Let’s hope the creation of a new government on Wednesday marks the end of the madness of industrial policy in democratic SA. The imposition of a 10% import duty on solar panels by former trade, industry & competition minister Ebrahim Patel — as almost a final act before departing — being greeted by admirers as the beginnings of a local PV industry, is just wild.
Patel became economic development minister in former president Jacob Zuma’s first government in 2009, and he had 15 years of planning and fiddling and intervening in industry before leaving. Always he did so with the wrong goal in mind — he wanted to “create” jobs where he should have concentrated on creating wealth.
The same applies to the import of solar panels. Primarily, the duty is designed to make panels made in China more expensive. This, it is argued, will make more likely the growth here of a prosperous and jobs-rich local solar panel industry. Pure fantasy. No company in SA makes the silicon wafers at the core of any PV panel. Nor will any. It is a complex industrial process dominated in the world by the Chinese, and we simply don’t have the internal market here to guarantee even one profitable manufacturer.
In energy and climate change alone we are already lost
Typically with Patel, the application for the duty was made by the then sole remaining panels producer, ARTsolar, in Pinetown, seven years ago. It was granted only last week. But even ARTsolar merely assembles panels — a process of fabrication with the silicon wafers all imported. Rheinmetall, the German munitions contractor, which also has a plant in SA, is considering making panels here as well.
And that is it. What happens now, with the duty on the Chinese panels imposed, is that the cost of installing solar power on your house or car park or factory will rise. As the state has made no demands for localisation to actually occur in the wake of the duty, we consumers will in effect be subsidising ARTsolar and anyone else who decides to make panels here.
Rotten way
This has been the case for almost all the industries Patel tried to target as champions of jobs growth — steel, textiles, poultry, automobiles among them. Only in textiles has there been any measurable progress in terms of jobs. For the rest, the duties imposed to protect these industries have done little more than raise the prices of whatever it is they make.
Protectionism, or import substitution, is a rotten way to industrialise. Electricity has obviously been a constraint but only companies paying top wages have been able to benefit from the duties. Small, often family-owned, fabricators and other businesses have suffered as a result. A decade and a half in now, and we must hope that that new minister at the department, Parks Tau, has the foresight to look at what has been done and reconsider the entire strategy.
The ANC is stuck on the notion that localisation or beneficiation of our minerals hold out the promise of a somehow reindustrialised economy. It is just wrong. The argument that we can add value to our minerals and somehow become rich assumed that the buyers of SA iron ore or platinum or any other mineral would simply surrender their businesses if we do what they do when we export to them.
They wouldn’t. They would look for new suppliers. After all, they already have the customers we think we could take away from them by doing the job ourselves. As it is we already add considerable value to our minerals — platinum is pelletised here, for instance, before being exported.
But we are a fundamentally mining and agricultural economy. Instead of doing that to the best of our ability, we inject ideology and ambition into our mines and farms in the hope of achieving some miraculous economic outcome. The ANC needs to get real.
Moved dial
Of course, the companies protected by Patel love it, and who can blame them. But the unemployment numbers don’t lie and nor do the official statistics: manufacturing production fell 6.4% year on year in March, after a 4% increase in February. Overall, in value terms, manufacturing output has fallen over the past decade. Manufacturing has fallen as a percentage of GDP to about 12% from more than 20% in 1990.
The only way out of this is to reset industrial policy. We cannot, as China or the US or the EU attempt to, localise or make here the things we import. Despite their best efforts at “onshoring”, or persuading companies to bring back home production they may have taken offshore, neither the US nor the EU has moved the dial much in their own manufacturing.
With a tiny domestic market, we need to focus, and incentivise, exports. Set targets, reward exporters, get the nation behind a common goal. We run a chronic deficit in manufactured exports but with targeted investments and incentives it could be reversed over time.
Part of the solution involves understanding better the predicament we are in. The advent of artificial intelligence (AI) makes it critical, and nowhere in government is AI even a thing. But by 2030 AI will have outpaced all human knowledge and it will dramatically reduce the cost of manufacturing things, making even the basic manufactured goods we produce simply uncompetitive unless we do something about it.
In energy and climate change alone we are already lost. “In all of history, until November 2023,” wrote leading American AI scientist and theorist Ray Kurzweil last month, “humans had discovered about 20,000 stable inorganic compounds for use across all technologies. Then Google discovered far more, increasing that figure overnight to 421,000. Yet this barely scratches the surface of materials-science applications. Once vastly smarter AGI (artificial general intelligence) finds fully optimal materials, photovoltaic megaprojects will become viable and solar energy can be so abundant as to be almost free.
“Today’s cutting-edge AI chips are used to optimise designs for next-generation chips. In terms of calculations per second per constant dollar, the best hardware available last November could do 48-billion. Nvidia’s new b200gpus (graphics processing units) exceed 500-billion.”
In theory — and we ignore this at our peril — you could make photovoltaic cells in your kitchen. Import duties won’t protect anything. What are we going to do about it?
• Bruce is a former editor of Business Day and the Financial Mail.
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