not yet clear how the technologies around electric vehicles will develop. Perhaps lithium-ion has an upper limit on how much energy density can foreseeably be achieved with these types of batteries and while electric vehicles with batteries appear to have far better prospects than those using hydrogen fuel cells, vehicle manufacturers are keeping their options open. Perhaps each technology will find its own niche; batteries for light vehicles and shorter distances and hydrogen fuel cells for long distance trucking.

We can be sure though that batteries will become more important than the technology used to generate electricity. Solving the electricity storage problem is perhaps one of the most important engineering issues that confronts humanity’s continued existence on this planet. Widespread deployment of battery technologies will also solve a number of South Africa’s intractable problems too.

The serious problems at Eskom and South Africa’s coal market is one example. As the prices for Eskom’s electricity continue to rise, it is suffering from a lack of demand. Higher prices simply depress demand further. At the same time, the bulk of Eskom’s coal-fired generation plant is reaching the end of its design life. Already, the older plants are becoming expensive to run due to extensive maintenance. Extending the life of these power plants is almost as expensive as building new plant. In addition, under-investment in the nearby coal mines supplying Eskom’s power plants feeding the power stations on conveyor belts has resulted in reduced supply and the need for short-term contracts from remote coal mines using trucks to make up the difference.

Investing in new coal mines is not what it used to be. Global efforts to reduce CO2 emissions mean that the funding is just not there. South Africa’s problem with coal is not just Eskom’s. South Africa exports around 70 million tons of coal per annum. The export market is just as big in rand terms as Eskom’s demand. Coal represents as much as 4.4% of South Africa’s export earnings, about the same as our iron-ore and diamond exports. Exporting coal is also a significant share of Transnet’s freight rail business.

A good way of increasing demand for electricity would be via more electric vehicles. There are about 10 million cars and bakkies on South Africa’s roads. If a million of them were electric and each of them travelled 20,000km/annum they would be using 3.2TWh/annum, a little less than Eskom’s existing surplus generation capacity. If recharging of these vehicles took place in the evenings, Eskom’s plant would become more efficient (and cleaner) as it would not have to follow the peaks and troughs of daily demand.

It is a long way off yet but as renewables increase their share of total generating capacity, one is confronted with periods in the day when there is excess supply of electricity generated by renewables. Wide deployment of batteries would allow variable pricing as consumers get incentivised to fill their batteries and at other times, in peak demand periods, are incentivised to draw power from their batteries (perhaps the ones in the car) instead of drawing power from the electrical grid. The difficulties associated with a high share of variable renewables is thereby almost solved.

Batteries could also solve a number of South Africa’s other pressing problems. Most of South Africa’s manufactured output is in motor vehicles and commercial vehicles. They also represent just under 10% of South Africa’s total exports. But this comes at an enormous cost. Motor vehicle manufacturing absorbs about R20-billion in state subsidies annually and requires high import tariffs to remain viable.

The local motor vehicle market has another problem though. South African refineries that refine imported crude oil cannot produce fuels that are compliant with the latest car engine technologies. Globally, refining has moved back into the countries that export oil. One estimate is that upgrading South Africa’s refining capacity would require an investment of R40-billion and new refineries only reach economies of scale when producing 1.5 million barrels per day – far more than South Africa consumes. In addition, there is a global glut of refining capacity.

Still, South Africa imports about 21.3-million metric tons of oil (or 156-million barrels) per annum. Oil and oil product imports amount to at least 15% of everything that South Africa imports, which puts pressure on our balance of payments – especially if coal exports are in decline.

Looking forward, South Africa manufactures brands of cars from countries that are looking to ban or radically reduce the number of internal combustion engines on their roads. There is a real prospect that our motor industry will be producing products for which there will be a declining global demand.

Existing analysis on the future of batteries says that manufacturing capacity is likely to be based in advanced countries with huge R&D capabilities and government support and subsidies for electric vehicles. South Africa does not have that, but it has something else.

As battery technology is still in its early stages, it is difficult to predict which technology will win out. Advances in materials and nano-technology might well upend the current market leaders in battery technology, causing huge losses for the backers and funders of the superseded technology. Fuel cells might even come back as being a leading energy storage technology backed by the existing oil giants such as Shell. Whatever the outcome, in just about every possible version of a battery or storage future, South Africa is one of the leading countries for just about any of the raw materials needed to make any version of a battery. Where South Africa does not have proven reserves of the minerals required, its neighbours do.

The ability to supply the raw materials does not necessarily mean that South Africa needs to build gigafactories like Tesla is doing – that is rather anachronistic. Current global international patterns emphasise global value chains and value-added components, either pre-fabrication or post-fabrication services, are far more important than making a whole product in one place. There is no reason why battery technology would be any different.

There are added advantages to getting behind batteries. Unlike existing confused industrial policy, it is easy to understand. It is just about one thing. Every government department could then draw up how they could contribute.

• Treasury could kick the process off immediately by zero rating 42% import charges levied on electric vehicles for the first, say, 100,000 electric vehicles.

• Mineral Resources could prioritise exploration and development of the minerals needed.

• DTI could start to amend the local vehicle manufacturing incentives to cover electric vehicles, as Audi in South Africa has already called for.

• The Department of Energy could focus on ways to begin to strengthen the local grid and encourage the deployment of charging points in towns and suburbs.

• The Department of International Relations and Co-operation could focus on improving the conditions in our neighbouring countries such as Zimbabwe (lithium) and the DRC (cobalt) and keeping South Africa as the gateway nation to the continent.

• The Departments of Education (basic and higher) and Science and Technology would also have a focus on preparing the future workforce and understanding the new technologies.

Other departments could also easily find way to contribute.

Backing energy storage gets South Africa in on the “ground floor” of a forward looking and growing technology, allowing small immediate actions to be followed by more significant moves into the medium and long term. Best of all, it provides a basis for South Africa to present a fresh vision. It allows us to leave behind the fossil fuelled industrial base we inherited from Apartheid’s industrial policies and one that will increasingly become stranded assets and a millstone around our collective necks. DM