So, how does this work? Our economy comes under pressure. The prices of everything are rising. In the last six weeks dramatic cuts in electricity have been required to keep the national power grid viable. The port of Durban, our biggest point of import and export, is clogged and the road and rail arteries from there to the economic heartland in Gauteng are broken and frequently sabotaged.
The power supply failure, made worse by bitter pay talks at Eskom, brought the country to its knees. Or to its senses. President Cyril Ramaphosa announced last week a plan to swiftly add renewable energy technology to the grid in a bid to stop load-shedding in the next 24 months.
Whatever it takes, we hear. The private sector is to be the main driver of new investment and they are lining up to sell solar, wind and batteries. All the state has to do is allow them to build, connect to the grid and sell to Eskom at a price that gets them a decent return.
It’s an exciting time. Faced with a rush of new projects, the renewables industry is abuzz but also wary. Tendering for projects in SA isn’t easy. Bidders that have won projects on low pricing now find themselves unable to reach financial close because, well, their price was too low. Worse, there are no consequences for failing to keep your price promise, so bids that don’t close just leave a bigger power gap.
Now, with high inflation, rocketing fuel costs and strangled supply chains, building is going to be more expensive and the winning tariffs will have to be higher. Our construction industry is going to be hard-pressed to cope. Ramaphosa cleverly set himself no actual power or completion targets.
Another sign of common sense returning with high inflation and no electricity is that trade, industry & competition minister Ebrahim Patel’s localisation policies, his ideologically disfigured and almost medieval re-industrialisation of 21st-century SA, is coming undone.
In quick succession, pushed by his boss the president, Patel has been forced to drop his 100% local content requirement on solar panels (there were only two local producers, and they mainly imported as well) to 35%, and then drop his recent decision to hit chicken imports from Brazil, Ireland, Denmark Poland and Spain with stiff anti-dumping duties.
Of course, everybody wants this until it’s time to buy a new spade or some coffee and the prices make your eyes water
The reasons are simple. Enforcing mercantilist localisation in pursuit of re-industrialising a mature economy is just dim-witted in the first place. It should be being encouraged to trade its way out of trouble and into prosperity.
Second, localisation deliberately protects local producers from imports and leaves them free to raise their prices in “their” local market. Of course, everybody wants this until it’s time to buy a new spade or some coffee and the prices make your eyes water. If localisation has to be lifted in a crisis, what good could it possibly have been doing in the first place?
Patel has still not put a number to the new jobs he claims he is “creating” with his policies. At Neasa, the small to medium-sized company association that probably represents more employers than any other industrial body, CEO Gerhard Papenfus is unsparing: “In the last year 64 of our members have closed down with the loss of 4,000 jobs,” he says, mostly a direct result of localisation forcing up prices.
When steel import duties designed to favour Patel’s home-grown projects and ArcelorMittal SA force up steel prices, says Papenfus, his smaller members, fabricators and others “don’t know what’s hit them”.
Dropping the anti-dumping action against chicken imports will infuriate local producers, but the fact is chicken prices have risen sharply in the past few years as Patel has moved to protect the local industry, and poorer consumers have had to find other sources of good protein.
Foreign competition
Equal urgency applies to ending load-shedding. It is staggering that Patel had a 100% local content requirement on solar panels to protect ART Solar outside Durban and Seraphim in Coega. Up until Ramaphosa hit the panic button last week, much of the 2,600MW promised by renewables in the fifth bid window was drowning and unable to reach financial closure partly because of Patel’s local content rules. Ramaphosa has increased the sixth window to 5,200MW. Patel has promised to lower the tariffs for window 5 but wants them to start rising again for future windows.
How can Ramaphosa not see the problem? Patel believes current demand in SA for solar panels justifies creating an entire industry to support it. Such an industry can only survive if it literally has no foreign competition. He should instead be encouraging the rapid accumulation of electrical capacity so we can make, and export competitively, the things we are already good at.
We don’t know how to think. When we were sick with Covid-19 we wanted to make vaccines. For Africa. Now that we’re not sick any more we have no-one to sell our vaccines to. That was a glorious industrial week or two there, and now it’s gone and forgotten. Go figure.
Industrial policy is difficult and localisation may have been an answer in a different world. Ownership of ART Solar in Durban, for instance, is changing from a largely white ownership to a black group, Msebe Energy. I hope it succeeds beyond its wildest dreams. But beware of Patel. He will protect you and then try to enslave you.
Don’t let him. Instead, use the electricity crisis to get really good at what you do. Find export markets. Don’t become dependent on the state.
Correction: August 4 2022
This article has been amended to reflect that it is the 100% local content requirement on solar panels, not an import duty, that has been lowered to 35%. And bid window 6, not 5, has been doubled to 5,200MW.
• Bruce is a former editor of Business Day and the Financial Mail.
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