Fast-track economic recovery

Fast-track economic recovery

Local manufacturers have responded positively to President Cyril Ramaphosa’s Economic Reconstruction and Recovery plan – a strategy to help South Africa overcome the economic consequences of the pandemic.

The end of 2020 marked nine months since South Africa recorded its first Covid-19 case, which led to a strict lockdown to assist the healthcare system to prepare for the worst of the pandemic. While the measures have helped to save lives, the economy, like everywhere else in the world, is suffering.

South Africa’s strategy to overturn these effects will involve growing the local industrial and manufacturing base, Ramaphosa announced in mid-October.

“To place our economy on a new trajectory, we are going to support a massive growth in local production,” he explained, adding that together with business and unions, the government will publish localisation targets for goods in areas like agri-processing and health care, as well as basic consumer goods, industrial equipment and construction materials.

The aim is to grow the economy by lowering South Africa’s reliance on imports and increasing exports. “South Africa currently imports around R1,1 trillion of goods, excluding oil, each year. If we were to manufacture just 10% of these goods locally, it is estimated that we could add 2% to our annual GDP [gross domestic product],” Ramaphosa said.

He added that plans were in the pipeline to ensure public infrastructure projects would use locally made materials while establishing supplier development programmes for large companies and in critical sectors.

Local manufacturers have welcomed Ramaphosa’s pledges. “The President has hit the nail on the head. Reviving our labour-intensive manufacturing sector and making it globally competitive is the only way to recover from the pandemic and create hundreds of thousands of jobs fast,” says Jonathan Shapiro, CEO of Lesco Manufacturing, a Johannesburg-based producer of electrical products. “Manufacturing, after all, has the highest job multiplier of any sector.”

For the government’s plans to bear fruit, they need to be transformative and inclusive. “Ramaphosa mentioned the word inclusivity, and we hope that he meant that everyone will be part of his plans, including low-skilled people and workers with disabilities,” says Shapiro, adding that historically millions of South Africans have been unable to find employment because they are living with a disability or do not have relevant skills.

“They need to be included in the plans, otherwise they will never find work,” he urges, noting that according to 2019 figures by the National Council of and for Persons with Disabilities (NCPD), 68% of South African adults living with a disability were unemployed last year. “This year, this figure is likely to be much higher.”

This shouldn’t be the case, he says, noting that a wheelchair user or under-skilled person can still create value for a business or the country at large. “Our view is that all businesses should have an inclusive business model that plays to the strengths of people with disabilities.

“Our workforce of more than 100 men and women, who are traditionally considered unemployable due to their lack of skills or disability, is our company’s strength. We turned 21 years old this year, and to date, we have sold 170 million products – eight million per year, and all of this has been achieved by integrating the traditionally unemployable into our workforce. We are ready to continue this trajectory.”

But an increase in the local manufacturing industry isn’t the only way to increase economic recovery.

Niveshen Govender, chief operations officer at the South African Photovoltaic Industry Association (SAPVIA), says that President Ramaphosa’s address also highlighted that South Africa has to rapidly expand its energy generation capacity. “One of the key components of his plan revolves around the role that renewable energy will play in rebuilding the economy.”

Detailing the approach, Ramaphosa committed to finalising the Independent Power Producer agreements to connect over 2 000 MW of additional capacity from existing projects by June 2021, as part of a medium-term goal of bringing around 11 800 MW of new generation capacity into the system by 2022.

But it’s not just about generating more energy: one of the biggest challenges facing South Africa faces is grid reliability. The continuous bouts of load shedding have wreaked havoc on business. Acknowledging this issue, Ramaphosa said that the current regulatory framework will be adapted to facilitate new generation projects while protecting the integrity of the national grid. More importantly, he noted that applications for own-use generation projects were being fast-tracked.

Investments into renewable energy have seen extraordinary growth over the past decade, with nearly R5 trillion being invested globally in renewable energy each year. This has seen extraordinary growth in wind and solar energy in the past decade, with their average price dropping 73% and 22% respectively.

In the car manufacturing industry, companies investing in batteries have seen their price decrease 80%, with a further 60% reduction predicted this decade. This investment is seeing increased growth in the private sector in particular.

While solar and other renewables may only be a small part of the current total energy supply in economies, both the residential and commercial sectors are fast adapting by integrating renewable energy into the mix.

In the US, for example, Google purchased 1 600 MW from 18 different providers in 2019 – one of the largest acquisitions at the time. Locally, large businesses are doing the same – with Anheuser-Busch InBev connecting its breweries in South Africa to 8,7 MW DC of distributed solar energy it procured through power purchase agreements with local PV systems operator SOLA Group.

In the industrial sector, the United Nations Industrial Development Organization records that approximately three-quarters of the energy used in the industrial sector is related to the production of energy-intensive commodities such as ferrous and non-ferrous metals, chemicals and petrochemicals, non-metallic mineral materials, and pulp and paper.

With energy constituting one of the highest costs in overall production, companies are continuously looking at ways to drive these costs down – something to which renewable energy sources provide a solution.

Businesses are seeing the value of embedded electricity solutions for their supply chains, adds Govender. “Apart from addressing energy shortfalls from national energy providers like Eskom, according to research by Deloitte, using renewable energy can help businesses across their supply chains by decreasing long-term costs, mitigating risk, driving new revenue, enhancing brand value and improving employee engagement.”

This is where the renewable energy market, including solar PV, will play its biggest role – being the catalyst that empowers local municipalities, towns, business and entire industry sectors. The aim is to provide a cheaper and more sustainable source of energy that allows them to reinvest, build and ultimately contribute to economic growth in the country.

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