Serious thinkers who diagnose economic problems and offer possible solutions deserve our attention – and response.

The report contains important findings related to the South Africa’s power supply, which deserve our attention because of the ongoing electricity crisis and the need for sober policy responses.

The first is that “the electricity crisis both in terms of prices and reliability has destroyed the foundations of South Africa’s historical comparative advantage”. This is an important observation considering some attempts to rewrite the history of coal in South Africa.

While it is true that we are all frustrated by Eskom and that renewables will increasingly form part of a new energy mix in the future, there is no need to hide the comparative advantage we have enjoyed for a century since Eskom was established in 1923.

Even though one agrees with the Harvard report regarding Eskom’s challenges, the word “destroyed” – in relation to South Africa’s comparative advantage – is harsh because coal availability and supply have not been destroyed. And, as the report suggests, attempts could be made to rescue Eskom power plants to alleviate load shedding.

The second is that despite the “destruction” of the comparative advantage, more value could still be extracted from the power utility’s plants if the state rented a few of them out to private sector operators to be run efficiently.

If this proved successful, the report suggests, then more plants could be added to the renting scheme. The report emphasises that this is not privatisation, as the state would retain ownership.

The idea does not differ from the one mooted by theNational Treasury in this year’s budget review document. But the question is: Has it gained momentum for it to become official policy?

It certainly seems like a more sensible policy option than the premature decommissioning of coal plants. But government needs to urgently test the appetite of private investors to retrofit the old power plants with modern environmentally friendly machinery.

“South Africa cannot build a reliable and cheap electricity system on renewable energy sources alone with existing technologies,” the report says more pointedly. “Rather, dispatchable renewable sources and conventional baseload power are compliments in the system.”

The third observation confirms that South Africa’s transition from coal to renewables will not make a dent on the climate challenge because its contribution to global emissions is minuscule.

“South Africa represents only about 1% of the global carbon dioxide emissions and a lower share of cumulative historic emissions, so its impact on global climate change through reductions in its emissions will have a very limited direct impact on climate change,” the report says.

Yet South Africa seeks to comply with global agreements to transition, the terms of which are continuously contested between the developed and the developing world. The robust debates at the recent COP28 in Dubai in the United Arab Emirates show there is no panacea to the climate crisis concerns.

The fourth is that South Africa needs to focus on building on future comparative advantages. Here, the report speculates about South Africa’s potential. It refers to possible development of renewable energy know-how which could then be exported. South Africa could manufacture platinum or vanadium-based batteries and establish green manufacturing parks.

But there is a rider that the scale of such projects “will ultimately depend on South Africa regaining cheap and reliable electricity and sustainability, reducing the cost of capital for new projects”.

The report also refers to the mining of eight critical minerals required in the green supply value chain.

Of these, South Africa has significant deposits of only four – chromium, with its 43.5% of global market share as of 2021, manganese (38%), palladium (40%) and platinum (73%). The report says for the country to claim a place in these new markets “it will need to address the state failures that have limited its potential to date”.

The report is realistic about South Africa’s challenges in relation to renewable supply chains, particularly on mineral beneficiation. Acknowledging that China holds around 35% of nickel refining, 50% to 70% of cobalt, and 90% of rare earth elements, the report then observes that resource endowment does not mean an advanced value chain in beneficiation.

Of course, part of the requirement for mineral resource exploitation, including beneficiation, is reliable and cheap supply of electricity.

The recent experience of steel production company ArcelorMittal and the concerns raised by some car manufacturers show there is no way out of a reliable electricity supply. This means government must evaluate the Harvard report’s proposal to rent out some power stations to continue benefiting from the comparative advantage of coal while the renewable experiments continue apace.

The report also speculates that favourable geopolitical forces – the rivalry between China and the US – are creating opportunities for countries such as South Africa in mineral processing. This is because excessive dependence on China is seen as a strategic risk both in the US and Europe.

The report is very generous and idealistic in this regard. The reality is that Europe and the US are creating their own competitive advantages to take on China’s dominance in green energy value chains.

They are not in the business of charity, to give away their advantages to South Africa. We must nurture our national advantages. There are no Good Samaritans in the global race to create wealth.

This opinion piece was published in City Press: https://www.news24.com/fin24/opinion/opinion-transnet-crisis-is-now-a-diplomatic-issue-its-time-govt-did-something-about-it-20230413