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In her address to the National Assembly on Tuesday, introducing the debate for her 2021 budget vote, Defence and Military Veterans Minister Nosiviwe Mapisa-Nqakula warned the assembled parliamentarians that defence cuts were endangering the country’s defence industry. The State-owned defence industrial group Denel was in particular danger.

“If we are honest with ourselves, we now face the reality that if we do not intervene in a decisive manner, we will lose our State-owned defence industrial base and the ability to repair, maintain and overhaul most of our defence systems,” she highlighted. “This not only compromises our ability to maintain our current equipment in service, but also fundamentally impacts our longer-term ability to remain relevant and ready to conduct effective operations in the future. Should this happen, we may well find ourselves reliant on foreign powers for our main equipment and this will come at great strategic expense.”

Nor was this all. The defence industry contributed to local scientific and technological development, the country’s manufacturing base, export revenues, education and training, employment and overall economic development. In all these areas, defence cuts had had “dire consequences”, she affirmed. Yet the defence industry had been identified, in the Presidential Public Private Growth Initiative, as a sector that had considerable potential to help drive economic growth in the country.

“In addition, the ability to maintain main equipment for operations has declined to the point where we need to ask if it is in fact viable to continue to throw resources at them,” she reported. “This coupled with the demise of the defence industry and in particular Denel has placed us in a very precarious position. Our defence capabilities are heavily reliant on [the] defence industry and in particular Denel.”

She praised the country’s defence acquisitions and disposals and research and development agency Armscor, which also runs several specialised defence facilities, for its efforts in turning around the Simon’s Town Naval Dockyard (not to be confused with the co-located but separate Naval Base Simon’s Town). But “we are nonetheless finding it difficult to maintain our fleet against the ‘float, sail and fight’ concept of combat readiness.”

Regarding the South African National Defence Force (SANDF), she emphasised its role in helping contain the Covid-19 pandemic. “Our uniform[ed] members and civilian counterparts were asked to put their lives on the line to support the efforts to contain the spread of Covid-19.” SANDF members contracted Covid-19 and there were fatalities as a result. As part of its operations to support other government departments in countering the pandemic, the SANDF deployed 8 119 personnel (regulars, reservists and auxiliaries) and conducted 35 000 patrols, as well as carrying out 12 452 road blocks and 7 800 vehicle checkpoints.

Mapisa-Nqakula also cited the SANDF’s role in supporting the South African National Parks Board in wildlife (and especially rhino) conservation and the Department of Agriculture, Forestry and Fisheries in the protection of the country’s marine and wildlife resources. Further, she pointed to the SANDF’s support to the government’s Operation Phakisa, aimed at developing the country’s ‘oceans economy’, and to the expansion of its own Project Koba-Tlala, to decentralise the acquisition of goods and services, thereby stimulating small, medium-sized and microenterprises and small and emerging farmers.

The Department of Trade, Industry and Competition (DTIC) has issued a Draft Green Paper on the Advancement of New-Energy Vehicles in South Africa.

New-energy vehicles (NEVs) includes hybrids, battery electric vehicles (EVs) and fuel-cell vehicles.

Minister of Trade, Industry and Competition Ebrahim Patel said in his budget vote on Tuesday that his department was seeking public comment on the document, with the aim to finalise the strategy within 90 days.

In a media briefing that followed his budget speech, he noted that it was important that South Africa didn’t “simply become a market for EVs produced elsewhere in the world, relegating our car-making to internal combustion engines (ICEs).

“Then, as the world shifts more and more to EVs, we are left with stranded assets in the form of large assembly plant capacity that has not been adjusted to EVs.

“It is quite important to us to get the production side ready.”

Patel added that it was also necessary to “step up efforts to build full EVs in South Africa”, in order to maintain the local industry’s capacity to export to key markets, such as the European Union (EU) and UK, both of which have set new targets and deadlines to reduce the number of fossil-fuel reliant vehicles on their roads.

The global forecast is for NEV passenger car sales to exceed those of ICE passenger cars by 2038.

Of significance to the South African automotive industry, however, is the forecast that 40% of new vehicles sales in Europe would be EVs by 2030, and for this number to increase to 80% by 2040.

Three out of four South African manufactured vehicles are currently exported to the EU.

The Draft Green Paper, therefore, looks at ways of expanding the support provided to vehicle and components makers under government’s Automotive Production and Development Plan (APDP), in order to kickstart the production of EVs.

Such new production processes promise to be a costly exercise, however, especially as a number of the components needed to produce EVs are not currently made in South Africa.

The current APDP provides support to local vehicle manufacturers based largely on the volume of locally made components used, as well as the number of vehicles produced.

“EV production and value chain development policy should consider that there will initially be a cost premium to [vehicle manufacturers] in South Africa based on the higher component import costs needed for EV assembly,” states the Draft Green Paper.

“Temporary support in addition to what is already known under the South Africa Automotive Masterplan 2035 and associated APDP, can help to bridge the gap and support the necessary local competency development. The policies are technology agnostic at present.

