Flexible pricing in renewable energy projects: how to strike a balance
Volatile input costs pose a threat to the viability of developers of renewable energy projects, which may require offtakers to be more flexible in contract negotiations.
By Megan Jarvis & Tyron Theessen, Partners at Webber Wentzel
Soaring costs of commodities and energy have resulted in an unprecedented level of cost uncertainty in the inputs needed for developing renewable energy projects. Cost uncertainty is compounded by the logistical woes being faced by developers in South Africa and elsewhere. Even where component parts are available, they may not be at a cost that is recoverable in terms of the contracts in place with buyers or that is sustainable for suppliers.
According to the International Energy Agency (IEA), in its “Renewable Energy Market Update 2022” released in May 2022, prices of raw materials and freight costs for renewable energy projects have been rising since the beginning of 2021. By March 2022, it said: “the price of PV-grade polysilicon more than quadrupled, steel increased by 50%, copper rose by 70%, aluminium doubled, and freight costs rose almost five-fold. The reversal of the long-term trend of decreasing costs is reflected in the higher prices of wind turbines and PV modules as manufacturers pass through increased equipment costs. Compared with 2020, we estimate that the overall investment costs of new utility-scale PV and onshore wind plants are from 15% to 25% higher in 2022.”
Other input costs, predominantly energy, have risen substantially because of the Russia/Ukraine war. For South African developers of renewable plants which rely on imported components, these cost increases will be magnified by the depreciation of the rand against the dollar, from ZAR15.95/USD in January to ZAR16.70/USD by mid-August – especially where the power purchase arrangements are dominated in local currency.
These cost increases have further compounded difficulties, initially arising from pending litigation, in closing projects bid under the Risk Mitigation Independent Power Procurement Programme (which was gazetted on 7 July 2020). Similar issues may be faced if other programmes are delayed and could apply equally where private offtaker deals suffer from their own delays.
In this uncertain environment, where fixed pricing on long-lead items cannot always be secured, developers may be unable to sell power at the prices they bid and still make a profit. The same phenomenon affects other private sector power projects under way, such as those being developed to supply renewable energy to offtakers in the mining and other industries, where the developer has undertaken to supply power at a certain agreed price. The client in turn has budgeted for that cost and may also have limited room for cost escalations.
Building cost escalations into contracts
Many contracts may have prudently allowed for an annual escalation in tariffs of CPI plus a certain percentage or in line with a formula for certain items. However, although CPI may be a measure of the shifting costs of the CPI basket of goods, the composition of capital costs in renewable energy projects is not reflected by this basket. CPI is also not an immediate measure of international commodity fluctuations, so CPI-linked cost escalations will deliver little comfort if project development timeframes are more limited than the realised effect on the basket.
Even though buyers of power may be sympathetic to these cost pressures (since they are being felt broadly across many industries), a buyer cannot be expected to give a developer a blank cheque. On the other hand, a developer would be hard pressed to continue with an uneconomic project and it is not in the client’s interest if the developer of the project goes into business rescue and work is suspended indefinitely – which has happened on more than one renewable project. Similarly, suppliers and original equipment manufacturers, whose costing is more directly affected by these fluctuating input costs, cannot necessarily absorb this risk and certainly cannot do so indefinitely without being pushed into uneconomic arrangements.
To take some of the guesswork out of making provision for these uncertain costs, pre-emptive clauses can be built into contracts that are currently being negotiated. These include clauses allowing cost price adjustments that are based on industry-specific formulae. Invariably, a level of risk will have to be assumed by the buyer in agreeing to flexible pricing, but this may be mitigated by allowing for re-pricing of components at specified thresholds, termination for convenience provisions and other commercial arrangements where this risk is shared and managed.
When a contract is already in place, the developer and client would need to consider the terms and may need to discuss and, possibly, renegotiate terms to ensure a viable project. This may not be possible and such discussions may not go well but, in the absence of a commercial compromise, there is a real risk of the developer repudiating the uneconomic arrangement or being run into insolvency. The same considerations will apply between the developer and its contractors and further down the procurement chain.
Affected parties may also find some relief in taking out forward cover, but this may only be available on certain items, such as steel.
The key is to conclude a commercial arrangement that is fair to all parties. It needs to balance the interests of all project participants and adequately manage the risk. In this environment, some flexibility must be considered, as fixed positions will invariably lead to at least one party being compromised and likely litigation.View more
A perfect storm is forcing green independence from the coal-dominant grid
By Lance Dickerson, MD, Revov
For all our best intentions and well-meaning words, it is often easier to continue with the status quo. However, a perfect storm in South Africa has catapulted us into a new energy future. While it’s painful now, we will be grateful in a decade or two from now.
South Africa has relied on an ever-weakening coal-based national power supply with Koeberg being the sole nuclear reactor. As far back as 1998 – some would argue earlier – the writing has been on the wall. In the years leading up to the 2010 World Cup, the new-builds such as Medupi were already too little, too late. This is even before the cost overruns, delays and expensive design flaws. This as other countries were investing billions into renewable energy builds.
We’ve had some great announcements locally. There is the 100MW private embedded exemption and if one drives along various routes such as the N2 in the Eastern Cape you will see growing wind farms, but where is the mass rollout of renewable power generation? Most South Africans can answer this question.
Over the same period, the world has become conscious of the environment and there’s been a push towards reducing carbon emissions. The Congress of the Parties (COP) 27 will proceed later this year in Africa, after the last edition of COP was criticised for underrepresenting the so-called Global South. All eyes will be on countries such as ours.
While one may well be cynical about the level of carbon emission concern globally, the truth is that many countries have already made bold commitments. Norway, France, UK, US: they’ve all made bold plans to reduce and outlaw internal combustion engines by various dates – all of which fall, by the grace of God, comfortably within our lifetime. We will see it.
China is light years ahead of a country like South Africa. Shenzhen, the home of electric vehicle (EV) maker BYD, has 16 000 electric buses and 22 000 electric taxis. Carmakers around the world are investing billions of dollars into research and development, from 100% EV makers to traditional brands plotting their plans to shift their businesses to the certain electric future.
None of this is new. We’ve known this in South Africa for years. We’ve known the world is moving to renewable energy and e-mobility. Ask the average South African for their thoughts on the mass rollout of electric charging stations and their answer will likely be: “Great, but where will the electricity come from?”
Everyone knows Eskom barely has its head above water. We feel it with incessant bouts of load shedding. This is part one of the perfect storm. Out of necessity the government will have no choice but to speed up the transition to renewable power generation, complete with private players that can deliver. Businesses and households have little choice but to find ways to protect themselves from this unreliability.
The second part of the perfect storm is the cost of fuel. The end of May will likely see a record fuel price increase, made worse by the temporary fuel levy grace period coming to an end. Running a generator during prolonged periods of load shedding is very quickly becoming something only those with very deep pockets can contemplate. One shudders to think that Eskom runs diesel generators to keep our lights on. The costs are eye-watering.
The third part of the perfect storm is the repo rate increase cycle, putting pressure on already squeezed retailers and consumers. Costs eventually have to be passed on. Imagine running a small or medium business that’s dependent on electricity to generate revenue while the power is removed in bouts of stage 2, 3, 4 (and possibly more) load shedding. Imagine the squeeze when read against increasing rent, increasing input costs and ever-more weary customers. How long is this sustainable?
The fourth part of the perfect storm is the willingness of private financial institutions and lenders to proudly advertise credit and funding lines for renewable installations. Businesses and private households will likely take up this offer precisely because it gives them the opportunity to develop freedom from dependence on a broken grid.
Within five years we will see huge investments in installations of all sizes: homes, small businesses and larger manufacturing and mining operations that require high-voltage solutions. Lithium iron phosphate batteries mean that the ability to store energy has come on in leaps and bounds.
That’s the perfect storm – where South Africans are forced to make the transition. However, the good news is that by using 2nd LiFe batteries, where the cells are repurposed from EV batteries, consumers and businesses can make the transition with the peace of mind that they are contributing to an important step in the circular economy: they are using batteries that don’t add further strain to the environment such as their first life counterparts.
That’s where we want to be: in a world where conscious decisions are made to look after the planet. If it takes us being forced, through a perfect storm of Eskom failures and economic headwinds, to get there so be it. Better late than never.View more
The Wind at his Back: SAWEA CEO, Niveshen Govender
The South African Wind Energy Association (SAWEA) recently appointed Niveshen Govender as CEO. Govender undertakes a leading role in driving the country’s transition to a greener economy and brings along a vision founded on procurement, localisation and policy. Green Economy Journal met up with him.
Congratulations, Niveshen, on your recent appointment of CEO at SAWEA. Besides this major accomplishment, what are the defining highlights of your career?
My career has been purposefully dynamic so I could experience the different views of promoting and achieving a green economy. I started off my career in consulting, where I managed to gain broad experience across a range of areas.
Thereafter, I moved to implementation, focusing on how to successfully execute large-scale projects which impact across the green economy landscape. I approached national government to better understand the policy development objectives and focused on renewable energy policy creation.
My experience and exposure across the green energy sector, has enabled me to take roles in the solar PV and now wind power industry associations, as I am able to translate policy into building an inclusive sector.
What are your personal aspirations while at the helm of the wind industry?
I believe that our industry needs to harness, accelerate and maximise localisation to move toward industrialising renewable energy in South Africa. Transformation goes hand-in-hand with this vision, so it is foremost and top of my mind.
I am personally passionate about information sharing and skills development, so that we harness our collective talents and knowledge, which spreads naturally and helps to accelerate transformation.
What are the greatest challenges for the industry in relation to the REIPPP programme?
While we continue to face an energy crisis, it is essential that our country remains geared to bring on more new generation capacity as quickly as possible, which points to renewable energy as the fastest and most cost-effective option.
