Two energy experts warn of the risks to energy policy that could arise from what they describe as the “tempestuous collection of pressures”, including a weakened state, high unemployment, industrial decline, rising unequal access to and affordability of energy, and the fractious nature of SA politics.
The backdrop to the warning is the shift towards “an unmanaged energy transition led by market forces”, which has taken place in the context of a weakened state that is trying to reform the energy market. The private sector views the shift “as too little, too late”.
“Customers, weary of awaiting a government-led solution to load-shedding, are now taking matters into their own hands. Market forces are assuming control, regardless of government’s stance. While this is a necessary step to eliminate load-shedding, these unmanaged transitions have social implications which the government will need to address in the future,” write Rod Crompton and Bruce Young in “Power struggles: Shedding Light on SA’s Enduring Energy Challenges”, a chapter in Tipping Point: Turmoil or Reform? SA’s Political Economy after 2024.
This shift also raises equity issues — private sector investment translates into higher tariffs, which risk leaving low-income earners, the poor and the unemployed aside. To this cocktail they add SA’s high unemployment levels, industrial decline and fractious politics, which “is riven by the intersection of patronage and factionalism... In such a context, it is reasonable to expect political turmoil and policy zigzags to continue.”
New technologies
Crompton and Young ask if the business and international community would have sufficient confidence that there is policy certainty, “which is sufficiently robust and long-lasting to justify large investments in SA’s energy infrastructure”. They see some prospects for a better future, largely on the back of the market reforms that are getting under way and the creation of space in energy for the private sector. In addition, new technologies with lower barriers to entry are democratising an electricity sector that has hitherto been “heavily centralised”.
The shift towards private investment, which according to Crompton and Young has happened “somewhat reluctantly”, also includes reforms at Transnet. It’s the contestation of this shift that raises the risk of a policy zigzag after the elections. The other source of the zigzag is the equity implications of greater private sector investment in energy.
These were best summed up in the mid-’70s by American economist Arthur Okun: “Such is the double standard of a capitalist democracy, professing and pursuing an egalitarian political and social system and simultaneously generating gaping disparities in economic wellbeing. This mixture of equality and inequality sometimes smacks of inconsistency and insincerity. Yet I believe that in many cases the institutional arrangements represent uneasy compromises rather than fundamental inconsistencies,” Okun wrote in Equality and Efficiency: The Big Tradeoff in 1975.
He added that the conflict between equality and economic efficiency was inescapable, making the democracy and capitalism “a most improbable mixture”. “Maybe that is why they need each other — to put some rationality into equality and some humanity into efficiency.”
For Crompton and Young, the problem is simply that private investors want a decent return on their investment, a return that means “higher costs for customers”. Already, the electricity tariff increases of the past decade have left many energy users stretched. The provision of a free basic electricity subsidy for the indigent hasn’t worked as well as intended, partly because municipalities siphon off the funds for “other purposes”.
“Meanwhile, there has been limited policy development concerning a safety net for the poor,” they write. “Even if load-shedding is eliminated in the coming years, electricity prices may remain a political hot potato.”
‘Astute state’
Crompton and Young warn that the outcome of the 2024 general election could determine whether SA continues along the path of market reform or, as certain factions within the ANC advocate, “reverts to an ideological commitment to state ownership and “ol’ king coal”. They cite Mexico where a similar move towards the private sector was later rolled back.
Crompton and Young’s conclusion is worrisome: the key “to governing this tempestuous collection of pressures” is an “astute state capable of riding the waves” while providing policy direction at the same time. “This is unlikely to occur without significant pressure being exerted on government by private enterprise, civil society, and the local and international financial communities.”
Successive SA governments have fallen far short on astuteness and capability to implement policies, and there is no sign this is about to change any time soon. The government also has a long history of responding poorly to societal pressure.
• Sikhakhane, a former spokesperson for the finance minister, National Treasury and SA Reserve Bank, is editor of The Conversation Africa. He writes in his personal capacity.
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