“To that extent a key step would be the identification of a set of unique EV component technologies that are currently not considered feasible for localisation.”

The paper also notes that the local industry may need to consider battery production as a “medium to long-term ambition”.

“Government, industry and labour are in agreement on the need for South Africa to seriously consider EV battery manufacturing, which can comprise nearly half the cost of the vehicle, as part of the 60% rules of origin requirement under the current free trade arrangements with the EU and the UK.”

The automotive industry is South Africa’s biggest manufacturing sector.

Consumer Incentives

Patel said the Draft Green Paper also focused on addressing sluggish local EV demand.

Globally, consumers have been offered a number of incentives to buy EVs. However, that has not been the case in the South Africa and the domestic EV market has remained insignificant.

EV sales in South Africa comprised only 92 units, or 0.02% of the total 380 206 vehicles sold in the domestic market in 2020, down from 154 units in 2019.

Hybrid vehicle sales accounted for 232 units in 2020.

“There is currently a considerable premium when a consumer buys an EV,” said Patel.

“This is principally driven by the cost of...

Trade, Industry and Competition Minister Ebrahim Patel announced that an “accord” had been reached at the National Economic Development and Labour Council (Nedlac) to drive progressive localisation of up to R200-billion of additional production over a five-year period.

Delivering his virtual Budget Vote, Patel said the strategy had the support of major corporates and that 30 ‘CEO champions’ – including Mamongae Mahlare of Illovo, Mark Cutifani of Anglo American, Vikesh Ramsunder of Clicks, Fleetwood Grobler of Sasol and Fortune Majapelo of Bushveld – had been nominated from the private sector to support the localisation push.

“An initial list of 42 products have been identified for localisation and R240-million has been raised from the private sector to appoint technical experts to drive localisation, bringing together industrial engineers, supply-chain managers, experts in dealing with illegal imports, and project managers.”

The CEO champions would not only advocate for specific product categories for potential localisation, but would also highlight the current constraints to domestic production.

No 'one-size-fits-all' approach would be implemented and Patel revealed that the pact with business also recognised that not every product category was suitable for localisation.

A ‘Policy Statement on Localisation for Jobs’ had also been published to clarify government’s overall approach to the issue.

The policy statement addressed local product development, cracking down on illegal imports and under-invoicing and implementing localisation modalities through a joint effort with the private sector.

“This will be complemented by integrated efforts with other Ministries to drive local vaccines development and the use of local components in the national infrastructure plan.

“Tariff adjustments and rebates are an important policy instrument available to the State to lower or increase import duties, but in future will need to be accompanied more clearly by binding commitments by applicants to improve their competitiveness, create jobs and price restraint,” Patel added.

The so-called Nedlac accord had been 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 said.

The accord was given further impetus by the progress made in developing local production capacity for personal protective equipment and medical products since the onset of the pandemic.

“In the past year, we built local production capacity – often from scratch – with more than R10-billion of local production of Covid-19 products, ranging from face-masks, hand sanitisers, ventilators and vaccines,” Patel said, reporting that R2-billion of that production was exported to other African countries.

UNDER THE RIGHT CONDITIONS

In response to Patel’s indication to Nedlac in December that government would be aiming to set an import-substitution target of 20% for non-petroleum imports, Business Unity South Africa (Busa) and Business Leadership South Africa (BLSA) commissioned Intellidex to research the practicality of meeting the target.

The research report, which was published the day before Patel’s Budget Vote, indicated that higher levels of localisation were possible “under the right conditions”, including policy certainty demand consistency.

It also warned that an overly aggressive import-substitution policy will have negative consequences for domestic prices, raising them by up to 20%, and could undermine the country’s economic recovery.

“Our quantitative study shows that under the right conditions, meeting localisation targets within the next five years is possi...

A new and far-reaching study of how to transition the global energy system to one with net-zero carbon emissions by 2050 highlights the need for a dramatic acceleration in the pace and scale of renewable-energy and grid investment, while simultaneously halting new fossil-fuel supply projects and abandoning any new unabated coal plants.

Published by the International Energy Agency (IEA) as part of preparations for the twenty-sixth Conference of the Parties, or COP26, climate gathering scheduled for Glasgow, Scotland, in November, the ‘Net Zero by 2050: A Roadmap for the Global Energy Sector’ report concludes that the world has a viable, albeit narrow, pathway for limiting the global temperature rise to 1.5 °C above preindustrial levels.

Central to the pathway is a rise in the role of electricity, derived primarily from increasingly cost-competitive renewable plants, in achieving net-zero.

Electricity, the IEA shows, will need to account for almost 50% of total energy consumption in 2050 and play a key role across all sectors, from transport to buildings and industry, including becoming a key input for producing low-emissions fuels such as hydrogen.

To achieve this, total electricity generation increases over two-and-a-half times between today and 2050 and no additional new final investment decisions are taken for new unabated coal plants, while the least efficient coal plants are phased out by 2030, and the remaining coal plants still in use by 2040 are retrofitted to capture carbon.