To achieve this, we need to consider the current procurement rules, as there is currently a misalignment between the bid window procurement requirements and the sector capabilities. This will require additional dialogue with the relevant stakeholders, so that we can reduce the gap and make the necessary adjustments.
Our industry is currently challenged by the transmission infrastructure restraints, particularly the grid capacity challenges in the Northern Cape as well as the Eastern Cape Province, which house the country’s best wind resources.
The government has amended and gazetted the Electricity Regulation Act and the Electricity Pricing Policy for public comment. The sector has highlighted that the updated forecasting requirements also impact the power pricing tariffs. Please talk to us about the identifiable gaps and inadequacies in the penalties for deviation and how to overcome them.
The challenge is not so much in the forecasting requirement but more based on the methodology used to calculate the forecast. I believe that there is a misalignment on understanding this. Together we can develop solutions – this needs workshopping.
Should this not be considered now, the penalties will have an enormous impact on the operating IPPs.
Please expand on the challenges that the industry is currently experiencing to execute unlicensed 100MW renewable energy projects as well as other independent power projects.
While the 100MW licence exemption notice has sent positive signals, there are many finer details which require attention, namely:
- The NERSA registration process still poses challenges
- The distributor connection agreements need streamlining
- There is no national wheeling framework in place
- Wheeling tariffs need to be developed
Regarding private power purchase agreements, unclear policy for the 100MW reform needs to be clarified. The municipal energy procurement process also needs to be streamlined. Please advise on these two issues and expand on the benefits of your solution.
I believe that we are already seeing the policy reform we have been calling for, including:
- The changes and direction of those changes speak volumes
- As a sector, we are happy with the step change that is happening
- We will continue to seek clarity in the details to ensure an open transparent market
The next step is for us to work on the impact, namely how we create benefit to meet the country’s social imperatives. These include access to affordable electricity for all, addressing unemployment, inequality and poverty. These aspects need to be incorporated into the business-as-usual plan.
What impact do grid capacity limitations cause? Will improved grid access make any difference to the transition?
Grid Capacity Limitations stalls the roll out of renewable energy projects in key areas:
- It is only with the new capacity that we will be able to transition.
- Improved access allows for us to deliver the much-needed new generation capacity.
For more information on the wind association: www.sawea.org.zaView more
Norfund and CDC Group join forces to back renewable power development in South Africa
● The development finance institutions (DFIs) are investing ZAR 600 million in H1 Capital.
● Investment to add c. 2.4 Gigawatt (GW) of gross renewable capacity in South Africa, expanding access to power and contributing to the avoidance of 6,2 million tons of carbon dioxide annually.
● The commitment will enhance the economic participation of wider communities, and marks CDC’s first direct investment in a Broad-based Black Economic Empowerment (BBEE) company in South Africa.
● The deal will be the first investment under Norway’s new Climate Investment Fund, managed by Norfund.
Cape Town – 3 March 2022 – Norfund, the Norwegian investment fund for developing countries, and CDC Group, the UK’s development finance institution (DFI), are today announcing a commitment to invest ZAR 600 million in H1 Capital (Norfund 360 million and CDC 240 million) – a South-African black-owned and managed renewables investment and development company.
The transaction represents a joint vision by the DFIs to mobilise climate finance to Africa and back clean infrastructure projects across the continent. The investment from Norfund and CDC, which will soon be renamed British International Investment (BII), will help to improve access to clean and affordable energy in South Africa. The increase in clean energy supply will provide consistent power to cities, villages, townships, businesses and farms, thereby increasing productivity and encouraging economic growth.
South Africa has tremendous economic potential. The government has set an ambitious target to generate 20GW of new renewable capacity over the next decade to address power shortages and decarbonise the power generation fleet, where 86 per cent of the country’s energy mix is thermal.
This investment will support the country’s clean energy goals, as it will enable H1 Capital to fund a pipeline of over 2.4 GW of new wind and solar projects, generating approximately 6,400 GWh per year. This will contribute to avoiding annual emissions of 6,2 million tons of CO2, and help to accelerate South Africa’s transition to clean energy.
H1 Capital is a development partner of choice, owing to the company’s expertise on several renewable power projects and its deep commitment to energy sustainability. As a Broad-based Black Economic Empowerment (BBEE) company, H1 Capital’s inclusive approach provides clean energy solutions that enhances the participation of the wider communities in the economy, helping to transform the lives and livelihoods of marginalised groups in South Africa.
The investment in H1 Capital demonstrates commitment by the UK and Norway to act on pledges made at COP26 – scaling climate finance to Africa and deepening collaboration on solutions that will meet the continent’s needs and address the climate emergency. At the summit, Norway announced the creation of a new climate investment fund to be managed by Norfund, and this capital to H1 Capital will be the first investment under the new fund.
This commitment from the DFIs helps contribute to the UN’s Sustainable Goals (SDG 7) on affordable and clean energy, (SDG 8) on good jobs and economic growth and climate action (SDG 13). The transaction also qualifies for the 2X challenge, which seeks to support businesses that provide women in emerging economies with access to leadership opportunities, quality employment, and products and services that enhance their economic participation and inclusion. Moreover, the investment aligns with South Africa’s ambitions and steps toward securing a just transition to a low-carbon economy.
Tellef Thorleifsson, CEO of Norfund, commented: “At Norfund we are honoured that the Norwegian government has entrusted us with the responsibility of managing the new climate investment fund. We are delighted to be able to put the money to work quickly and effectively through what will be the first investment under the new mandate, with our existing partners in H1 and CDC, in projects in line with the energy plans of the South African government”
Anne Beathe Tvinnereim, Norwegian Minister of International Development, commented: “I believe that the new Norwegian climate investment fund managed by Norfund will be our most efficient tool to help accelerate the global clean energy transition, making it possible to base necessary development on renewable energy and limit the climate crises devastating impacts on the world’s poor. I am confident that this first investment under the new climate mandate will be the first of many mutually beneficial partnerships that contribute to a just transition in South Africa and in the other markets that Norfund aims to prioritize.”
Nick O’Donohoe, Chief Executive of CDC Group, commented: “We are delighted to once again partner with Norfund on this investment in H1 Capital, which will help increase clean energy access for people, communities, and businesses across South Africa. This investment marks another key step toward fulfilling our pledge to devote greater capital to fund clean infrastructure and to support markets like South Africa on their path toward a just transition. This investment signals our strengthened relationship with South Africa and clearly signals Britain’s commitment to help accelerate economic productivity and inclusive growth for Africa’s green recovery.”
UK Minister for Africa, Vicky Ford, said: “South Africa’s target to generate 20GW of new renewable capacity over the next ten years is indicative of the country’s bold steps toward securing a net-zero future for itself. $16million of UK investment in H1 Capital demonstrates our continued commitment to remaining a strong partner for Africa, to help address the urgent climate challenge, and promote clean and equitable growth that will ensure African economies can build back better.”
“Investments like this reaffirm and follow on from the commitment we have made to South Africa’s low-carbon transition through the $8.5 billion multi-donor Just Energy Transition Partnership.”
Reyburn Hendricks, Chief Executive Officer of H1 Capital, commented: “H1 is excited to be able to partner with Norfund and CDC to achieve our purpose of improving the quality of lives. South Africa needs access to long-term, patient capital to develop the large-scale energy projects required for reliable, clean power supply and economic development. H1 hopes that the partnership fostered with Norfund and CDC can be replicated with other players and projects in Sub-Saharan Africa”.View more
President Cyril Ramaphosa: Major Energy Reforms Announced
State of the Nation Address (SoNA) by President Cyril Ramaphosa, Cape Town City Hall, 10 February 2022
Fellow South Africans,
This year, for the first time since the dawn of our democracy, the SoNA is not being delivered in the Chamber of the National Assembly.
As we entered this new year, a huge fire engulfed the seat of our democracy.
We all watched in outrage and sadness as the flames devoured the buildings in which our democratic Constitution was born, in which laws of transformation and progress have been passed, in which the freely-chosen representatives of the people have shaped our young nation.
For many, what happened in Parliament speaks to a broader devastation in our land.
For many, the fire was symbolic of the devastation caused by the Covid-19 pandemic, by rising unemployment and deepening poverty.
It spoke to the devastation of a pandemic that over the past two years has taken the lives of tens of thousands of South Africans, put two million people out of work and brought misery to families.
The fire in Parliament reminded us of the destruction, violence and looting that we witnessed in parts of the country in July last year, of the more than 300 lives lost and many more livelihoods ruined.
As we reflect on the past year, we recall the words of President Thabo Mbeki who reminded us that: “Trying times need courage and resilience. Our strength as a people is not tested during the best of times.”
That we are gathered together in the Cape Town City Hall instead of the National Assembly Chamber reflects the extraordinary circumstances of this time.
It reflects the determination of the Presiding Officers of Parliament and indeed all the members of our two houses that the work of this democratic institution should continue without interruption.
There are moments in the life of a nation when old certainties are unsettled and new possibilities emerge.
In these moments, there is both the prospect of great progress and the risk of reversal.
Today, we are faced with such a moment.
The path we choose now will determine the course for future generations.
That is why we are taking steps to strengthen our democracy and reaffirm our commitment to a Constitution that protects us all.
We are working together to revitalise our economy and end the inequality and injustice that impedes our progress.
We are standing together against corruption and to ensure that those who are responsible for state capture are punished for their crimes.
We are rebuilding the State and restoring trust and pride in public institutions.
If there is one thing we all agree on, it is that the present situation – of deep poverty, unemployment and inequality – is unacceptable and unsustainable.
There is agreement among a broad and diverse range of South Africans that fundamental reforms are needed to revive economic growth.
There is a need both to address the immediate crisis and to create conditions for long-lasting stability and development.
