Opinionista Saliem Fakir 20 April 2020

Post-Covid-19 recovery: Fiscal stimulus must include more renewables in SA’s energy plans

Our recovery plan should have a strong and deep recommitment to renewables. We should neither waste time nor the opportunity before us.

“How sad to see great nations begging for a little extra future.”
(EM Cioran, Romanian philosopher)

The energy sector is key to building a more agile and diverse economic future for South Africa. Our current legacy has involved dragging the old energy economy into the new world. Eskom’s fully vertically integrated utility model is out of sync with trends elsewhere in the world.

High coal dependence makes us vulnerable to extreme, and if not cataclysmic, shocks. Such shocks, absorbed through a single channel, upon which we are all dependent, will undoubtedly ripple through the entire economic system. Eskom’s fragility is exacerbated by its giant debt hangover and its recurrent problem of supply disruption. A dramatic failure in supply of energy will pretty much do what we have now for Covid-19 — push the economy over a cliff.

It was Keynes who said that in the long run, we are all dead. Keynes was not specific about which long run and which dead, but we do not need to take many guesses on this one. The thing about crises is not what happens when a pandemic hits or what Australia faced early in 2020, but how small events can turn rapidly into uncontrollable and unconventional events.

These events have defied all attempts at prediction and well, prediction is pointless, as they teach us that preparedness for extreme shocks matters more. We should imagine extreme events, not unimagine them. This requires a cognitive leap in all forms of future thinking and planning. And, one can say that it’s a scarce currency in the chambers of state or markets, as has clearly been demonstrated with Covid-19 and other extreme events.

A little fish market event in Wuhan drew us quickly — as Nassim Nicholas Taleb would call it — into the world of Extremistan. Extremistan requires different mental frameworks and tools that have to be applied long before an extreme event occurs, not during its advent. In Extremistan, the operating rules are different as new rules of the game are thrust upon unsuspecting political and business leaders — and very quickly we know who can lead and who cannot under these new conditions. And the whole of society — in the end — is dead or alive, based on the quality of leadership it has to match the crisis.

Extreme events are tail events that do not register on the radar even though countless scientific work has pointed to the globe facing a pandemic of the sort we have now. We have had fore-experience of the lethality of pandemics if we just studied the bubonic plague, the Spanish flu of 1918 and the Avian Influenza of 1957. In the past two decades, we have had several smaller epidemics which were seemingly ignored.

Short-run measures that trade-off the benefit of the long run hollow economies and their ability to be resilient against extreme events. Short-run stupidity is everywhere to be seen: it has come into sharp focus if one considers how developed economies have struggled to cope with the exponential scale of Covid-19 casualties. A history of not investing sufficiently in public health and surveillance capacity has caught up (watch John Pilger’s excellent documentary, The Dirty War on the NHS) and similar trends are evident in terms of climate crisis events for which we remain ill-prepared and in a cycle of constant dithering.

Stupidity continues too, in the front of the fossil-fuel industry where oil, gas and coal interests are either asking for bailouts and more subsidies. If anything, this is the time to stop with an uncompromising “no” spirited malfeasant requests that risk the long run and render us all simultaneously dead. The subsidies should be used to support global research and alternative pathways from our total dependence on fossil fuels.

Drawing inspiration from Taleb’s works, the obsession with risks we know and want to know tends to marginalise the risks we do not want to know or cannot know their due date or scale — such as climate change and energy security risks. Large-scale systemic risks lead to the state being the bailer of last resort, but states cannot do this alone and do not have the capacity to socialise all these costs. Society as a whole has to be prepared — and social capability to deal with crises has to be engaged more widely.

South Africa’s chickens are coming home to roost because of the failure to align short-run economic policy with the long-run objectives. This misalignment of the present versus the future shows up dramatically the weaknesses and structural faultlines of the economy in times of crisis. The state’s reaction to the health aspects of Covid-19 have been laudable. It makes you wonder why the state is so absent in other arenas of crises where its responsiveness to Covid-19 has belied the conventional assumption that the state cannot muster capability across society.