“By 2050, almost 90% of electricity generation comes from renewable sources, with wind and solar photovoltaic (PV) together accounting for nearly 70%. Most of the remainder comes from nuclear,” the report states.

Described as the world’s first comprehensive study of how to transition to a net-zero energy system by 2050, while also ensuring stable, affordable and universal energy access, the report calls on policymakers to prioritise the following:

Raising total yearly energy investment to $5-trillion by 2030, which would add an extra 0.4 percentage point a year to annual global gross domestic production (GDP) growth, and place global GDP 4% higher in 2030 than it would be based on current trends.

A rapid scaling up of solar PV and wind this decade to reach a yearly additions tempo of 630 GW of solar PV and 390 GW of wind by 2030, four times the record levels set in 2020.

Enabling infrastructure and technologies key to transforming the energy system, such as transmission and distribution grid expansions and electric vehicle (EV) charging points. Yearly investment in transmission and distribution grids will need to expand under the pathway from $260-billion today to $820-billion in 2030, while the number of public charging points for EVs rises from around 1-million today to 40-million in 2030, requiring yearly investment of almost $90-billion in 2030.

A massive roll-out of efficient energy technologies to support a world economy in 2030 that is some 40% larger than today but which uses 7% less energy.

The implementation of policies to limit, or provide disincentives for, the use of certain fuels and technologies, such as unabated coal-fired power stations, gas boilers and conventional internal combustion engine (ICE) vehicles. The report states that, beyond projects already committed as of 2021, no further new oil and gas fields should be approved, while new coal mines or mine extensions are not required. One of the 400 milestones in the report is a halt to all ICE vehicle sales by 2035.

An intensification of research and development, as well as demonstration projects to unlock and commercialise advanced batteries, hydrogen electrolysers and direct air capture and storage, which are seem as the highest-potential new technologies to support the net-zero transition. About $90-billion of public money needs to be mobilised globally to complete a portfolio of demonstration projects before 2030, with only $25-billion currently budgeted. The report shows...

Organised business is preparing to intensify engagements with government and labour over growing calls for higher levels of localisation and industrialisation, including in the country’s infrastructure roll-out, as well as in response to a “request” by Trade, Industry and Competition Minister Ebrahim Patel that an import-substitution target of 20% be set for non-petroleum imports.

Patel reportedly made this entreaty during a meeting of the National Economic Development and Labour Council (Nedlac) in late 2020 and, although he did not set a firm timeframe, business has interpreted it to be a five-year target.

Business Unity South Africa (Busa) CEO Cas Coovadia reports that import-substitution discussions have intensified partly as a result of the success of business in responding to the supply-chain challenges presented during the Covid-19 lockdown in 2020, when several enterprises stepped up their manufacture of personal protective equipment.

However, the priority being given to localisation in government’s Economic Reconstruction and Recovery Plan has since prompted Busa and Business Leadership South Africa (BLSA) to commission research into the issue, as well as to create a structure, comprising over 30 CEOs mostly from manufacturing enterprises, to advance bilateral discussions with government on the matter.

These talks would be broadened to labour in due course.

BLSA CEO Busi Mavuso says the research report, which has been compiled by Intellidex and includes survey results from 125 local companies, aims to ensure that the policy response is both evidence-based and supportive of employment creation and increased economic competitiveness.

Intellidex lead investigator Peter Attard Montalto says the research indicates that “localisation maximisation is possible but only under the right conditions”.

Should those conditions be absent, an overly aggressive import-substitution policy will have negative consequences for domestic prices and the country’s economic recovery.

“It will take time and investment to achieve the levels of onshore capacity, quality and appropriate price points – a timeline that cannot be forced through central dictate.

“It could, however, be encouraged with policy certainty, clear demand pipelines and a competitive export orientation,” Attard Montalto adds, noting that the initial demand certainty created around South Africa’s renewables procurement programme had been supportive of localisation.

A breakdown in that policy, which resulted in a seven-year procurement gap, triggered a closure of capacity, which now has to be re-established in light of local content featuring heavily as a qualifying criteria in the current bid documents.

However, the recent uneven application of exemptions from local content thresholds as part of the Risk Mitigation Independent Power Producer Procurement Programme, which saw power ships exempted but not photovoltaic panels, for instance, had created fresh uncertainty.

The report concludes that a 20% substitution target is most likely not realistic over a five-year horizon, but that domestic businesses seem positive and optimistic on the future potential for localisation, notwithstanding “deep scepticism about government’s understanding of business as well as pessimism about existing localisation policies”.

The companies surveyed highlighted the price risks associated with pushing ahead with localisation in the absence of sufficient capacity, warning that prices could rise by around 20% if such a move is undertaken too fast.

“Our quantitative study shows that under the right conditions, meeting localisation targets within the next five years is possible for a number of key manufacturing sectors including paper, wood, motor vehicles, ceramic products, glass, basic iron and steel, and food and beverages.

“[But] other manufacturing sectors are highly unlikely to meet localisation targets without significant policy support and macroeconomic tailwinds. These sectors include printin...