Even though South Africa is a developing country, there are certain pockets of extreme wealth that make up the bulk of the gross domestic product (GDP) of R4,213-trillion . This makes its status as a “middle-income” developing country debatable.
The country has a generally accepted split of less than 20% of the population holding more than 80% of the wealth, as indicated in the Gini index that measures the degree of inequality in the distribution of family income in a country.
In terms of the Gini Index South Africa is consistently ranked in the bottom five countries in the world, holding that the distance between the income of the rich and the poor is more than almost any other country in the world. Against the backdrop of a country struggling to adapt to the lingering effects of apartheid and a relatively slow-growing economy, we find the often “first-world” issues related to climate change (and its accompanying effects) a real concern.
The various policies being put in place to stimulate the South African economy have to be balanced against climate-change issues that have the potential to slow down economic growth rather than stimulate it. These policies are under fire from meetings such as those of COP17, which aim to determine the way forward on certain climate-change issues such as financing mechanisms.
The South African economy is moving towards an industrialised economy, driven by exports to other major economic markets such as China and Europe. The government’s “Industrial Policy Action Plan 2010-2011 — 2012-2013” (IPAP2) was announced in 2010, with the message that “there has been a growing recognition that industrial policy needs to be scaled up from ‘easy-to-do’ actions to interventions that we ‘need to do’ to generate a structurally new path of industrialisation”, with reference to the 2007-2008 IPAP.
IPAP2 makes reference to South Africa’s structurally unbalanced growth path and states that in the three years prior to the global economic crisis of 2008 relatively high growth rates were achieved in South Africa. The problem with this is that these growth rates were not reflective of key structural challenges in the South African economy.
Furthermore, according to IPAP2, South Africa’s growth rates were lower than the average growth rates of our peers across medium- and low-income countries. Also, the unsustainable increases in credit provision (recently curtailed by the National Credit Act) advanced growth and consumption that were not sufficiently supported by the growth of the productive sectors of the economy.
Even at the peak of recent average annual growth of 5.1% between 2005 and 2007, unemployment did not fall below 22.8%, with current figures as high as 25%. Against this sensitive and changing market structure, IPAP2 seeks to find a solution in locating an optimal growth path.
According to IPAP2, increasing concern in relation to CO2 emissions and climate change will have a big impact on South Africa’s economic landscape. This is partly the result of the threat of increasing “eco-protectionism” from advanced industrial countries in the form of tariff and non-tariff measures such as carbon taxes and restrictive standards.
Energy costs pose a major threat to the manufacturing sector and render South Africa’s resource proc-essing based industrial path, which is capital and energy-intensive, unviable in the future. It will have a direct impact on South Africa’s competitive position. This can be balanced against the significant opportunities to develop new “green” and energy-efficient industries and related services.
In 2007-2008 the global market value of the “low-carbon green sector” was estimated at R38,075-trillion and is expected to rise significantly in the light of climate-change imperatives. It is clear that the government understands the sensitive position the country finds itself in. The question, however, is what is being done to protect the country in the longer term against initiatives that may follow from climate-change negotiations and that will have a direct and an indirect impact on South African industry.
Against the backdrop of IPAP2 and other policies, the government recently tabled the National Climate Change Response white paper. It has the following objective: “South Africa will build the climate resilience of the country, its economy and its people and manage the transition to a climate-resilient, equitable and internationally competitive lower-carbon economy and society in a manner that simultaneously addresses South Africa’s overriding national priorities for sustainable development, job creation, improved public and environmental health, poverty eradication and social equality.
In this regard South Africa will effectively manage inevitable climate-change impacts through interventions that build and sustain South Africa’s social, economic and environmental resilience and emergency response capacity. “Make a fair contribution to the global effort to stabilise GHG [greenhouse gas] concentrations in the atmosphere at a level that avoids dangerous anthropogenic interference with the climate system within a timeframe that enables economic, social and environmental development to proceed in a sustainable manner.”
According to the white paper, the objectives will be reached broadly in two ways, namely through “adaptation” and “mitigation”. Adaptation entails that South Africa will develop climate-change adaptation strategies, based on the reduction of risk and vulnerability, and will share resources, technology and learning to co-ordinate a regional response. South Africa is regarded as a vulnerable country in the context of climate change because of its semi-arid regions and future potential for water scarcity.