Nicola Viegi (from whom I benefited a great deal by talking to) is Professor of Monetary Economics at Pretoria University who has worked on economic policy issues in South Africa. He argues that the Covid-19 crisis will set South Africa back many years, if not a decade.

A consumption-led economy has been the basis of South Africa’s economic growth since 1994 without substantive rebalancing through infrastructure spend and diversification of industrial and manufacturing capacity. Essentially we are driving the South African economy on the steroid of debt and consumption-led growth which easily collapses when extreme events push millions of people out of the formal and informal economy. More so when incomes drop, government spend has to be allocated to more pressing matters and the creditworthiness of debtors is no longer on a stable footing.

South Africa’s economic structure has not shifted much since 1994 — the remnants of the old monopolistic economy (both state and private), with an out-of-proportion finance sector, and the slow thinning of the manufacturing and industrial productive base are symptoms of short-run interests capturing economic policy and planning.

For all the flaws of the Renewables Independent Power Producers Programme (REIPPP) it is still a good model to follow — but it needs rebalancing as far as ownership models go

 

State-Owned Enterprises (SOEs) are seen as the primary vehicle to attain the developmental objectives of the state, but they have largely been reconfigured and repurposed to serve as transfer mechanisms for those interested in locking down, as it were, the flows of rents for which those who have control over the state machinery and private market monopolies reap all the reward. This is how one needs to view projects such as the Medupi coal power plant — a positional transfer mechanism in which a collection of interests, who have no reason to decisively complete Medupi, would like to maintain the status quo as long into the future as they can.

This situation leads to misallocation of limited state resources, inefficiencies and jeopardising economic growth in general.

South Africa has the capacity to deliver on its long-run economic goals and the crisis has shown that we can pull together if we want. Since, Covid-19 has cascaded the country into threatened economic collapse and soon social unrest, and the government is in the throes of an emergency recovery plan.

The proposed fiscal stimulus should not only be used to rescue the old economy, but also be a vehicle to build the new. In the long run, economic policy should be measured, as Taleb would suggest, by the strength of its antifragility.

Antifragility measures, in the case of our energy future, should involve decentralisation of functionality, and in so doing, distributing risks across a system rather than pivoting at one part of the system. Such an energy system allows failure in one part to be isolated from the rest and the system as a whole can continue to function. The main benefit of antifragility is that it spreads the field of innovation and tinkering beyond the un-entrepreneurial state (to play on Mazzucato’s notion of the entrepreneurial state) especially if parts of the state have no reason to be under evolutionary pressure to perform.

Our recovery plan should have a strong and deep recommitment to a renewables programme along the antifragility principle that has been mentioned above. Eskom has the opportunity to be part of the solution, but we should use the crisis to develop a new energy system architecture and enhance decentralisation and distributional rights far more widely to individuals, communities, firms and municipalities.

The recovery offers an opportunity for radical reforms where we can revisit the provisions under the Integrated Resource Plan for renewables, enhance our climate goals in the Nationally Determined Contributions, liberalise the licensing regulations and we should be much more generous with municipalities as they should be given powers to participate in the energy market just as they did in the past. The flow of capital and investments in this new architecture of decentralised models of energy distribution will unlock untapped economic potential.

For all the flaws of the Renewables Independent Power Producers Programme (REIPPP) it is still a good model to follow — but it needs rebalancing as far as ownership models go, other arms of the state need to be more active in the implementation of distributed energy and it has to lay the foundation for a new manufacturing base and jobs intensity (which will be achieved if greater emphasis is placed on rooftop and vacant land roll-out).

The elegance of this is that the state does not need to use only its own resources, but can mobilise a flotilla of players within the domestic scene and international climate finance. What it needs is a decisive hand in reform and incorporation of these as part of the suite of measures in South Africa’s recovery plan.

We should not waste time — nor the opportunity that stands before us. DM

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