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The Centre for Development and Enterprise (CDE) has published a hard-hitting critique of South Africa’s localisation policy, warning that it could raise the cost of doing business, reduce export competitiveness and constrain future development.

Titled ‘The Siren Song of Localisation: Why localisation policy will not lead to industrialisation’, the CDE report includes input from Professor Lawrence Edwards and Professor Emeritus David Kaplan, both of the University of Cape Town’s School of Economics.

It argues that the localisation strategy, which has been included as one of the components of government’s Economic Reconstruction and Recovery Plan, runs counter to President Cyril Ramaphosa’s goals of reducing the cost of doing business, improving the investment climate, opening the economy to new entrants and using infrastructure to stimulate growth.

Trade, Industry and Competition Minister Ebrahim Patel has requested the social partners at the National Economic Development and Labour Council (Nedlac) to consider an import-substitution target of 20% for non-petroleum imports, which he argues could drive progressive localisation worth up to R200-billion over the coming five years.

The so-called Nedlac accord is premised on an analysis showing that South Africa’s import to gross domestic product (GDP) ratio was too high, with R1.1-trillion in non-oil imports yearly ahead of the Covid-19 pandemic.

“We import goods worth 25% of our GDP – our propensity to import is out of line with peer countries and developed economies and more can sensibly and sustainably be produced locally. Compare our 25% with China at 14%, India at 16%, Brazil 10%, the US at 12% and the EU at 14%,” the Minister has argued.

Organised business has responded cautiously to the call but has not criticised it as unworkable or impractical. Instead, it has urged government to implement an evidence-based localisation policy that is supportive of employment creation and increased economic competitiveness.

One of the key instruments being deployed by government to facilitate industrialisation-through-localisation has been the designation of products for local procurement by organs of State, including State-owned enterprises.

Twenty-seven products, ranging from rail rolling stock and power pylons to solar components, have already been designated and there are plans to expand the list to 42 products in the not-too-distant future. Most recently, locally made cement was designated for the upcoming infrastructure roll-out.

CDE executive director Ann Bernstein, who presented the report’s highlights during a virtual launch, pointed to analysis showing that South Africa did not have an “over propensity” to import.

The country’s imports and exports as a ratio of GDP, she said, were similar to a large number of countries.

Imports were also critical not only for development but also to support innovation and exports, owing to integrated global supply chains and the need for imported capital goods to support the export of manufactured products.

“Localisation is, thus, an anti-export strategy,” Bernstein asserted, adding that few countries had developed in the absence of export-led growth.

Kaplan acknowledged that the issue was a complex one, as localisation could support industrialisation in certain specific circumstances.

However, if South Africa were to use localisation to support industrialisation, Kaplan argued that it should be designed primarily to enhance efficiencies over a specific time horizon and deployed with full transparency of the costs and benefits, as well as with a commitment to ongoing external evaluation.

Edwards argued that, in many cases, product designations would prove to be too blunt an instrument to support the development of competitive industrial capacity.

He also underlined the strong relationship between imports and exports, noting that research showing that the most successful exporters, including South Africa automotive manufacturers, were also the ...

The Department of Trade, Industry and Competition (DTIC) should present a refined new-energy vehicle (NEV) policy to Cabinet before the end of the year, says DTIC automotives chief director Mkhululi Mlota.

The DTIC in May issued a Draft Green Paper on the Advancement of New-Energy Vehicles in South Africa. NEVs include hybrids, battery electric vehicles and fuel-cell vehicles.

The original timeline was for the NEV policy to have been presented to Cabinet by the end of October, says Mlota.

However, the DTIC realised that some additional work needed to be done on the document, with the need to develop a “clearer, more pointed policy that supports electric vehicles and NEVs in South Africa”.

“Before the end of the calendar year we should have something to share with Cabinet and hopefully get some direction going forward,” says Mlota.

“That target is that we should be in a position in a few months to issue our road map on how we are going to transition to e-mobility and provide some details on the support to be provided by government.”

Mlota says the policy looks at three main issues.

The first is how to best stimulate local NEV, as well as NEV component manufacturing in South Africa. The second issue is how to encourage the local uptake of NEVs to ensure that the South African auto industry does not only service export markets, but that these vehicles are also in demand in the domestic market.

The third focus area is to ensure that South Africa continues to support and create a conducive environment for investment in the automotive sector.

