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SA is in a crisis, but investments into the energy transition and beating load shedding over the next decade could rival the growth explosion that followed the discovery of gold and diamonds.
That’s the view of well-known independent political and economic analyst JP Landman, who said SA is in many ways back where we were in the late 1980s.
Speaking at a panel discussion at the opening of the annual convention of the South African Property Owners’ Association in Sun City on Wednesday, Landman said the trillions in rands that stand to be invested in energy, in the coming years, could yet be the silver lining the country has been looking for.
According to Landman:
If you put it all together, the move from fossil to green, the move to new technologies of hydrogen, what you will find is a landscape of investment possibilities which are, any day of week, as big as the combined effect of diamonds and gold so many years ago.
But he added SA has new and different challenges as well.
“There are differences between now and the late 1980s. We had a civil war, we don’t have that now, but I must say that organised crime is giving us quite a go. We didn’t have democracy then; we do have one now. But there are similarities. The similarities are simply that the economy is stagnant, that the population growth is faster than the economic growth, and that our politics is stagnant.”
‘Opportunity of a lifetime’
Referring to SA Reserve Bank’s estimates that load shedding had shaved about 2 percentage points off of GDP growth, Landman said the only way out of the energy crisis was “massive investment in new generation and transmission capacity”.
“And it is that investment, which is really the biggest opportunity, I think – in a sense, in our lifetime.”
Landman pointed out that a total of R1.5 trillion was expected to be spent on electricity generation, transmission and distribution in SA over the next eight years, with a further R3 trillion likely needed after 2030.
If the nascent hydrogen industry in SA were added into the mix – including the harbour being built on the country’s West Coast to potentially export hydrogen to Europe and elsewhere – there was also cause for optimism, he said.
“Bear in mind that our economy is only about R7 trillion, and then you get a feel for the magnitude of what is busy playing out.”
As to where “all the money would come from” for all these investments, Landman said it would come from the private sector, drawing comparisons to the creation of the mobile phone industry in SA more than a quarter of a century ago.
“People ask where will the money come from… Well, let me just remind you that that 25 years ago none of us had smartphones – certainly not 30 years ago. People didn’t have cellphones – they didn’t exist in this country. Today you have a vibrant cellphone industry.”
Landman added:
Where does the money come from, well the money came from the private sector – there is not a cent of public money in our mobile [phone] industry. It’s all private capital that was mobilised over a quarter of a century and it gave us what we have. And that is the model that is going to play out in electricity as well.
He said the focus should be on what the private sector could be able to do in resolving the power crisis, rather than on the question of whether Eskom can be fixed.
While he does not necessarily believe the situation at the power utility will deteriorate further, he does not expect it to improve either.
As such, the hope for significantly more energy generation should not be pinned on Eskom, which would in any case in the coming years be taking out of commission at least eight of the 14 South African power stations.
He quipped at one point that “Eskom was f***ed,” prompting laughter in the auditorium.
End of monopolies
What gave him hope in the prospect of the private sector coming to SA’s rescue was the fact that President Cyril Ramaphosa had, in two moves in 2021 and 2022, effectively “changed the regulatory and legislative environment for power/energy in SA completely”.
“We went from a highly regulated electricity market where one company, a state-owned monopoly had the monopoly on the power and had the monopoly provision on power, and we move to a free market/open market of electricity in about 13 months. And the consequences of that is busy flowing through.”
He said while he would not say “load shedding was a good thing”, but if it weren’t for the energy crisis, SA wouldn’t have experienced “this change from a government-run monopoly to private market electricity”.
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Landman also took hope from government’s own major capital expenditure plans for electricity generation and transmission over the next decade, saying it was possible we could see the end of load shedding by the beginning of 2025. However, this also depended on how quickly some of the private sector projects that were in the process of being rolled out came to fruition in that time.
Growth concerns
Nedbank chief economist Nicky Weimar, who spoke virtually for the panel discussion, said that as a lender the bank knew “for a fact” as that a lot of the renewable energy projects that had been spoken about were under way.
She said that while this was a “positive”, the “negative” was that they were probably not moving as quickly as Landman suggested.
Nonetheless they were “in the pipeline”, which she said was encouraging.
“We also know that households and companies are taking advantage of the tax incentives that have been provided for solar. If you just look at solar panels, imports have increased by 280% year-on-year in the first half of this year alone, imports of batteries are up 40%. So households and businesses are really exploiting that incentive that has been provided.”
With this in mind, she said it could be assumed that SA was in the “process of dealing with the electricity constraint”, although Nedbank believed it was probably going to affect economic growth for a “good three years still”, reducing SA’s economic growth to less than 2%.
On top of this, there were also other challenges relating to road and port problems in SA, which were hitting the economy, while a further concern is SA’s fiscal environment, which is “rapidly deteriorating”.
Weimar said this did not happen by accident and was the result of poor policy choices over the last decade or so, adding that SA had to rectify these structural issues.
According to Weimar:
We are entering a fairly scary period in terms of what the budget deficit will look like, how will we fund it. I know that global interest in funding South African bonds has declined quite significantly.
Weimar added: “So we are in a period that is very much touch and go on that front. Those are the structural issues that we need to address. You can’t do that overnight. You have to do that systematically and surely and make the right decisions along the way.”