To achieve this, South Africa needs a new consensus.
A consensus that is born out of a common understanding of our current challenging situation and a recognition of the need to address the challenges of unemployment, poverty and inequality.
This should be a new consensus which recognises that the State must create an environment in which the private sector can invest and unleash the dynamism of the economy.
But equally, an environment in which South Africans can live a better life and unleash the energy of their capabilities.
This should also be a new consensus which embraces our shared responsibility to one another, and acknowledges that we are all in this together.
As the social partners – government, labour, business and communities – we are working to determine the actions we will take together to build such a consensus.
We have begun discussions on what trade-offs are needed and what contribution we will each need to make.
We have given ourselves 100 days to finalise a comprehensive social compact to grow our economy, create jobs and combat hunger.
This work will build on the foundation of the Economic Reconstruction and Recovery Plan (ERRP), which remains our common programme to rebuild the economy,
We remain focused on the priorities we identified in the SoNA last year:
- overcoming the Covid-19 pandemic,
- a massive rollout of infrastructure,
- a substantial increase in local production,
- an employment stimulus to create jobs and support livelihoods,
- the rapid expansion of our energy generation capacity
To be effective, this social compact needs to include every South African and every part of our society.
No one must be left behind.
Fellow South Africans,
When I last addressed the state of our nation, we were deep in the throes of the worst pandemic in more than a century.
Since Covid-19 reached our shores, we have endured successive waves of infection, the emergence of new variants and the devastating cost of nearly 100 000 recorded Covid-19 deaths.
South Africans have responded to this grave threat with courage and resilience, with compassion and restraint.
Over the past two years, we have taken unprecedented actions to strengthen our health system, build laboratory capacity and prevent infections.
The nation owes a great debt of gratitude to the dedicated healthcare workers and other frontline staff who put their health and their lives at risk to care for the ill and vulnerable during this pandemic.
Within weeks of the first reported infection in our country, I announced the establishment of the Solidarity Fund, with the goal of uniting the country in the fight against the pandemic.
In a wave of generosity that swept the country, the fund raised R3.4 billion from more than 300 000 individuals and 3 000 companies and foundations. More than 400 individuals and 100 companies volunteered their time and services.
The fund has played a pivotal role in supporting the national health response and alleviating the humanitarian crisis.
I would like to thank everyone who contributed to the Solidarity Fund and the great many who came together in countless other initiatives to support those affected by the pandemic.
As the trajectory of the pandemic has continued to change, we have had to adapt and evolve.
Our approach has been informed throughout by the best available scientific evidence, and we have stood out both for the quality of our scientists and for their involvement in every step of our response.
During the past year, we have focused on accelerating our vaccine rollout.
So far, we have administered 30 million doses of Covid-19 vaccines. Consequently, nearly 42% of all adults and 60% of everyone over 50 is fully vaccinated.
We are now ready to enter a new phase in our management of the pandemic.
It is our intention to end the national state of disaster as soon as we have finalised other measures under the National Health Act, 2003 (Act 61 0f 2003) and other legislation to contain the pandemic.
Nearly all restrictions on economic and social activity have already been lifted.
Vaccines have proven to be the best defence we have against illness and death from Covid-19.
If we all get vaccinated, continue to observe basic health measures and remain ever vigilant, we will be able to get on with our lives even with the virus in our midst.
The state of the nation is linked inextricably to the state of our economy.
In addition to the divides of race, geography and education, Covid-19 has exacerbated the divide between those who are employed and unemployed.
Last year, our unemployment rate reached its highest recorded level.
Unemployment has been caused by low growth, which has in turn resulted from a long-term decline in investment.
In the last year, we have benefited from a clear and stable macroeconomic framework, strong commodity prices and a better-than-expected recovery.
However, we have been held back by an unreliable electricity supply, inefficient network industries and the high cost of doing business.
We have been taking extraordinary measures to enable businesses to grow and create jobs alongside expanded public employment and social protection.
We all know that government does not create jobs. Business creates jobs.
Around 80% of all the people employed in South Africa are employed in the private sector.
The key task of government is to create the conditions that will enable the private sector – both big and small – to emerge, to grow, to access new markets, to create new products, and to hire more employees.
The problems in the South African economy are deep and they are structural.
When electricity supply cannot be guaranteed, when railways and ports are inefficient, when innovation is held back by a scarcity of broadband spectrum, when water quality deteriorates, companies are reluctant to invest and the economy cannot function properly.
With a view to addressing these challenges we are accelerating the implementation of far-reaching structural reforms to modernise and transform these industries, unlock investment, reduce costs and increase competitiveness and growth.
The electricity crisis is one of the greatest threats to economic and social progress.
In the last few days, we have once again been reminded of the fragility of our electricity system.
Load shedding continues to have a huge impact on the lives of all South Africans, disrupting business activities, and placing additional strains on families and communities.
Due to our aging power stations, poor maintenance, policy missteps and the ruinous effects of state capture, our country has a shortfall of around 4000 MW of electricity.
During the past year, we have taken firm steps to bring additional generation capacity online as quickly as possible to close the shortfall.
As a result, several new energy generation projects will be coming online over the next few years. This includes:
- Over 500 MW from the remaining projects in Bid Window 4 of the renewable energy programme, which are at advanced stages of construction.
- 2 600 MW from Bid Window 5 of the renewable energy programme, for which the preferred bidders were announced last year,
- up to 800 MW from those risk mitigation power projects that are ready to proceed,
- 2 600 MW from Bid Window 6 of the renewal energy programme, which will soon be opened,
- 3,000 MW of gas power and 500 MW of battery storage, for which requests for proposals will be released later this year,
- an estimated 4 000 MW from embedded generation projects in the mining sector,
- approximately 1 400 MW currently in the process of being secured by various municipalities.
In addition to closing the energy supply shortfall, we are implementing fundamental changes to the structure of the electricity sector.
Eskom has established a separate transmission subsidiary, and is on track to complete its unbundling by December 2022.
The utility has continued with its intensive maintenance programme, to reverse many years of neglected maintenance and underperformance of existing plants.
To regulate all of these reforms, Cabinet yesterday approved amendments to the Electricity Regulation Act, 2006 (Act of 2006) for public comment.
These far-reaching amendments will enable a competitive market for electricity generation and the establishment of an independent state-owned transmission company.
Our economy cannot grow without efficient ports and railways.
Over several years, the functioning of our ports has declined relative to ports in other parts of the world and on the African continent. This constrains economic activity.
The agricultural sector, for example, relies heavily on efficient, well-run ports to export their produce to overseas markets.
Fresh produce cannot wait for days and even weeks stuck in a terminal.
This hurts businesses and compromises our country’s reputation as an exporter of quality fresh produce.
Transnet is addressing these challenges and is currently focused on improving operational efficiencies at the ports through procuring additional equipment and implementing new systems to reduce congestion.
Transnet will ask for proposals from private partners for the Durban and Ngqura Container Terminals within the next few months, which will enable partnerships to be in place at both terminals by October 2022.
Transnet will start the process of providing third-party access to its freight rail network from April 2022 by making slots available on the container corridor between Durban and City Deep in Gauteng.
Transnet has developed partnerships with the private sector to address cable theft and vandalism on the freight rail network through advanced technologies and additional security personnel.
This collaborative effort is already showing results in reduced disruptions to rail operations.
The poor state of passenger rail in South Africa has a direct and detrimental impact on the lives of our people.
We are therefore working hard to rehabilitate the passenger rail network in 10 priority corridors.
The Southern Line in Cape Town and the Mabopane Line in Pretoria have been re-opened to be followed by the remaining lines in the next year.
One of the greatest constraints on the technological development of our economy has been the unacceptable delay in the migration of broadcasting from analogue to digital.
The switch-off of analogue transmission has been completed in a number of provinces.
As I announced in the SoNA last year, the other provinces will move to digital signal by the end of March 2022.
As part of this process, government will continue to subsidise low-income households so that they can access a set-top box and make the switch to digital TV.
Our communications regulator, ICASA, will commence with the auctioning of the high frequency communications spectrum in about three weeks from now.
This will unlock new spectrum for mobile telecommunications for the first time in over a decade.
In addition, we will facilitate the rapid deployment of broadband infrastructure across all municipalities by establishing a standard model for the granting of municipal permissions.
These reforms will revolutionise the country’s technological development, making faster broadband accesible to more people and reducing the costs of digital communications.
The world over, the ability to attract skilled immigrants is the hallmark of a modern, thriving economy.
We are therefore streamlining and modernising the visa application process to make it easier to travel to South Africa for tourism, business and work.
As we committed last year, the eVisa system has now been launched in 14 countries, including China, India, Kenya and Nigeria.
The revised Critical Skills List has been published for the first time since 2014, following detailed technical work and extensive consultations with business and labour. The updated list reflects the skills that are in shortage today, to ensure that our immigration policy matches the demands of our economy.
A comprehensive review of the work visa system is currently underway, led by a former Director-General of Home Affairs, Mr Mavuso Msimang.
This review is exploring the possibility of new visa categories that could enable economic growth, such as a start-up Visa and a remote working visa.
Water is the country’s most precious natural resource.
It is vital to life, to development and to economic growth.
That is why we have prioritised institutional reforms in this area to ensure future water security, investment in water resources and maintenance of existing assets.
We have embarked on the process of institutional reform in capacitating the Department of Water and Sanitation (DWS) and reviewing water boards in as far as their mandates are concerned and ensuring that they serve municipalities in terms of the District Development Model (DDM).
These reforms are being championed by the Minister of Water and Sanitation, who has visited every water source in the country.
A comprehensive turnaround plan is being implemented to streamline the process for water use license applications. The target is to clear the backlog of applications by June 2022 and to process 80% of all applications within 90 days during the next financial year.
