South Africa is in a tough place economically. However, there are still options available that can improve the country’s outlook, Michael Hewson, Director of Graphene Economics emphasises.
He notes that there are income levers and expenditure levers that can be pulled. Income levers include corporate tax, individual tax, transaction taxes (VAT and customs), tax on capital / equity and other taxes, such as new taxing rights. Expenditure levers include spending on learning and culture, health, social development, community development, peace and security, general public service, payments for financial assets, and debt service costs.
Every lever has pros and cons, and needs to be understood in the context of global factors affecting the local economy (uncertainty, globalisation, technology, inflation and climate change, to mention a few), as well as domestic supply and demand factors.
“The big challenges, as we know, are inequality, high levels of unemployment and poverty,” Hewson says. “To address these, we need growth in production, which leads to profit and distribution. However, every year seems to deliver its own significant surprises and challenges.”
Recent context
Looking back over the past four years over Budget Speeches, Hewson notes the big talking points. In 2020, COVID-19 was just beginning to make waves and South Africa was concerned with the Moody’s rating downgrade and global supply chain disruptions. In 2021, COVID-19 dominated the agenda. In 2022, there was talk of emergence from COVID-19, as well as the July 2021 unrest in South Africa, the Russia / Ukraine war and rising global energy costs. In 2023, there was mention of the Durban floods, the ongoing Russia / Ukraine war and transportation issues. The one thing that has been a constant for all four of the last four Budget Speeches is, unsurprisingly, Eskom.
“Looking at the frequency of loadshedding over the years, the figures have tripled since 2020. It’s become a way of life,” says Hewson. “A couple of weeks ago, I was travelling from Rosebank to Northcliff and I passed a few traffic lights that were out. I started counting the traffic lights. Out of a total of 26 traffic lights, there was only one that was working. It made me think of the impact on the economy and the supply side factors, but I also just think of the toll that it takes on people and the frustration and challenges it’s causing.”
Hewson notes that in 2020, the portion of total electricity made up of renewables in South Africa was just 10,50%, with 89.50% fossil fuels (according to the CSIR). “Something Trevor Manuel said a number of years ago that out of every crisis comes opportunity. Maybe it’s taken 3 776 hours of loadshedding in 2022 to give the president and ministers the opportunity to really prioritise an increase in allowance for renewable energy, increasing solar and helping to really facilitate the move to greener energy,” he says. “What if our biggest challenge now could become our biggest competitive advantage in five years’ time?”
Ripples of hope
Hewson suggests that South Africa could move from 10.5% of renewable energy to 41% within five to eight years (by 2030, latest). “If we managed this, we could have a renewables-driven commodity boom that follows the current commodity boom,” he says. “The cost of electricity will reduce and there will be many other positive spin-offs.”
He references a speech that Robert F. Kennedy (then a senator) gave to the National Union of South African Students members at the University of Cape Town in 1966, which has become known as the “ripples of hope speech”. “Basically, he indicated that it just takes the efforts of a few people to proactively look to make a difference, and that will escalate and snowball to the point at which we start to see in a quite considerable, significant change. That is what I believe we need to aim for now.”
Hewson points out that it’s doable if one looks at recent history in other regions. South Australia recently hit a record 10 straight days of 100% of its energy supplied from renewables; in Kenya, 90% of power is currently from solar, wind and other renewables; and even within South Africa, there are already four towns running off renewables (where the electricity supply is privatised).
“Our Photovoltaic Power Potential is one of the highest in the world, and realistically, increasing the threshold for private generation, supporting rooftop solar and correctly channelling the Just Transition funds available would make the 41% target achievable,” he says. “It’s encouraging that we’ve seen the private generation cap removed, and that government has moved to incentivise residential rooftop solar. We now need to ensure that the R8.5 billion in Just Energy Transition funds are properly ringfenced and used wisely over the next three to five years.”
There are other opportunities for South Africa to prioritise its green economy and unlock economic opportunities. Hewson cites Anglo American’s unveiling of a prototype of the world’s largest hydrogen-powered mine haul truck, Sasol and ArcelorMittal SA’s announcement of a green hydrogen partnership and the “Hydrogen Valley” project between Johannesburg and Mokopane (valued at $9 billion) as examples.
South Africa is also the third-largest producer of vanadium, which can be used to create batteries with a far longer lifespan than lithium-based batteries, and the country will be home to Africa’s first solar-vanadium storage hybrid project.
“There are new technologies opening up new opportunities, and South Africa needs to focus our attention on those, creating new solutions, business models and industries that can help us to deliver the growth we need,” he concludes.