“This is a sector dominated by multinationals and we need to ensure that the environment is good for them to invest in the country,” explains Mlota.

Mlota spoke at the Nedbank electric vehicle webinar

Gauteng Public Transport and Roads Infrastructure MEC Jacob Mamabolo has appointed Gauteng Transport Authority head Jack van der Merwe to lead a team to investigate the possibility of rolling out green transport, including electric vehicles (EVs), within the structures of the provincial government and its associate bodies.

“I have appointed Jack to lead a team in the department to help us move forward with regards, particularly, to EVs, as it relates to our fleet in Gauteng, called the Gfleet.”

Gfleet is described as a trading entity of Mamabolo’s department, and as a provider of vehicle leasing and fleet management services for the public sector, with its clients being national, Gauteng province and local government departments.

Gfleet currently operates a fleet of around 7 000 vehicles.

“If we as government do not lead and build confidence in EVs, it will be very difficult for people to follow,” says Mamabolo.

“We, as a provincial government, must start with our own fleet. We must start with our own cars. We must be the leading buyer of EVs.

“This is why we have commissioned a team to look at everything – including value chains and working with the automotive sector to achieve these goals.”

The development of the necessary skills and the concomitant new jobs that it will create will also be a priority.

Mamabolo says he includes the Gautrain’s bus fleet in the prerogative to move to green transport.

He notes that he has also asked the Gautrain Management Agency to investigate the possibility of installing EV chargers at Gautrain stations.

“We shall make an announcement very soon about our practical plans – not a theoretical broad policy statement – about how many vehicles we are going to buy and when, when the first charging stations will be installed, and over what timeline this will be done.

“We want to lead in building confidence, in building positive sentiment on EVs because this is the best way forward,” says Mamabolo.

“The rest of the world will simply lock us out if our carbon footprint is too high. In transport we want to play our part and lead by example.”

Mamabolo was a speaker at the Nedbank Electric Vehicle webinar

Business Leadership South Africa (BLSA) says it disagrees with those calling for the resignation of Eskom CEO André de Ruyter and his leadership team following the most recent intense period of load-shedding.

In a statement, BLSA noted that the State-owned utility had had ten CEOs in ten years, creating instability that “only served to make a bad situation worse”.

“We simply cannot afford to again lose the momentum built by this leadership team over the last 20 months, bearing in mind the extremely difficult circumstances they inherited and under which they are operating.

“Causing a renewed leadership crisis would set us further back in the challenging task of securing the country’s power supply,” BLSA, an association that includes some of the largest domestic and foreign enterprises operating in South Africa, said.

In an earlier statement, representative business body Business Unity South Africa (Busa) also rejected calls for the resignation of the Eskom CEO and board, saying it would not help to exacerbate the ongoing operational crisis by creating a leadership and governance crisis.

Likewise, the Minerals Council South Africa labelled the resignation calls as “unhelpful”.

These were initially led by the Black Business Council, which described the Eskom leadership as “completely overwhelmed, inept and out of its depth”.

The resignation call also found support among various labour unions, including the National Union of Mineworkers – a member of the African National Congress-aligned Congress of South Africa Trade Unions, which did not make a similar call.

Finance Minister Enoch Godongwana added to the uncertainty, telling the Sunday Times that De Ruyter was allowed more latitude than previous CEOs to implement planned maintenance, before saying it was “not his place” to pronounce on his removal.

Godongwana did stress, however, that the solution to the crisis required more than a narrow focus on fixing Eskom and would involve non-Eskom investment – a position strongly supported by the utility’s current leadership, as well as organised business.

As with Busa, BLSA stressed its concern about the negative economic and social effects of load-shedding, which it attributed to “massive underinvestment in maintenance over an extended period of time compounded by years of maladministration and outright corruption at Eskom during the State capture era”.

“More than R6-billion was stolen from Eskom alone according to figures before the State capture commission,” BLSA said.

NEW CAPACITY NEEDED

The independent big business association also underlined the urgency of adding new generation capacity into the system, a shortfall that Eskom currently estimates to be between 4 000 MW and 6 000 MW.

It encouraged government to expedite Bid Window 6 (BW6) of the Renewable Energy Independent Power Producer Procurement Programme, following the recent conclusion of BW5, during which 25 preferred bids were selected, representing nearly 2 600 MW of wind and solar capacity.