Legislation has been prepared for the establishment of the National Water Resources Infrastructure Agency, and will be published for public comment within the next month.
The water quality monitoring system has been reinstated to improve enforcement of water standards at municipal level, and enable the DWS to intervene where water and sanitation services are failing.
We will review the policy and regulatory framework for industrial hemp and cannabis to realise the huge potential for investment and job creation.
While structural reforms are necessary for us to revive economic growth, they are not enough on their own.
This year, we are undertaking far-reaching measures to unleash the potential of small businesses, micro businesses and informal businesses.
These are the businesses that create the most jobs and provide the most opportunities for poor people to earn a living.
We have started discussions with social partners as part of the social compact process to review labour market regulations for smaller businesses to enable them to hire more people, while continuing to protect workers’ rights.
A new, redesigned loan guarantee scheme is being introduced to enable small businesses to bounce back from the pandemic and civic unrest.
This new bounce-back scheme incorporates the lessons from the previous loan guarantee scheme.
It will involve development finance institutions and non-bank SME providers in offering finance, expand the types of financing available and adjust eligibility criteria to encourage greater uptake.
The National Treasury is working with industry stakeholders to finalise the scheme and will provide details soon.
We are reviewing the Business Act, 1991 (Act 71 of 1991) – alongside a broader review of legislation that affects small, medium and small-enterprises (SMMEs) – to reduce the regulatory burden on informal businesses.
There are too many regulations in this country that are unduly complicated, costly and difficult to comply with. This prevents companies from growing and creating jobs.
We are, therefore, working to improve the business environment for companies of all sizes through a dedicated capacity in The Presidency to reduce red tape.
If we are to make progress in cutting unnecessary bureaucratic delays for businesses, we need dedicated capacity with the means to make changes.
I have therefore appointed Mr Sipho Nkosi to head up a team in my office to cut red tape across government.
Mr Nkosi has extensive experience in business, including as the CEO of Exxaro Resources, and is currently the chairperson of the Small Business Institute.
The red tape team will identify priority reforms for the year ahead, including mechanisms to ensure government departments pay suppliers within the required 30 days.
The team will also work with other departments and agencies to unblock specific obstacles to investment and business growth. It will support current initiatives to simplify processes relating to property registration, cross-border trade and construction permits.
Infrastructure is central to our economic reconstruction and recovery.
Through innovative funding and improved technical capabilities, we have prioritised infrastructure projects to support economic growth and better livelihoods, especially in energy, roads and water management.
The Infrastructure Fund is at the centre of this effort, with a R100 billion allocation from the fiscus over 10 years.
The fund is now working with state entities to prepare a pipeline of projects with an investment value of approximately R96 billion in student accommodation, social housing, telecommunications, water and sanitation and transport.
Several catalytic projects to the value of R21 billion are expected to start construction this year. Of this, R2.6 billion is contributed by government and the balance from the private sector and developmental finance institutions.
Government will make an initial investment of R1.8 billion in bulk infrastructure, which will unlock seven private sector projects to the value of R133 billion.
For millions of South Africans in rural areas, roads and bridges provide access to markets, employment opportunities and social services.
Yet, many children still have to brave overflowing rivers to reach schools and motorists have to battle impassable roads to reach the next town.
We are therefore upscaling the Welisizwe Rural Bridges Programme to deliver 95 bridges a year from the current 14.
Our South African National Defence Force (SANDF) is the implementing agent of the Welisizwe programme, and has demonstrated the expertise of SANDF engineers in bridge construction.
Earlier this week, I was in Thakgalane village Limpopo to launch a new road that is going to make a huge difference in the lives of neighbouring communities. This road was constructed using block paving and other materials, which is a method that enables us to build durable roads faster and more cost-effectively.
The rural roads programme will use labour intensive methods to construct or upgrade 685 kilometres of rural road over the next three years. This social enterprise programme includes access roads in Limpopo and Eastern Cape, gravel to surface upgrades in the Free State and North West, and capacity and connectivity improvements in the Western Cape.
Government has initiated the process of delivering the uMzimvubu Water Project.
The project is made of the Ntabelanga Dam and Lalini Dam, irrigation infrastructure and hydo-electric plant, Ntabelanga water treatment works and bulk distribution infrastructure to reticulate to the neighboring communities.
The closing date for the first of the two-stage procurement process is scheduled to close later this month, with the preferred bidder likely to be announced in September 2022.
Government is introducing an innovative social infrastructure delivery mechanism to address issues that afflict the delivery of school infrastructure.
The mechanism will address the speed, financing and funding, quality of delivery, mass employment and maintenance.
The new delivery mechanism will introduce a Special Purpose Vehicle, working with prominent Development Finance Institutions and the private sector, to deliver school education infrastructure.
This approach is being piloted in schools in the Northern Cape and Eastern Cape.
Over the past year, government has built on its successful Hydrogen SA strategy to make major strides in positioning South Africa as a global leader in this new market.
This includes the development of a Hydrogen Society Roadmap for the next 10 years as well as a Green Hydrogen Strategy for the Northern Cape, supporting the development of a green hydrogen pipeline worth around R270 billion.
The damage caused by the theft of scrap metal and cable on our infrastructure like electricity, trains and other vital services is enormous. We will take decisive steps this year both through improved law enforcement and by considering further measures to address the sale or export of such scrap metal.
An important pillar of our ERRP is to revitalise our manufacturing base and create globally competitive export industries.
In the past year, we launched new master plans in the steel industry, furniture and global business services.
Through these plans, business, government and labour are working together to increase production and create more jobs in the sector.
In the clothing industry, a number of retailers have announced ambitious localisation sourcing plans.
One of these retailers, Foschini, kindly made the suit that I am wearing today at its new formal wear factory, Prestige Epping.
Five years ago, more than 80% of all Foschini Group merchandise came from the East. Today, nearly half of the merchandise is locally made.
The genuine leather shoes I am wearing were made by members of the National Union of Leather and Allied Workers from Bolton Footwear in Cape Town and Dick Whittington Shoes in Pietermaritzburg.
Nearly four years ago, we set ourselves a target of mobilising R1.2 trillion in new investment over five years.
By the time of the third South Africa Investment Conference in November 2020, we had reached R776 billion in investment commitments.
Next month, on the 24th of March, we will be holding the fourth South Africa Investment Conference in Johannesburg.
We will showcase the many investment opportunities available as South Africa continues its recovery from the Covid-19 pandemic, and report back on the progress of previous commitments.
Following the resolutions of the African Union Summit over the past weekend, trading can now begin under the African Continental Free Trade Area agreement
South African companies are poised to play a key role in taking up the opportunities that this presents for preferential access to other African markets.
The Free Trade agreement is about Africa taking charge of its destiny and growing its economies faster.
We will continue to pursue Africa’s health sovereignty, working with other African countries and international partners to support the strengthening of the continent’s capacity to respond to pandemics.
We will increase our efforts to develop Africa’s ability to manufacture vaccines.
We have made significant progress here in South Africa.
We now have two South African companies – Aspen and Biovac – with contracts to produce Covid-19 vaccines. Two additional vaccine projects have also been announced.
In addition, we have full local production capability for ventilators, hand sanitisers, medical-grade face masks and gloves and therapeutic drugs and anaesthetics.
This production capability worth many billions of rand of production annually, has been put in place in less than two years.
South African products have been exported to other African countries, securing them vital supplies and expanding jobs for young South Africans.
While we help existing industries to grow, we are also nurturing new opportunities for growth and jobs.
Government and the private sector have worked closely together to grow the global business services sector from a small group of companies to one of the world’s leading players.
The global business services sector is on track to create 500 000 new jobs over the next few years.
The hemp and cannabis sector has the potential to create more than 130 000 new jobs.
We are therefore streamlining the regulatory processes so that the hemp and cannabis sector can thrive like it is in other countries such as Lesotho.
Our people in the Eastern Cape, KwaZulu-Natal and elsewhere are ready to farm with this age-old commodity and bring it to market in new and innovative forms.
The social economy, including early childhood development, nursing, social work and community services, has significant potential not only to create jobs, but to provide vital services that communities need.
Some of the country’s mature industries also have a lot to offer in revamping the industrial and manufacturing potential of our country.
The agriculture sector has significant potential for job creation in crops such as citrus, table and dried grapes, subtropical fruit, avocadoes, berries and nuts.
Masterplans in the sugar and poultry industries are contributing significantly to increased investment, improved production and transformation.
To attract investors into the mining minerals needed in the new global economy, we will soon be finalising our mining exploration strategy.
We will continue to support the development of the upstream gas industry, as it holds huge potential for job creation and broader economic development.
We will ensure that this is done in strict accordance with the environmental and other laws of our country, and that where there are differences, we work together to resolve them in the interest of our country and its people.
We live in one of the regions of the world that is most affected by climate change.
We frequently experience droughts, floods and other extreme weather events associated with global warming. Recently floods have affected a number of provinces, including KwaZulu-Natal, Gauteng and the Eastern Cape.
These have already caused enormous damage to infrastructure and livelihoods.
In the last year, we have made important strides in the fight against climate change, and, at the same time, securing our economic competitiveness.
For the first time, our climate targets are compatible with limiting warming to 1.5°C.
This is the goal that all countries agreed to as part of the Paris Climate Agreement, and is essential to prevent the worst effects of climate change.
Since I established the Presidential Climate Commission a little more than a year ago, it has done much work to support a just transition to a sustainable, inclusive, resilient and low-carbon economy.
At the international climate conference in Glasgow last November, South Africa struck a historic R131 billion deal with the European Union, France, Germany, United Kingdom and the United States.
