Wednesday, October 4, 2023
HomeAfricaThis might revolutionize South Africa.

This might revolutionize South Africa.

Global auditing firm Deloitte says that South Africa can leverage a push into renewable energy to not only deal with its own power crisis but also become a world leader in emerging green technologies.

This would be a game-changer for the economy, which is currently under pressure amid near-permanent load shedding, low public investment and an unacceptably high unemployment rate, the group said.

Deloitte published its economic outlook report for 2023, painting an uncertain picture for the South African economy this year.

According to Deloitte South Africa associate director Hannah Marais, the risks of a global slowdown, together with ongoing local challenges such as severe power cuts, the cost-of-living squeeze, slow investment, sluggish pace of reforms, extreme weather events, logistical constraints, and political uncertainty will weigh on South Africa’s growth outlook in 2023.

Citing the South African Reserve Bank’s latest Monetary Policy Committee statement, real GDP growth is expected to slow from an estimated 2.5% in 2022 to 0.3% in 2023, while core inflation is expected to remain under pressure.

Headline inflation – which has been pushed higher by global price increases in food and fuel – are anticipated to come down during the course of the year, but in the near term it remains sticky at higher levels. This is adding to a cost of living crisis in the country.

“Financial stress is a key concern for South Africans, given the cost-of-living squeeze: South African consumers surveyed by Deloitte at the end of December 2022 noted that they are delaying large purchases (50%), feel their financial situation has worsened over the past year (39%), and are concerned about their credit card debt (38%) and about making upcoming payments (25%),” Marais said.

Rising inflation saw an aggressive monetary policy tightening cycle by the South African Reserve Bank, which Deloitte said is likely to end in the first half of 2023, as inflation is reined in.

“Yet higher prices and lending rates, together with softer global commodity prices and the possibility of key advanced economies and trading partners entering a recession in 2023, will be a drag on South Africa’s growth outlook,” she said.

Compounding this locally is the difficulty to keep the lights on and power the economy, with disruptions to operations and supply chains as well as limited business confidence delaying investments and net employment creation.

In terms of foregone GDP from power cuts, 2022 was South Africa’s worst year on record. And with severe power cuts continuing into 2023—expected to reduce growth by as much as 2 percentage points in 2023—the need to address this adequately is urgent, Marais said.

“So too is the need for implementing growth-enhancing reforms to address structural bottlenecks and to spur expansion in job-creating sectors as unemployment remains unacceptably high above 30%.”

The country has also been hit by declining public investment – all while government expenditure on infrastructure projects is expected to double over the next few years.

Game changer

However, the country’s prospects are not all bad news – Marais noted that the country’s fiscal position has improved over the past two years, largely thanks to fiscal consolidation measures such as budget discipline, together with better-than-expected tax collections, primarily driven by global commodities demand.

Marais said that creating an enabling environment conducive to investment, both domestic and foreign, including political and policy certainty in the run-up to the 2024 general elections, will be an important foundation for the structural changes needed in the South African economy in the medium term.

What could be a game changer for the country, she said, is leveraging the opportunities linked to its own energy transition goals – ie, a move away from a coal-dominated energy mix while overcoming its power generation shortfalls – as well as supplying and adding value to critical commodities in a global clean energy future.

“On the former, South Africa has massive renewables potential, not only in solar and wind, but also in green hydrogen,” she said.

“On the latter, it also has a notable comparative advantage in supplying key minerals and metals for clean energy applications.”

Marais said that this includes:

Platinum group metals, used in catalytic agents in hydrogen electrolysis and fuel-cell applications,
Vanadium, used in input for long-duration battery energy storage applications,
Rare earth elements used in permanent magnets in the electrical motors of wind turbines and in electric vehicle motors, and
Nickel, which has applications in EVs and battery storage, and hydrogen and geothermal technologies.
“This could help give rise to new drivers of economic activity that boost growth and create jobs, while also ensuring a just and fair transition toward carbon neutrality,” she said.

The push into the renewable sector isn’t too far from reality, either. The emerging green hydrogen sector has been identified as a new form of ‘gold rush’ in South Africa with the government planning big moves into the field.

This has caught the attention of other nations who are also looking to get an early foot in the door, including Germany and the UK, among others.

The South African government has already set aside R300 billion for funding green hydrogen projects through Infrastructure South Africa (ISA).

Source: business tech

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