According to the white paper, “South Africa’s approach to mitigation is informed by two contexts: first, its contribution as a responsible global citizen to the international effort to curb global emissions; and second, its successful management of the development and poverty eradication challenges it faces. The National Climate Change Response is intended to promote adaptation and mitigation measures that will make development more sustainable, both in socioeconomic and environmental terms.”
A full discussion of the various objectives and implementation offerings discussed in the white paper falls outside the scope of this article. However, consulting firm Frost & Sullivan would like to bring the following concept to the table for discussion. The move to a more climate-friendly future with the use of market instruments, such as a carbon tax, is a noble notion and on paper a feasible approach.
But it should be balanced against the ultimate objective of not only keeping South Africa’s economy on a stable upwards growth path, but also keeping South Africa’s economy positive in the eyes of foreign investors. Herein lies the potential conflict, because the competitiveness of South Africa as an economy of choice for investors could possibly be lost with the design and implementation of not only premature but also strict policies.
The question needs to be asked: Is South Africa, as a developing country, ready for strict climate-change regulations? Various arguments have been forwarded that are in favour of South Africa adhering to climate-change regulations, ranging from the ideas that a “sooner rather than later” approach should be followed and that South Africa will gain a “first mover” advantage.
Also, the idea that adhering to these climate-change regulations will, in actual fact, be the springboard to catapult South Africa towards being a developed nation in a faster fashion. Although I am not against the implementation of climate-change regulations, the methods proposed should be carefully designed in a detailed and, more importantly, informed fashion.
What is not needed are carbon boycotts from developed countries should no real action be taken. “Growing at three times the world average, tourism has become one of the most important sectors in South Africa following the end of apartheid, creating almost a million jobs and even overtaking gold exports as an earner of foreign currency.”
Because of the Fifa World Cup, 2010 is not an adequate and accurate year to use as a benchmarking tool. However, figures from 2009 and 2008 show that 9?933?966 visitors arrived in South Africa in 2009, compared with 2008’s 9?699?365, a 3.6% increase year on year.
The Fifa World Cup also provided a launching pad for South Africa to be showcased to the world and it will be interesting to see final figures for 2011 following the 2010 figures. Income from business tourism in South Africa in 2010 was estimated at 4%, or R2.3-billion of South Africa’s total tourism revenue. This is solely from businesspeople attending conferences and exhibitions. This means that the total tourism revenue figure is about R57.5-billion. Tourism’s contribution to South Africa’s GDP rose from 2.7% to 7.9% in the 2009-2010 period.
With IPAP2 driving South Africa towards industrialisation, coupled with the advancement of competitive practices, as found in various policies and Acts, the implementation of climate-change measures (such as a carbon tax) could have a counter-effect on the competitive landscape.
The following example is relevant: if a market instrument, such as a carbon tax, is introduced at a rate of R165 per ton of CO2 emitted, the major energy consumers such as Eskom, Sasol, BHP Billiton and ArcelorMitall will be hardest hit in terms of levies paid. This would also depend on the design of the tax, which is due to be tabled again in December 2011. However, the knock-on effect is felt all the way down to single household consumers.
The transport sector, as a whole, is also a major emitter of CO2, and will pass the tax on to the consumer. Airlines and other transportation means (such as buses) will be forced to raise the prices of tickets, resulting in South Africa being less of a choice destination. Fewer tourists will cause a basic knock-on effect: less money to be spent in the market resulting in eventual job losses. This is a simplified statement and not an absolute one.
Government realises that, by implementing climate-change measures, there will be job losses. The counter, as proposed by the government, is that there will be job opportunities in the green and other indirect sectors. Climate change is a reality, and should be kept in mind by all industries, not just the so-called critical industries.
The policy measures on the table and those that will soon be tabled after COP17 should be carefully scrutinised by all industry players. This will ensure a phased-in approach that does not strangle the market by aiming for excessive “need-to-do” measures.
A relatively mildly shrinking economy in exchange for a more climate-friendly future is a fair trade-off, but caution should be taken not to end up with a developing nation that can never reach developed status owing to layers and layers of policies and administrative burdens that were not correctly implemented.
Finding the “best way forward” in conjunction with industry input is the only real answer.
Johan Muller is energy and power systems industry analyst at Frost & Sullivan
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