This first-of-its-kind partnership will involve repurposing and repowering some of the coal plants that are reaching the end of their lives, and creating new livelihoods for workers and communities most impacted by this change.
To ensure that South Africa is able to derive the full benefit of this and other partnerships, I have appointed Mr Daniel Mminele, a former Deputy Governor of the Reserve Bank, as Head of the Presidential Climate Finance Task Team to lead the mobilisation of funds for our just transition.
Properly managed, the energy transition will benefit all.
Renewable energy production will make electricity cheaper and more dependable, and will allow our industries to remain globally competitive.
Investments in electric vehicles and hydrogen will equip South Africa to meet the global clean energy future.
We will be able to expand our mining industry in strategic minerals that are crucial for clean energy, like platinum, vanadium, cobalt, copper, manganese and lithium.
We also have a unique opportunity in green hydrogen, given our world-class solar and wind resources and local technology and expertise.
All of these measures – from structural reforms to support for SMMEs, investments in infrastructure and the emergence of new sectors – will drive a turnaround in economic growth driven by the private sector growth over the coming years.
We know, however, that even with the best business environment and much faster rates of economic growth, it will take time for the private sector to create enough jobs for the millions of South Africans who need them.
Our intent is to leave no one behind.
That is why we are expanding public and social employment.
The first two phases of the Presidential Employment Stimulus programmes, which we launched in October 2020 have supported over 850 000 opportunities.
More than 80 per cent of participants were young people, and over 60% were women.
It has supported young women like Tracy Nkosi from Springs, who was employed as an education assistant at Welgedag Primary School, and who says this opportunity has motivated her to further her studies in the educational sphere.
It has also supported Mama Nosipho Cekwana from Impendle in KwaZulu-Natal who used her farming input voucher to buy maize, manure and supplements for her livestock.
The total number of direct beneficiaries will soon rise to over one million South Africans.
This includes over half a million young people appointed as education assistants, making it the largest youth employment programme ever undertaken in our history.
The employment stimulus will also enable the Department of Home Affairs to recruit 10 000 unemployed young people for the digitisation of paper records, enhancing their skills and contributing to the modernisation of citizen services.
The Social Employment Fund will create a further 50 000 work opportunities using the capability of organisations beyond government, in areas such as urban agriculture, early childhood development, public art and tackling gender-based violence.
In addition to expanding public employment, we are providing support to young people to prepare them for work and link them to opportunities.
To encourage hiring by smaller businesses, we will be increasing the value and expanding the criteria for participation in the Employment Tax Incentive.
For several years, this has been an effective way to encourage companies to hire new work seekers. The changes to the incentive will make it easier for small businesses in particular to hire young people.
The Minister of Finance will announce the details of these changes in the budget.
We call on companies to support this effort, take up the incentive and give young people a place in the world of work.
The SAYouth.mobi platform for young work seekers to access opportunities and support now has more than 2.3 million young South Africans registered.
Of these over 600 000 have been placed into employment opportunities.
A revitalised National Youth Service will recruit its first cohort of 50 000 young people during the next year, creating opportunities for young people to contribute to their communities, develop their skills and grow their employability.
The Department of Higher Education and Training will place 10,000 unemployed TVET graduates in workplaces from April 2022.
In preparing this SoNA, I was assisted by two young South Africans who are working as interns in The Presidency, Ms Naledi Malatji and Ms Kearabetswe Mabatle.
They told me about the pain felt by young people who find themselves with a qualification, but are unemployed because of lack of experience.
This forces many into jobs that have little or nothing to do with what they studied.
All of the measures I have outlined are essential to provide young people with the work experience that they need to take their first step into the labour market.
We are calling on the private sector to support these measures – and, wherever possible, to drop experience as a hiring requirement – to give as many young people as possible their first job.
As we work to grow the economy and create jobs, we will expand support to poor families to ensure that no person in this country has to endure the pain and indignity of hunger.
Our social protection system is among the greatest achievements of the democratic government, reaching more than 18 million people every month.
Without this support, millions more people would live in dire poverty.
Since the onset of Covid-19, the Social Relief of Distress Grant has provided support to more than 10 million unemployed people who were most vulnerable to the impact of the pandemic.
Some people used that money to start businesses.
Mr Thando Makhubu from Soweto received the R350 grant for seven months last year, and saved it to open an ice-cream store that now employs four people.
Mr Lindokuhle Msomi, an unemployed TV producer from KwaMashu Hostel, saved the R350 grant he received for nine months to start a fast food stall and to support his family.
As much as it has had a substantial impact, we must recognise that we face extreme fiscal constraints.
A fiscal crisis would hurt the poor worst of all through the deterioration of the basic services on which they rely.
Mindful of the proven benefits of the grant, we will extend the R350 grant for one further year, to the end of March 2023.
During this time, we will engage in broad consultations and detailed technical work to identify the best options to replace this grant.
Any future support must pass the test of affordability, and must not come at the expense of basic services or at the risk of unsustainable spending.
It remains our ambition to establish a minimum level of support for those in greatest need.
Expanding access to land is vital for our efforts to reduce hunger and provide people with meaningful livelihoods.
We are moving ahead with land reform in terms of the Constitution, and anticipate the approval of the Expropriation Bill during this year.
The establishment of the Agriculture and Land Reform Development Agency will be finalised this year.
The Department of Public Works and Infrastructure will finalise the transfer of 14 000 hectares of state land to the Housing Development Agency.
We have enough arable land to support millions of thriving small-scale farmers in poultry, livestock, fruit and vegetables.
Through the Presidential Employment Stimulus and the Solidarity Fund, over 100 000 farmers have already received input vouchers to expand their production.
This scheme has proven to be effective and impactful.
The agriculture sector has also recognised the importance of supporting small-scale farmers and integrating them into value chains.
Through the sugar master plan, the industry has provided R225 million to over 12 000 small-scale sugar cane growers as part of a R1 billion commitment to support black farmers.
We will be expanding the provision of input vouchers and calling on other sectors to join this effort, so that we can collectively reach up to 250 000 small-scale farmers this year.
None of our efforts to revive our economy will succeed if we do not tackle the scourge of corruption once and for all.
Since the beginning of the year, I have been provided with the first two parts of the report of the Commission of Inquiry into State Capture headed by Acting Chief Justice Raymond Zondo.
While the definitive conclusion has yet to be delivered at the end of this month, the first two parts of the report make it plain that there was indeed ‘state capture’.
This means that public institutions and state-owned enterprises (SOEs) were infiltrated by a criminal network intent on looting public money for private gain.
The reports have detailed the devastating effects of this criminal activity on South African Airways, Transnet, Denel, South African Revenue Service (SARS) and Government Communications.
State capture had a direct and very concrete negative impact on the lives of all South Africans, but especially the poorest and most vulnerable members of our society.
It has weakened the ability of the State to deliver services and to meet the expectations and constitutional rights of people.
We must now do everything in our power to ensure that it never happens again.
My responsibility is to ensure that the commission report is properly and carefully considered and then acted upon.
By no later than 30 June, I will present a plan of action in response to the commission’s recommendations.
We will, as the commission’s first report recommends, strengthen the system to protect whistle-blowers, who are a vital safeguard in the fight against corruption and who take huge personal risk in reporting wrongdoing.
We are doing a detailed review of all applicable legislation and a comparative study of other jurisdictions to strengthen whistle-blower protection.
The relevant law enforcement agencies are taking the necessary steps to address the immediate concern about the safety of whistle blowers.
Many individuals and companies that the commission has found were responsible for state capture must now be held to account.
I have every confidence that the National Prosecuting Authority (NPA) will carry out the further investigations that the commission has recommended, and that it will bring the members of the criminal network that infiltrated government and captured the State swiftly to justice.
The Investigating Directorate in the NPA is now poised to deliver on its crucial mandate, and a dedicated team has been established to pursue these cases.
We will be appointing a new head of the Investigating Directorate following the departure of Adv Hermione Cronje from that position.
An amendment to the State Capture Commission regulations in June 2020, empowered the sharing of information between the Commission and law enforcement agencies.
This amendment also permitted the employment of the State Capture Commission personnel by law enforcement agencies.
These empowering provisions has geared the Investigating Directorate to more effectively pursue the investigations emanating from the commission.
We have gratefully acknowledged the offer of support from the private sector to assist in providing those skills which we lack in government to enable investigation and prosecution of crime.
To ensure that the prosecuting authority remains true to its constitutional obligation and to ensure transparency, we are developing a framework for private sector cooperation that will be managed through National Treasury.
There are also discussions underway with the Judiciary for the creation of special court rolls for state capture and corruption cases.
While we have taken decisive steps to end the era of state capture, we know that the fight against corruption is far from over.
Even as the country was suffering the devastation of the Covid-19 pandemic, companies and individuals were conspiring with public officials to defraud the government of billions of rand in Covid-related contracts.
As soon as evidence emerged of this corruption we acted.
We withdrew certain emergency procurement regulations, set up a fusion centre that brought together various law enforcement agencies, published the details of all COVID-related contracts online and instituted the most extensive investigation that the Special Investigating Unit (SIU) has undertaken since its formation.
In December, the SIU submitted its final report on its investigation into COVID-related contracts.
As a result, 45 matters, with a combined value of R2.1 billion, have been enrolled with the Special Tribunal.
The SIU has referred 224 government officials for disciplinary action and referred 386 cases for possible prosecution to the NPA.
The Presidency has set up mechanisms to monitor implementation of the recommendations of the SIU and ensure that government departments and entities act against those who have violated regulations and broken the law.
The fight against corruption will take on a new intensity thanks to the outcomes of the State Capture Commission, the strengthening of law enforcement agencies and the implementation of new anti-corruption practices in the public service.
SOEs play a vital role in our economy.
From water and roads, to energy and ports, to defence and aviation, these strategic assets are necessary to keep our country running.