BLSA lamented that BW6, which government initially signalled would be launched in September, had not yet been announced, with indications that bidding was now only likely to be launched in January.

“Bid Windows 7 and 8 should also already be scheduled by now, given the urgency of the crisis. Better yet, bid windows could be abolished altogether and renewable energy procured on an ongoing basis as the situation demands,” BLSA said.

The association also argued that Eskom’s 8 GW renewables project pipeline, unveiled as part of its just energy transition strategy, should be expedited, with private sector involvement.

It added that the $8.5-billion financing package secured during the recent COP26 summit would give a major fillip to this plan.

“BLSA supports the steps being taken by the current management and its stated strategy and encourages the leadership team not to deviate from the focus on restoring the stability of the grid.”

Peugeot has unveiled its newest addition to the local market in the form of the Landtrek one-ton pickup.

“The new Landtrek enables Peugeot to make a comeback in a market where it has a very strong heritage, fuelled by numerous racing victories. It personifies the DNA of legendary models such the 404 wagon and the 504 pickup,” says the French vehicle manufacturer.

“As light commercial vehicles (LCVs) account for more than 25% of the South African new-vehicle market, the Landtrek is a key launch for Peugeot in a key market.”

In preparation for the launch of the Landtrek, the French vehicle maker covered more than two-million test kilometres across all terrains and in all conditions, including African roads.

The Landtrek is available in South Africa in a 4x2 and 4x4 diesel double-cab derivative.

It offers up to three tons of towing capacity and has a payload that exceeds one ton.

The vehicle is sold with more than 28 dedicated accessories.

Inside the vehicle, Peugeot says it has paid special attention to the three rear passengers, with the backrests tilted to 23° for greater comfort.

The rear bench offers the possibility of folding the backrest in 60/40, or 100%.

In addition, the rear-seat cushions can also tip-up in a 60/40 split, to allow for more flexible loading configurations.

When folded down, the backrests can support a load of up to 100 kg.

In addition, the rear bench offers two Isofix fasteners to ensure the safety and docking of child seats.

The Landtrek also offers automatic dual-zone air conditioning, a ten-inch touch screen compatible with Apple CarPlay/Android Auto, and a ten gigabyte hard drive.

Safety features include six airbags, an electronic stability programme, hill-descent control, hill-start assist, trailer-swing control and lane-departure warning.

The bakkie is also fitted with rear reverse cameras and parking sensors.

An off-road camera (in the passenger rear-view mirror) and 360° panoramic vision support the driver when negotiating obstacles or narrow lanes on the 4Action 4x4 derivative, further aided by additional front obstacle sensors.

The Landtrek is powered by a 1.9-litre turbodiesel engine that delivers 110 kW power and 350 Nm of torque thanks to a variable turbine geometry with 16 valves.

The vehicle adapts to the prevailing terrain through manual, sport, or eco modes, and offers up to 235 mm of ground clearance.

The Landtrek is covered by a five year/100 000 km warranty and service plan, with maintenance intervals at every 10 000 km, “with a view to optimising reliability and running costs”, says Peugeot.

Pricing for the Allure double-cab 4x2 is R579 900, with the 4Action double-cab 4x4 priced at R 669 900.

The Council for Scientific and Industrial Research (CSIR) says the tariffs achieved during the fifth bid window of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) confirm its previous analysis showing that renewable energy is the lowest cost generation option available for South Africa.

In late October, Mineral Resources and Energy Minister Gwede Mantashe announced the names of 25 preferred bidders to build 13 wind and 12 solar projects with a combined capacity of 2 583 MW.

The weighted average price across the projects came in at an impressive 47.3c/kWh, the lowest yet to be achieved in South Africa. The cheapest wind project was bid at 34.4c/kWh, while the cheapest solar PV project came in at 37.4c/kWh.

The CSIR shows that the actual tariffs achieved under the REIPPPP since 2011 have fallen a dramatic 78% for new wind, from R1.90/kWh to 49.5c/kWh and 91% for solar PV, from R4.60/kWh to only 42.9c/kWh.

The price decline since the most recent previous bidding round of 2015 is equally impressive, with the solar PV tariffs bid this year coming in 45% cheaper and the wind tariffs 36% cheaper.

