South Africa and the New Geopolitics of Decarbonization
by robert looney
bob looney teaches economics at the Naval Postgraduate School in California.
Published September 28, 2023
With China and the West digging in for Cold War, they are actively competing to strengthen geopolitical relationships in the non-aligned developing countries — a reality that some of the latter see as an opportunity to leverage this rivalry to constructive ends. But the window of opportunity is fairly narrow.
Take South Africa. In 2021, President Cyril Ramaphosa announced his “Just Energy Transition Investment Plan” (JET IP). The JET-IP details how coal-dependent South Africa plans to use the $8.5 billion pledged in aid at the 2021 UN climate conference (COP26) in Glasgow. Ramaphosa’s goal: net zero carbon by 2030.
The hope now among climate activists is that the plan will prove to be a catalyst for other developing countries struggling to decarbonize. For while nobody’s expecting the major powers to shell out hundreds of billions of dollars motivated solely by enlightened self-interest, the thinking is that the new Cold War could be channeled in a productive direction. Maybe, but the case of South Africa suggests the road will be tortuous.
The Costs of Decarbonization
Although the JET-IP builds on the promises made at the COP26 climate conference and uses the $8.5 billion to pay for the first phase (2023-27), it is only the beginning: JET-IP would cost an estimated $86 billion for full implementation. Besides decarbonizing electricity, the plan proposes a complementary strategy of developing new vehicles fueled with “green hydrogen” — easily transportable and storable hydrogen gas synthesized from water with renewable energy. To get there, South Africa will have to find tens of billions more from foreign sources to cover the rest of the funding gap.
With world leaders dubbing JET-IP as a “benchmark” and a “first-of-its-kind approach to a just energy transition,” other countries are contemplating similar strategies to decarbonize. One of the notable outcomes of COP27 (held in 2022 in Egypt) was an agreement between the IPG (a subset of advanced industrial nations) and Indonesia to finance the latter’s transition away from coal power. Indonesia, a far larger country than South Africa, is asking for a lot larger down payment — $20 billion in grants and concessional loans over the next three to five years. Vietnam should receive a $11 billion climate financing package, for its part, mainly from the EU and the UK.
Actually, there is even more driving the West’s sudden generosity than Cold War jitters and hot-climate consequences. The West, after all, is still largely committed to global economic integration, and that won’t work if the energy transition isn’t coordinated. For example, South Africa now exports over 70 percent of the vehicles it produces to the EU. But the EU intends to forbid purchases of internal combustion engine vehiclesfrom any source by 2035. If South Africa is to remain a well-integrated part of a global economy, getting to net zero before the climate becomes unlivable, it will have to stay in sync.
In the Weeds
South Africa has reached a critical point. Successful implementation of the JET-IP would likely propel the country onto a higher growth path. However, failure, with considerable money and goodwill wasted along the way, might well cause it to fall irrevocably behind. And there are good reasons to worry that could happen.
Potential impediments fall into four general areas: South Africa’s deteriorating public finances, domestic opposition based on economic interests, endemic corruption (particularly at state-run energy company ESKOM) and the possibility that China will not contribute substantial sums.
In some respects, the timing for JET-IP implementation could hardly be worse. For one thing, South Africa’s urgent need to begin decarbonization is coinciding with rapidly rising sovereign debt levels. South Africa (and many emerging economies) has traditionally pursued prudent fiscal policies, limiting the accumulation of external debt to safe ranges. However, the effects of the 2008-9 international financial crisis and the cost of responding to Covid-19 have led to a significant deterioration in South Africa’s fiscal stance in recent years. Government debt rose from 31 percent of GDP in 2010 to 71 percent by 2022, with the IMF forecasting further increases in the near term. With debt levels in this range, South Africa lacks the flexibility to continue its transition efforts if donors don’t contribute generously.
Given the challenges South Africa needs to overcome, a successful large-scale effort at decarbonization seems marginally realistic at best — especially if other emerging market countries like Indonesia and Vietnam are competing for massive amounts of foreign assistance.
The internal politics are already getting ugly. Minister of Mineral Resources and Energy Gwede Mantashe is leading the opposition to JET-IP. While acknowledging fossil fuel dependence is problematic, he argues that the economic dislocation in the transition to cleaner energy will create ghost towns and starving families. Citing the windfall 700 percent increase in South Africa’s coal exports in the wake of sanctions on Russia since its invasion of Ukraine, he believes that coal must continue to be a critical component of the economy.
Mantashe has a point — the South African economy is pretty fragile. Although per capita GDP in purchasing power terms stood at $13,300 in 2022 — solid middle-income territory — it had declined markedly from a peak of $14,000 in 2012. In the first quarter of 2023, the unemployment rate was a wretched 33 percent, with youth unemployment (ages 15-24) an even more wretched 47 percent. Arguably most problematic, in 2022 the extreme poverty rate ($2.15 per day in purchasing power terms) exceeded 21 percent.
Apart from the direct impact on jobs and household income, South African decarbonization will create the risk of power shortages — a significant issue even now thanks to incoherence in government energy policy and both corruption and sabotage at Eskom, the state energy company. Eskom is the poster child for all that can go wrong with state enterprise. It is plagued by organized theft and extortion, and incompetent management. Yet there’s no getting around the reality that it must be a fulcrum to the energy transition.
Ramaphosa’s technocratic reform program, Operation Vulindlela, tackles some of these problems. However, the IMF reports that Ramaphosa has only managed 10 of the 35 promised reforms since its launch in October 2020. Further progress is hostage to policy incoherence, bureaucratic weakness and poor leadership. It is unlikely substantial reform breakthroughs will occur soon — not a good advertisement for receiving tens of billions in assistance.
China to the Rescue?
Reacting to the broad sense of aggrievement around climate change in the developing world, China has been eager to paint itself as an ally in the cause of climate finance and green transitions. For several decades, China has funded green energy projects across Africa and Southeast Asia, including hydroelectric dams, wind farms and solar arrays. And China announced last year that it would stop building coal-fired power plants abroad. It also recently promised to aid 19 African countries in combating droughts, floods and other events worsened by climate change.
This, of course, could work to the advantage of developing countries, keeping the aid spigot open in circumstances that Western donors won’t willingly deal with. The catch here, though, is that China is going through its own moment of self-doubt, with economic growth way down, domestic debt at dangerous levels and a pullback in private industrial investment.
A Bridge Too Far?
Given the challenges South Africa needs to overcome, a successful large-scale effort at decarbonization seems marginally realistic at best — especially if other emerging market countries like Indonesia and Vietnam are competing for massive amounts of foreign assistance. It’s certainly understandable, then, that Ramaphosa is playing both sides in global geopolitics, hoping to patch over deep divisions within the country as he wrangles foreign aid. Maybe he will yet beat the odds.