It is essential that we reverse their decline, and position them to contribute positively.
We have therefore embarked on several immediate measures to restore these companies to health, at the same time as we undertake far-reaching reforms that will make our SOEs more efficient, competitive, accountable and sustainable.
The Presidential SOE Council, which I appointed in 2020, has recommended that government adopt a centralised shareholder model for its key commercial state-owned companies. This would separate the State’s ownership functions from its policy-making and regulatory functions, minimise the scope for political interference, introduce greater professionalism and manage state assets in a way that protects shareholder value.
As part of this, preparatory work has begun for the establishment of a state-owned holding company to house strategic SOEs and to exercise coordinated shareholder oversight.
To ensure that SOEs are effectively fulfilling their responsibilities, the Presidential SOE Council is preparing recommendations on SOEs to be retained, consolidated or disposed of.
Any recommendations would be subject to extensive consultation with all stakeholders.
We are taking steps to safeguard our democracy, protect our economic infrastructure and build safer communities for all.
Earlier this week, we released the report of the expert panel into the civil unrest in July last year.
The report paints a deeply disturbing picture of the capabilities of our security services and the structures that exist to coordinate their work.
The report concludes that government’s initial handling of the July 2021 events was inept, police operational planning was poor, there was poor coordination between the state security and intelligence services, and police are not always embedded in the communities they serve.
The expert panel said that if the violence has exposed anything it was the poverty and inequality that is the root cause of the desperation of the people of South Africa.
The expert panel found that Cabinet must take overall responsibility for the events of July 2021.
This is a responsibility that we acknowledge and accept.
We will, as recommended by the panel, develop and drive a national response plan to address the weaknesses that the panel has identified.
We will begin immediately by filling critical vacancies and addressing positions affected by suspensions in the State Security Agency and Crime Intelligence.
We will soon be announcing leadership changes in a number of security agencies to strengthen our security structures.
The staffing of the public order policing unit of the South African Police Service will be brought to an appropriate level, with appropriate training courses in place.
The ongoing damage to and theft of economic infrastructure has damaged confidence and severely constrained economic growth, investment and job creation.
At the same time, we need to confront the criminal gangs that invade construction sites and other business places to extort money from companies.
This requires a focused and coordinated response.
Government has therefore established specialise multi-disciplinary units to address economic sabotage, extortion at construction sites and vandalism of infrastructure.
We will make resources available to recruit and train an additional 12 000 new police personnel to ensure that the South African Police Service urgently gets the capacity it needs.
Another area of immediate attention will be the re-establishment of community policing forums to improve relations and coordination between local police and residents of the areas they serve.
It is clear from the observations of the expert panel that we need to take a more inclusive approach to assessing the threats to our country’s security and determining the necessary responses.
I am calling on all South Africans through their various formations to participate in developing our National Security Strategy.
I will be approaching Parliament’s presiding officers to request that Parliament plays a key role in facilitating inclusive processes of consultation.
The security services have been tasked by the National Security Council to urgently develop implementation plans that address the range of recommendations made by the expert panel.
These measures will go a long way to address the serious concerns about the breakdown of law and order in society.
This year, we are intensifying the fight against gender-based violence and femicide through implementation of the National Strategic Plan on Gender-Based Violence and Femicide, and other measures to promote the empowerment of women.
Earlier this month, I signed into law three new pieces of legislation, which has strengthened the criminal justice system, promoting accountability across the State and supporting survivors.
The implementation of this legislation will go a long way to ensuring that cases are successfully prosecuted, that survivors are protected and that there are more effective deterrents in place.
We have made significant progress in reducing the backlog in DNA processing, reducing it from 210 000 exhibits in April 2021 to around 58 000 at present.
However, the fight against gender-based violence will never be won unless, as society, we mobilise all formations and all citizens behind a sustained programme of social action.
As the Covid-19 pandemic has starkly demonstrated, a nation’s health is inextricably linked with its economic progress and social development.
We will therefore continue with the work underway to ensure universal health coverage for everyone in South Africa, regardless of their ability to pay.
While public hearings on the National Health (NHI) Bill are continuing in Parliament, much progress is being made in preparing for the introduction of NHI.
More than 59 million people are registered in the Health Patient Registration System.
By September 2021, more than 56 000 additional health workers had been recruited and more than 46 000 community health workers integrated into the public health system.
For the last two years, the education of our children and young people has been severely disrupted.
As we return to normal educational activity, we will work harder to ensure that all learners and students get the quality education they need and deserve.
Fellow South Africans,
Government must work for the people.
That is why our foremost priority is to build a capable, ethical and developmental state.
We will soon be finalising a framework for the professionalisation of the public service.
This will include tighter measures for recruitment of public servants, continuous professional development through the National School of Government and partnerships between state bodies, professional associations and universities.
Lifestyle audits are already being implemented across the Public Service.
This year, we will continue with the implementation of the DDM.
This model brings all three spheres of government together with other social partners in every district to grow inclusive local economies and improve the lives of citizens.
In particular, the DDM facilitates integrated planning and budgeting across spheres of government and improves integration of national projects at a district level.
While there are many parts of the state that require much work, there are institutions that continue to serve the people of this country effectively and efficiently.
One such institution is the SARS, which will be 25 years old this year.
While SARS was badly damaged by state capture, it has made remarkable progress in restoring its integrity, credibility and performance.
Since its formation, SARS has collected some R16 trillion for the country’s social and economic development. This revenue has enabled government to improve the lives of millions through the provision of healthcare, education, social grants and other basic services.
A capable state is not only about the quality of public servants and the efficiency of institutions.
It is also, fundamentally, about how citizens are empowered to participate.
We must work together to ensure that platforms like schools governing bodies and community policing forums are more active and inclusive.
A vibrant civil society is crucial for a capable state and for development.
We will therefore be working with social partners to convene the long-awaited social sector summit.
This summit will seek to improve the interface between the state and civil society and address the challenges that non-governmental organisations and community-based organisations face.
Our country has suffered several damaging blows in recent times.
A confluence of forces, many of them outside of our control, has brought us to where we are now.
We face steep and daunting challenges.
Indeed, we are engaged in a battle for the soul of this country.
But there can be no doubt that we will win.
I ask every South African to rally together in our fight against corruption, in our fight to create jobs, in our fight to achieve a more just and equal society.
We have faced many crises in our past, and we have overcome them.
We have been confronted with difficult choices, and we have made them.
In trying times, we have shown courage and resilience
Time and time again, we have pulled ourselves back from the brink of despair and inspired hope, renewal and progress.
Now, we must do so again.
Let us forge a new consensus to confront a new reality, a consensus that unites us behind our shared determination to reform our economy and rebuild our institutions.
Let us get to work.
Let us rebuild our country.View more
How To Put It Back Together Again
Humpty Dumpty sat on a wall,
Humpty Dumpty had a great fall.
Four-score Men and Four-score more,
Could not make Humpty Dumpty where he was before
Samuel Arnold Juveline Amusements, 1797[i]
BY LLEWELLYN VAN WYK, B. ARCH; MSC. (APPLIED), URBAN ANALYST
Humpty Dumpty is a character in an English nursery rhyme, probably originally a riddle and one of the best known in the English-speaking world. He is typically portrayed as an anthropomorphic egg, though he is not explicitly described as such. Its origins are obscure, and several theories have been advanced to suggest original meanings. I thought it particularly appropriate to describe the following article – what are the impacts on the global economy and how does it recover.
Impact and Response
Many commentators and economists are focusing on how governments go about rebuilding their national and city economies once the world has passed through what Christopher Joye calls the Global Virus Crisis (GVC).[ii] According to The Economist, policy response has generally been swift and decisive.[iii] Globally central banks have cut interest rates since January 2020 and have launched new and substantial quantitative-easing schemes (creating money to buy bonds) while politicians are opening the fiscal taps to support the economy.
In the US, America’s Congress passed a bill that boosts spending by twice as much as President Barack Obama’s package in 2009. Britain, France, and other countries have made credit guarantees worth as much as 15% of GDP, seeking to prevent a cascade of defaults. On the most conservative measure, the global stimulus from government spending this year will exceed 2% of global GDP, a much bigger push than was seen in 2007-09. Even Germany, whose fiscal rectitude is a cultural cliché, is spending more.[iv]
The analysts at The Economist caution though that to focus just on the quantitative changes misses something crucial, which is that there are important qualitative changes underway in how policymakers manage the economy—the responsibilities they have assumed for themselves, what is seen as a legitimate action, and what is not, and the criteria used to judge policy success or failure. On these measures, the analysts note, the world is in the early stages of a ‘revolution in economic policymaking’.
Central banks have in effect pledged to print as much money as necessary to keep down government-borrowing costs. The European Central Bank is promising to buy everything that governments might issue thereby reducing the gap in borrowing costs between weaker and stronger euro-zone members, which widened in the early days of the pandemic.
The analysts note that politicians, too, are ripping up the rulebook. In past recessions, enterprises could go bankrupt and people, too, become unemployed. Even in normal economic times, roughly 8% of businesses in OECD countries go under each year, while 10% or so of the workforce lose a job. Now governments hope to stop this from happening entirely. President Emmanuel Macron reflects the view of many when he vows that no firm will “face the risk of bankruptcy” because of the pandemic.
Boris Johnson, Britain’s prime minister, contrasts his government’s response with the one during the last financial crisis: “Everybody said we bailed out the banks and we didn’t look after the people who really suffered”. Larry Kudlow, the director of America’s National Economic Council, calls America’s fiscal stimulus “the single largest Main Street assistance programme in the history of the United States,” comparing it favourably with Wall Street bailouts a decade ago.
