South Africa needs to accelerate its transition towards a green economy

Since 2008, there has been a growing narrative that the South African economy needs more diversification with a move away from the significant reliance that the country has on the mining sector. The ominous signs of this narrative are that barring a brief intermission in 2010 (where the country achieved moderate economic growth because of the FIFA World Cup), the South African economy has perennially struggled to grow by more than 3%.

The world has also gone through a significant change since then. Fossil fuels and commodities such as coal are frowned upon in favour of greener economies that are driven by renewable energy.

South Africa in a precarious position of having to make a sharp and swift transition towards sustainability so that it once again takes its place as a continental leader when it comes to economic change.

I recently read an interesting article on the Business Live website and on Turnaround Talk that echo my views in favour of this transition.

Running out

The most significant change when it comes to clean energy is reducing carbon emissions at the source of greatest production, motor vehicles. the move to electric vehicles is gaining momentum globally; however, will this growth be replicated in South Africa?

The article points out that the margins on electric cars are higher and the complexity less, and consequently, for purely economic reasons, there is a huge incentive for manufacturers to fall in with the climate transition initiative and quite soon cease the production of internal combustion engine cars. In many markets, prohibitions loom (ranging from 2030 to 2035) on the sale of internal combustion cars.

Many car manufacturers have already stopped developing new internal combustion models and are simply running out of existing model ranges. There is no market in the world that can avoid this; sooner or later, the transition to electric cars happens. For example, in Australia, electric cars made up 1% of sales in April 2022, but this had risen to 8% just 12 months later.

The article adds that South Africa will be no exception. The move to EVs for passengers and freight is a huge growth opportunity for the country, stimulating investment, employment, local manufacturing and infrastructure spend. It is estimated that once electric cars begin to dominate the market, they will add 10%-15% to electricity demand. That in itself is one of the biggest investment opportunities available. For South Africa, it embodies two of the three big levers for the just energy transition — energy and EVs — highlighted by the trade, industry & competition minister in his recent budget vote speech as opportunities for an injection of capital and innovation in the economy.

From a component manufacturing perspective, a shift to green transport presents multiple opportunities for local production. Components can be made in SA due to the steady, long-term demand of the process: photovoltaic panels, batteries, inverters, cabling, and EVs of all sizes. The EV sector is naturally expected to drive growth in SA’s battery storage market, developing value chains and creating a positive knock-on effect for job creation and GDP growth.

There are two challenges when it comes to this. First, South Africa needs to transition to a greener, more stable electrical grid. Electric vehicles will be no use in a country that cannot produce enough electricity to charge them. Second is the adoption rate; consumers may flock to electric vehicles, but public transport (taxis and busses) will still largely be traditional petrol and diesel engines.

Enormous effect

The Business Live article points out that the South African & Southern Africa Battery Market & Value Chain Assessment Report, compiled by Customised Energy Solutions (CES) on behalf of the World Bank that was published earlier this year, forecasts a best-case scenario of almost 60 000 jobs that can be created if South Africa pursues battery production.

There is also an enormous import substitution effect. South Africa is spending significantly more than R250 billion a year importing oil and fuel products for petrol and diesel vehicles of all kinds. As internal combustion vehicles are phased out, there will be a significant decrease in forex expenditure, resulting in the retention of that money within South Africa and enabling it to be reinvested in the economy.

The hydrogen economy

The Turnaround Talk article points out that, in October 2021, the Department of Science and Innovation released a report on the South African Hydrogen Valley and the importance that it can play in the future of the country.

The article points out that hydrogen presents a significant opportunity for economic development in South Africa, including the creation of new jobs and the monetization of the platinum industry. It is also a contributor to South Africa’s decarbonization objectives, leveraging PP1, REDZ2 and other renewable development programs to produce green hydrogen, now at the centre of many sectors level green strategies (e.g., green steel, green buildings). Finally, global commitments towards hydrogen production and demand create an opportunity for South Africa to engage in energy export at the international level.

The report adds that, to realize these objectives for South Africa, Hydrogen Valleys can be leveraged to kickstart the hydrogen economy, leading to cost savings through shared infrastructure investments, improving the cost competitiveness of hydrogen production through economies of scale, enabling a rapid ramp-up of hydrogen production within a given territory, and leveraging an incubator for new pilot hydrogen project.

The article adds that three catalytic green hydrogen hubs have been identified in South Africa’s Hydrogen Valley. These hubs have been identified based on locations with the potential for a high concentration of future hydrogen demand, the possibility to produce hydrogen (e.g., access to sun/wind, water infrastructure), and contributions to the just transition—an economic development plan that brings positive social impact, particularly to more fragile groups and communities.

The report points out that hydrogen demand in the Valley could reach up to 185 kt H2 by 2030, or 40% (low demand case) to 80% (high case) of demand in the national hydrogen roadmap. Demand in the Valley has been developed based on a bottom-up assessment of technical potential of off-takers in each hub, complemented by hydrogen uptake curves reflecting the expected competitiveness of hydrogen in each application.

The report points out that the H2 Valley could potentially add between $3.9 to $8.8 billion to GDP (direct and indirect contributions) by 2050 while also creating between 14 000 to 30 000 direct and indirect jobs per year.

Accelerated transition

South Africa needs to find a way to accelerate its transition towards a green economy. This may mean that important policy decisions need to be taken by a visionary government that is genuinely invested in economic growth.

The role in the transition also requires our large industrial companies and mining houses need to step up to the challenge and are making meaningful changes in some cases. Anglo Platinum is a clear leader in the move to green mining technologies and the evolution of large equipment driven by hydrogen solutions.

Industrial development of this nature requires industry coordination and clear policy direction driven by Government. Once again, I am left wondering why we do not have a clear and urgent plan to support growth, job creation and a better life for all.

Robin Nicholson is the Director of Corporate-911 and is a Senior Business Rescue Practitioner