CSIR Energy Research Centre head Dr Clinton Carter-Brown says the continued cost reductions of renewable energy options align with the CSIR’s modelling, as well as its analysis pointing to a need for further renewable energy deployments to address power system constraints and the debilitating impacts of load-shedding.

“The CSIR’s analysis has confirmed that South Africa is in a fortunate position to be able to transition to renewable energy sources as part of a least-cost power system.

“The REIPPPP outcome is aligned with our analysis of job creation opportunities and how renewable energy deployment can contribute towards economic growth and a just energy transition from coal to a blend of renewable energy complemented by energy storage and demand response,” Carter-Brown said.

As Eskom exited one of its most intensive periods of load-shedding on Friday November 12, CEO Andre de Ruyter promised greater transparency in future on both the state and performance of the power system given the likelihood that the risk of disruption will persist for the coming three to four years.

The State-owned utility suspended its latest bout of load-shedding – initially implemented at Stage 2 on November 5, but then swiftly escalated to Stage 4 before being trimmed back to Stage 2 almost a week later – early on Friday morning.

Eskom also offered a favourable prognosis for the weekend and the coming week, owing to the return to service of several coal units and a reduction in unplanned partial and full load losses to about 11 200 MW.

At points over the past two weeks total breakdowns stood at above 17 900 MW.

That said, the utility was still burning about 17 000 litres a minute of diesel on Friday morning as it operated its open-cycle gas turbines at the Ankerlig power station in Cape Town well beyond their intended operating profile to ensure supply stability. In addition, it was buying electricity from two units at the private Avon facility, north of Durban, which also produces electricity using diesel.

Asked what lessons had been drawn from the period, during which the Eskom CEO had also been forced to stare down calls for his resignation and even threats to his personal safety, De Ruyter said the value of being “as open and transparent as possible” had been reinforced.

Eskom instituted daily briefings about halfway through the latest crisis; briefings that were suspended on Friday along with the rotational power cuts.

The practice would be reinstated, however, should load-shedding be implemented in future and Eskom also intended being more “proactive” in signalling system stress to the public ahead of time.

“Eskom is a complex beast and the more that we inform people of these complexities and the various issues that can potentially affect the availability of electricity I think the better, and the more understanding there will be, frustrating as load-shedding is for the people of South Africa,” De Ruyter explained.

Solving the problem comprehensively required the introduction of between 4 000 MW and 6 000 MW of new capacity, as well as between three and four years of reliability maintenance of the coal fleet to address a backlog that had developed.

Creamer Media's Chanel de Bruyn speaks to Engineering News Editor Terence Creamer about the key highlights from Finance Minister Enoch Godongwana's maiden mini-Budget, the spending pressures ahead of the February budget and the Minister's approach to State-owned companies.

Government’s rising debt service costs, at about R1-trillion over 2022/23 to 2024/25, are crowding out spending on service delivery functions.

Debt service costs will, on average, consume 21c of every rand collected in revenue over the medium term. These costs will average R334-billion a year.

Additionally, elevated debt redemptions will further reduce fiscal space over the medium term, as R423.4-billion of debt borrowed in previous years matures.

Much of government debt incurred since early 2020 related to Covid-19 impacts and mitigation measures; however, public debt has increased seven-fold from R577-billion in 2007/8 to over R4-trillion in 2021/22.

Government’s debt service costs will increase by 10.8% over 2021/22 to 2024/25, while spending on social development will decrease by 5.9% over the same period.

The Medium Term Budget Policy Statement (MTBPS), presented by Finance Minister Enoch Godongwana on November 11, earmarks R687-billion for economic development, R654-billion for peace and security and R209-billion for general public services.

Overall, national government is contracting non-interest expenditure resources of national departments by 1.8% a year, provincial resources by 0.7% a year and local government resources by 4.1% a year, over the next three years.

Government is allocating 48% of non-interest expenditure to national departments, 42% to provinces and 9.6% to local government.

A net addition of R59.4-billion to main budget non-interest spending is proposed in the MTBPS. Total main budget non-interest expenditure is projected to increase by R31.9-billion in 2022/23 and by R29.6-billion in 2023/24.