To that end the analysts note that governments across the rich world are channelling vast sums to firms, providing them with grants and cheap loans to preserve jobs and keep their doors open. In some cases, the government is paying the wages of people who cannot work safely: the EU has embraced this policy, while the British state will pay up to 80% of the wages of furloughed workers. The American package includes loans to small businesses that will be forgiven if workers are not laid off. Households across the rich world are being given temporary relief on mortgages, other debts, rent and utility bills. In America, people will also be sent cheques worth up to $1 200.
Most economists support these measures. Nominally they are temporary, designed to hold the economy in an induced coma until the pandemic passes, at which point the world is supposed to revert to the status quo ante. But history suggests that a return to pre-Covid-19 days is unlikely.
Two lessons stand out:
1. Governmental control over the economy takes a large step-up during periods of crisis.
2. The forces encouraging governments to retain and expand economic control are stronger than the forces encouraging them to relinquish it, meaning that a “temporary” expansion of state power tends to become permanent.5
Road to Recovery
The extent of the economic damage and the time it will take for the economy to recover is subject to a high degree of speculation, and new models have been created to project a recovery trajectory. For example, the recovery can be V-shaped (after the downward fall the recovery will follow a straight line back to the original growth trajectory); U-shaped recovery (like V-shaped but with a longer turnaround period); VU shaped recovery (an initial pop, or sugar hit (the V), which is then superseded by a second, much slower growth phase (the U) due to a huge increase in debt repayment burdens and big creative destruction-induced output gaps (or excess productive capacity) as the virus forces the global economy to effectively rewire itself); Z-shaped (recovery follows the V-shaped trajectory but overshoots the original trajectory due to pent-up demand before falling back to the original trajectory); W-shaped (recovery begins buts fall back before climbing back up again); and L-shaped (growth recovers but ends up lower than that of the pre-C-19 economic growth).
In a survey of 106 economists and real estate experts conducted by Pulsenomics and Zillow, 41% of panellists expect the US recovery to follow a “U” shape, with the recession lasting several quarters before returning to growth.[vi] This prediction is in line with how the experts expect the US economy to recover overall. Forty-one percent said they think the economic recovery will follow a “U” shape, and 33% say it will be a bumpy, multi-year return to trend growth. Both patterns are characterised first by a sharp decline and then match how experts see transaction volume recovering, with the consensus generally being a more gradual journey back to normal.
Whatever the final shape may turn out to be, Eswar Prasad and Ethan Wu, writing for the Brookings Institution, warns, “The world economy is on the precipice of its worst crisis since World War II. As the newly updated Brookings-FT TIGER (Tracking Indexes for the Global Economic Recovery) makes clear, economic activity, financial markets, and private-sector confidence are all cratering. And if international cooperation remains at its current level, a far more severe collapse is yet to come.”[vii]
A wide variety of economic and survey data suggest that the economy will recover slowly even after the government begins to ease limits on public gatherings and allow certain shuttered restaurants and shops to reopen. Many economists and business owners say there will be no rapid economic rebound until people feel confident that their risks of contracting the coronavirus have fallen, either through widespread testing or a vaccine.[viii]
Prasad and Wu argue that while the current extraordinarily sharp downturn could prove to be relatively brief, with economic activity snapping back to previous levels once the Covid-19 contagion curve is flattened, there is good reason to worry that the world economy is heading into a deep, protracted recession. In their view, much will depend on the pandemic’s trajectory and whether policymakers’ responses are sufficient to contain the damage while rebuilding consumer and business confidence. They do not believe that a rapid recovery is likely due to ravaged demand, extensive disruptions to manufacturing supply chains, and a financial crisis already underway.
They, like many other commentators, draw a distinction between the 2008-09 crash, and Covid-19. Unlike the 2008-09 crash, which was triggered by liquidity shortages in financial markets, they point out that the Covid-19 crisis involves fundamental solvency issues for firms and industries well beyond the financial sector. In addition, they note, the current shock is simultaneous and universal. During and immediately following the 2008 crisis, some emerging markets, not least China, and India, continued to register strong growth, pulling the rest of the world economy along. But this time, no economy is immune, and no country will be able to lead an export-driven recovery.
Today’s collapse has increased deflationary and financial risks in the advanced economies and struck a significant blow to commodity exporters.
On top of it all, oil prices are plunging even more than they otherwise would, due in large part to Saudi Arabia and Russia flooding the market. In their view all told, the economic and financial carnage wrought by the coronavirus could leave deep, lasting scars on the global economy. While they recognise that central banks are stepping up to the challenge, they point out that central banks cannot offset the fall in consumer demand or stimulate investment by themselves. With both conventional and unconventional monetary-policy tools already stretched to the limit, fiscal policymakers will have to do more.
They suggest that well-targeted fiscal measures can soften the blow to consumers and businesses—especially small and medium-sized enterprises, which typically have minimal financial buffers—thereby helping to sustain employment and demand. In these desperate times, such measures should be fully embraced by all governments that currently benefit from low borrowing costs, even if they already have high levels of public debt.
They also emphasise that low- and middle-income countries that have inadequate health systems will need substantial support from the international community, potentially including concessionary debt relief.
But there is an elephant in the room: unfortunately, the world’s inability so far to forge a common front attests to the erosion of international cooperation, which is further damaging business and consumer confidence. They too, like many other commentators, call for this to change.
The world urgently needs honest and transparent information-sharing by national leaders, coupled with aggressive steps to contain the pandemic, extensive stimulus to mitigate the economic fallout, and a carefully calibrated strategy to restart economic activity as soon as it is safe to do so.
Christopher Joye agrees with the sentiments expressed by Prasad and Wu. Joye sees the global economy being burdened by a great deal more public and private debt because of the enormous fiscal policy responses that will need to be serviced through tax revenue and corporate/household earnings. This he argues will drag on future global growth after the initial pop in activity as businesses restart and the working-age population gets back into their day jobs.
On the matter of whether this precipitates a sovereign debt crisis, he believes that ultimately the central banks can cauterise this problem by continuing to do what they are currently doing: i.e., funding their domestic treasuries by buying government bonds via quantitative easing (QE).
After all, he notes central banks were originally created to fund governments during times of war (that term again), and that is arguably where the world finds itself now in terms of response.
On the question of inflationary shock, he expects the deflationary impulse of the GVC via the huge sudden increase in labour supply to overwhelm the inflationary impulse of the crisis over the short-to-medium term (in the next year or two) noting that the near-term inflation pressures obviously come through supply-chain rigidities as labour is taken temporarily offline.
He foresees a key consequence of the GVC as compelling much greater internalisation of supply-chains, especially those that service critical infrastructure and security-sensitive goods and services. In terms of changes, it is suggested that the GVC will result in permanent economic damage akin to a form of creative destruction where the virus kills off weak companies as well as unproductive employees. This he suggests is because many businesses will come back looking different, shedding low-quality workers, and closing unprofitable activities/subsidiaries.
Some industries will be permanently changed in both positive and negative ways, for example, entire communities are being forced to get much more comfortable with online shopping and the associated delivery process, reducing at the margin the demand for traditional retailing.
The cinema industry will be irreversibly damaged as consumption shifts away from theatres to on-demand digital platforms like Apple and Netflix, which will, in turn, allow these distributors to capture more of the value-chain in the same way Amazon did with bricks and mortar retailing. The commercial property sector is also likely to feel this change as there is a possibility of a permanent decrease in the demand for both office and retail space. Many companies may conclude they can save overhead by remaining disaggregated (not renting office space). This will result in a decline in the value of commercial properties, and the risk associated with commercial property debt could increase sharply.
Commercial property lenders’ LVRs might suddenly jump because of this. Indeed, he argues that a lot of distress in commercial property debt portfolios can be expected over the next 12 months.
The embedding of Zoom, or cheap video conference technology may dissipate the value of face-to-face meetings and result in a permanent decrease in the demand for expensive business-related travel and accommodation, adversely impacting airlines and hotels, as companies seek to enhance their operating efficiencies.
All this creative destruction could result in unemployment rates not returning any time soon to their pre-GVC levels which will, in turn, place downward pressure on wages. Ultimately, he concludes that this will result in a battle between the shock of the new – a virus that derails life as we knew it – and the opportunities presented by the gigantic stimulus afforded by fiscal and monetary policy.[ix]
Some commentators are not as pessimistic: Paul Krugman, one of the world’s most influential economists and 2008 Nobel prize winner, is pretty upbeat about the economy. In a Q&A session with Noah Smith from Bloomberg, he suggests that even though this crisis is different from anything seen before, there is a rather good handle on the economics. In particular, he argues, enough is known to understand why conventional responses like stimulus or tax cuts are inappropriate, and why we should be focusing on safety-net issues.
On the issue of duration, Krugman argues that data would suggest a fast recovery once the virus is contained. But he provides some big caveats. One is that the duration of the pandemic is not known: if countries open too soon, it will extend the period of economic weakness. The second is that even if there were not big imbalances before, the slump may be creating them now. Business closures will require time to reverse. He also wonders how much long-term change will be experienced because of the virus. If there is a permanent shift to more telecommuting and less in-person retail, then there will be a shift of workers to new sectors, which will take time. All that said, he does not see the case for a multi-year depression.[x]
Analysts at The Economist believe that some economies will suffer much more than others because economic crises expose and exacerbate underlying structural weaknesses.
They argue that three factors should help separate the bad economic outcomes from the dire ones:
1. a country’s industrial structure; the composition of its corporate sector; and the effectiveness of its fiscal stimulus. Regarding the first, those countries that depend on labour-intensive activities will be harder hit. This includes countries reliant on their construction and tourism sectors. Conversely, those industrial structures that enable more people to work from home should not be hit as hard.
2. Economies with a large share of small firms are likely to be hit harder because smaller enterprises tend to have few if any cash buffers, making it difficult for them to survive a drop in revenues.
