SA faced with a historic opportunity

Green opportunities are crucial for dealing with SA’s economic woes, according to a recent report from Harvard University’s Growth Lab under its John F Kennedy School of Government.

The Growth Lab’s director is Venezuelan economist Prof Ricardo Hausmann, arguably the most impressive developmental economist of his generation. Under his direction this is the Growth Lab’s second attempt to put forward evidence-based solutions to SA’s ailing economy, having also worked on the Accelerated & Shared Growth Initiative for SA programme in the mid2000s.

The report is as rich as it is strident on the choices the country made over the past 15 years. It identifies two broad areas of weakness — eroded and eroding state capacity as well as spatial exclusion. On state capacity, the essence of the issue is a bureaucratic system ill-equipped to execute developmental mandates, despite the best intentions and will.

On spatial exclusion, the report says our issues stem from the unintended consequences of the government’s housing programme, which has given millions of South Africans a home to call their own but at the same time served to entrench apartheid spatial patterns.

The report argues that demand-side interventions through fiscal policy stimulus cannot and will not improve outcomes, and persistence with the strategy has only resulted in deteriorating creditworthiness, lifting the cost of capital for the entire economy and crowding out spending on social services, as debt service costs have become the single largest expenditure item.

Importantly though, Hausmann offers a compelling way forward to reverse more than 15 years of prolonged weak growth and worsening social indicators. One of the opportunities that loom large is SA’s “green growth potential”. Before one unpacks this further it is worth pausing for a moment.

Fossil fuels such as oil and coal have been a primary force of human development since 1900. Due to their chemical properties oil and other hydrocarbons such as petroleum, gas and coal and their derivatives saturated the energy landscape. This meant the cost of transporting them as a percentage of their value was low.

Thus, the economics of transporting crude oil produced in the Arabian Gulf around the world for consumption in, say, the US, made sense. But as the world decarbonises and we are forced to change the way we power our homes, keep warm or produce steel, it changes these economics in a fundamental way. Renewable energy, unlike coal or oil, cannot be easily moved across oceans. That means that “green underpins goods” will Hausmann have to’be s produced closest to where the renewable energy source is. This is the fundamental thesis strategy for green growth renewal in SA.

In my analysis the net zero transition debate in SA has focused too narrowly on the potential disadvantages of the pace of our transition. Doubtless, the pace at which we transition requires careful planning and synchronisation, and a laser-like focus on the humanness of any choice. Because if not done properly it could increase inequality and sharpen societal tensions.

However, this should not detract from the potential opportunities presented by the transition. The Hausmann report argues, correctly, that the country has immense potential to offer the goods, services and products required by a decarbonising world, and that we are well positioned to capture global “greening” demand by:

● Making the enablers of global decarbonisation — including the supply of critical minerals, fuel cells, electric vehicles;

● Making green versions of black/grey products by producing green products using solely renewable energy; and

● Exporting green knowhow — including technologies, financial services and innovations — to the rest of the world.

SA is well positioned across all three of these green growth platforms. That some key economic infrastructure such as special economic zones, is already geared towards the manufacturing of export-oriented products, is an obvious competitive advantage. This can be used as a key platform for creating green aluminium and other hard-to-abate products.

So unique and historic is this moment that a recent study by McKinsey says that the net-zero transition is the single-largest capital reallocation event in world history.

Our position is that while a disorderly transition carries many inherent risks (which must be managed and mitigated), the downsides should not cloud our vision nor blind us to a transformative once-in-ageneration opportunity.

This transition will require capital and specialised support. We are uniquely positioned to connect the capital, ideas and insights required to unlock SA’s green growth potential.