The 2021/22 fiscal framework includes a R3-billion contingency reserve for more vaccines and R11-billion as a provisional allocation to Sasria for risk coverage, after the public violence outbreak that resulted in damage to infrastructure in Gauteng and KwaZulu-Natal, in July. Related to this, R2.3-billion is allocated in 2021/22 to help businesses rebuild, of which R1-billion is being reprioritised from the departments of Trade, Industry and Competition and Small Business Development.

Other proposed revisions to non-interest expenditure for 2021/22 include R20-billion for wage bill adjustments, R2.9-billion for State-owned defence group Denel to settle a portion of its guaranteed debt, and R32-billion in public violence and Covid-19 fiscal relief package allocations.

Godongwana says government remains committed to narrowing the budget deficit to stabilise the debt-to-gross-domestic product ratio, mainly by controlling non-interest expenditure growth.

He admits that the fiscal outlook is highly uncertain, with major risks including the durability of the economic recovery, the legal process associated with public service compensation and future wage negotiations.

This while many State-owned enterprises and municipalities have insufficient funds to cover operational expenses.

Godongwana expects the budget to see a primary surplus – where revenue is higher than non-interest spending – by 2024/25. Gross loan debt is forecast to stabilise at 78.1% of gross domestic product in 2025/26.

The MTBPS envisions debt service costs falling below 22% of main budget revenue by 2026/27.

For context, government expenditure has exceeded revenue in every year since 2008/9. The consolidated budget has grown from R712.8-billion in 2008/9 to R2.1-trillion in 2021/22 – an average increase of 8.8% a year.

On the positive side, gross tax revenue is expected to be R120-billion higher than projected in the national Budget, in 2021/22, with corresponding improvements of almost R70-billion and R60-billion expected in 2022/23 and 2023/24, respectively, which remain below pre-pandemic levels.

Finance Minister Enoch Godongwana offered no new insight in his maiden address to lawmakers into how government intended approaching the issue of Eskom’s R400-billion debt burden, which has been labelled unsustainable by the utility, and also refrained from making any new provisions for distressed State-owned enterprises (SOEs).

Instead, he said that he would be adopting a “tough love” stance towards SOEs, albeit with the caveat that government would most likely support those entities regarded as “strategic”, such as Eskom, Transnet and Denel.

Delivering his address to lawmakers against the backdrop of an intensive period of load-shedding by Eskom, Godongwana also made a distinction between saving the utility itself and supporting the electricity supply industry as a whole.

He lamented the focus, over the past 13 years, on “fixing Eskom” rather than ensuring security of supply across the industry.

Additional capacity, beyond what Eskom could supply, was urgently needed, he said, particularly given that 11 000 MW of coal capacity would be decommissioned by 2030.

The resumption of independent power producer procurement was viewed as a positive, but would still leave a gap until 2024, which might be partly closed by the reform allowing 100 MW distributed plants to produce and sell electricity without a licence.

"The amended regulations will further enable municipalities to self-generate or procure power directly from independent power producers."

The Minister added that South Africa had also begun to reduce its reliance on Eskom by diversifying its primary energy sources, notably through the Renewable Energy Independent Power Producer Procurement Programme.

"The 25 projects that are part of the latest round of Bid Window 5, will generate more than 2 500 MW of power at a weighted average price of 47.3c/kWhr. This is the cheapest rate achieved in the history of the programme and is among the lowest rates achieved worldwide."

Work was, nevertheless, under way to address Eskom’s debt, but no solution had yet been found.

The utility had been allocated R230-billion over a ten-year period to enable it to avoid default, of which R132-billion had already been injected by the National Treasury.

Godongwana indicated that his tough love approach also did not preclude support for other SOEs, with Denel set to receive a R2.9-billion injection as part of an in-year spending adjustment to settle repayments that were falling due.

Government extended a R5.9-billion guaranteed debt facility to the State armaments manufacturer in 2020/21, and the new allocation arose as a result of that guarantee being called.

However, Godongwana did not discount the possibility of refusing help to less "strategic” SOEs, some of which could close as a consequence.

"Going forward, the restructuring of State-owned companies, informed by an assessment of their strategic relevance, is a priority," the Minister said.

"We must be prepared to consolidate some of our State-owned entities and let go of those that are no longer considered strategically relevant."

The National Treasury argued that its strict enforcement of minimum criteria before guaranteeing SOE debt had led to a decline in bailout requests, yet it conceded that the risk of bailouts remained.