3. The ability of the country to roll out large stimulus packages. Some countries have provided significant packages while others, especially those with high debt levels, are more constrained. The design of the stimulus also plays a part: some countries are providing support directly to households while others are subsidising wages.
Post-C19 Economic Structural Reforms
Analysts do not generally support government pledges to protect jobs as it prevents workers from moving from failing sectors to new emerging ones, thereby slowing the recovery. If the lockdown ends early some economies will be able to resume production quickly.[xi]
A huge question remains however: what will be the lasting effects of Covid-19? Every day, in ways small and large, the spread of the coronavirus is reshaping politics.John Cassidy, in a piece in Bloomberg.
As the death toll rises and the economic fallout spreads, he argues that measures once considered unthinkable are being adopted, and not just in the public-health sphere.
Analysts from The Economist believe that the size of the state will alter. In the short term, they foresee government debt rising sharply as spending jumps and tax revenues collapse. Thereafter, government attention will turn to repaying the debt.
They also see central banks’ innovations having lasting consequences. They, as do many other economists, do not see inflation rising any time soon, but do have a concern about deflation especially as central banks are pressured into lowering interest rates to zero to support government borrowing.
Then they see the possibility that this novel idea that the government needs to preserve firms, jobs, and workers’ incomes at practically any cost may become embedded in government, especially if the intervention proves successful in narrow terms. Although the policy may formally end once the pandemic has passed, political pressure for similar support schemes—from the nationalisation of tottering firms to the provision of a universal basic income—may well be higher the next time a sharp downturn comes along. If politicians can preserve jobs and incomes during this crisis, many people will see little reason why they should not try again in the next one.
In the same vein, they see calls for a more activist fiscal-monetary government coming against a backdrop of structurally higher demand for state spending. The public sector tends to provide labour-intensive services in which productivity improvements are difficult, such as healthcare and education, yet it must match the salaries of workers in other sectors to retain its own, even as they become less productive relative to the overall economy—a phenomenon which raises the cost of provision. Governments focus on social support during C-19 might raise expectations that it is the new normal, especially in the health sector. In the US, net support for Medicare for All—those who support it minus those who oppose it—has risen by nine points.[xii]
In another significant development, the mass layoffs that have resulted from the pandemic have also laid bare the iniquities of the gig economy, in which Uber drivers and other online-platform workers, temp-agency workers, and a whole variety of freelancers do not have access to health insurance, sick leave, or unemployment insurance. During an appearance on CNBC, the investor James Chanos said he was selling short the stocks of gig-economy companies because their business model, which is based on classifying workers as self-employed to avoid giving them costly benefits, is likely to be challenged by both political parties.
The Economist’s analysts believe that the likely economic effects of the pandemic reach far beyond the role of the state. Countries could become even less welcoming to immigrants based on an argument that it will reduce any likelihood of infection from foreign arrivals.
Using the same logic, resistance to the development of dense urban centres could mount, thereby limiting the construction of new housing and rising costs. More countries may seek to become self-sufficient in the production of strategic commodities such as medicines, medical equipment, and even toilet paper, contributing to a further rollback of globalisation. However, they argue that the redefined role of the state could prove to be the most significant shift noting that the rules of the game have been moving in one direction for centuries.
Scholars from the Brookings Metropolitan Policy Program on the other hand believe that a major transformation is unlikely and point out instead that the Covid-19 crisis seems poised to accelerate or intensify many economic and metropolitan trends that were already underway, with huge implications of their own.[xiv]
One of those trends they foresee is automation. Mark Muro, one of the scholars, notes that while automation in the workplace has been spreading over the last decade, it will likely surge in the coming years because as firms’ revenues decline, workers become relatively more expensive. In this case, Covid-19 won’t so much change the automation trend as amplify it, increasing the vulnerability of young people, people of colour, and those with less education and further dislocating jobs in food service or cashiers as they become automated.
Another trend they ponder is whether the trauma of social distancing and the rise of telework will finally empty out the ‘superstar’ cities and lead to a decentralisation of the nation’s hyper centralised urban map. They believe this might happen.
Then there is the continuance of Big Tech itself: while it seems natural to assume that virtually every industry will be humbled by Covid-19, they think it is likely that the big tech titans—Amazon, Facebook, Google, Microsoft, Apple, Netflix, etc.—will emerge from the crisis stronger than ever.
These titans previously captured dominant market shares in the decade following the last recession and are likely to further capitalise as stay-at-home workers rely on their remote work tools, video calling, e-commerce, and video streaming. They point out that these giants are sitting on huge piles of cash and will be ready to snap up any choice tech or other properties that stumble.
Tracy Hadden Liu, another team member, argues that retailers, their landlords, and suppliers were already responding to multiple industry-wide trends before the coronavirus struck, including tariffs, a shift in consumer demand from products to experiences, e-commerce, and the sharing economy. The resulting strains that were already motivating these players to innovate or exit are simply accelerating the need to be creative and embrace new models to deal with the disruption arising from the pandemic.
In the property market, it is suggested that a 10-year commercial lease in a single-use building will no longer be standard: seasonal retailers were already experimenting outside of the big box, including markets and pop-ups in flexible spaces.
So were office tenants through WeWork and other co-working spaces. In addition to new formats and lease terms, profit-sharing leases will become an increasingly important tool to help new businesses get started, survive slowdowns, and provide a return to landlords who invest in their tenants’ success.
In the food sector, convergence and hybridisation will accelerate in food retail, which will return to be a revitalising force in urban life. Liu points out that IKEA was already a furniture showroom, warehouse, and restaurant. High-end grocers were encouraging shoppers to have a beer prior to the outbreak of the pandemic.
Restaurants were increasingly not just dine-in, but fast-casual or mobile food trucks. Whether through app-based delivery or prepared food from wholesalers’ people will return to eating much of their food prepared outside the home. In 2017, jobs in leisure and hospitality (which includes all bars and restaurants) grew to outnumber jobs in retail trade.
Liu believes that for commercial real estate and local governments, food retail will continue to grow in importance. Restaurants, in whatever format, will continue to be a growing share of tenants and sales tax generators as other storefronts are impacted by tariffs and e-commerce oligopolies. And the more people eat out, the more proximity to food retail will shape office and residential tenant demand, as well as home sales. Her summation: the pandemic is a setback, but not a reset.
Another pre-Covid trend raised is the housing crisis. Martha Ross and Jenny Schuetz, two members of the team, note that in the best of times—for example, when unemployment is below 4%— tens of millions of workers still earn barely enough to live on, meaning that basic costs like housing were already a stretch for these and other workers. More than 75% of low-wage workers are ‘housing-cost burdened,’ i.e., they spend more than 30% of their income on rent. The typical low-income renter household spends more than half of its income on rent.
In the Covid-19 era—with mass layoffs in hospitality, retail, and entertainment—earnings have simply disappeared for millions of workers and many households that previously strained to pay rent will now find it impossible.
People commonly reduce housing costs by “doubling-up” with family or moving into lower-quality housing. Given the thin financial reserves held by renter households, many people will be forced into one of these options. Notwithstanding a halt on evictions in some countries, stronger and more direct financial assistance will be required for households. While the housing affordability crisis predates the current health crisis, it will worsen in the short run if governments are slow to respond.
Inequality increases among older Americans is another trend identified by Annelies Goger and Nicole Bateman. They note that 40% of workers over age 62 earn low wages. Covid-19 is likely to have eroded savings across the board which means that many older workers may have to stay in their job out of necessity. It is possible that labour outcomes could worsen for older workers who lose their jobs in the sense that it will take much longer for them to find another job, and generally that will come with a pay cut too.
Covid-19 will accelerate yet another trend namely the declines in microbusiness employment. Microbusinesses with under four employees are only half as likely to add jobs as larger businesses already. Recent statistics demonstrate how microbusinesses have been on the losing end of long-run structural shifts in the US. The team estimates that about 2.9-million microbusinesses are in industries at immediate or near-term risk from Covid-19. How many of those microbusinesses survive will depend, they think, on the duration of social distancing measures and the success of countervailing policies. They do stress that without a robust policy response to not only mitigate small business damage in the immediate term but also support entrepreneurship more robustly in the recovery, the pandemic will accelerate the structural decline in microbusiness employment.
Humpty Dumpty Economies
At a more fundamental level, Kallis G., Paulson, S., D’Alisa, G., and Demaria, F. argue that the pandemic has laid bare the fragility of existing economic systems, and what will be required to become more resilient to crises – pandemic, climatic, financial, or political – is to build systems capable of scaling back production in ways that do not cause loss of livelihood or life: “We need degrowth” they suggest. Their argument is based on the observation that current economic systems are organised around the constant circulation, where any decline in market activity threatens systemic collapse, provoking generalised unemployment and impoverishment.
While they point to commentaries made by publications such as Forbes, the Financial Times and the Spectator who have been quick to claim that the pandemic has revealed the ‘misery of degrowth’, they argue that what is happening is not degrowth, but purposefully slowing things down in order to minimise harm to humans and earth systems and to reduce exploitation. In their view, degrowth is a project of living meaningfully, enjoying simple pleasures, communing, sharing, and relating more with others, and working less, in more equal societies.[xv]
New Green Deal
There is widespread support for the recovery spend to be used to simultaneously address the other elephant in the room – climate change. Many argue that the pandemic must not be a reason to weaken the commitments to net-zero emissions. In fact, the argument is made that climate action is vital protection against further global shocks, especially as governments plan their post-pandemic stimulus packages.
It will be tempting for some governments to overlook the climate change challenge in the rush to restart the economy. Anna Skarbek cautions that some governments are already eyeing the fossil fuel sector as a beneficiary of any post-Covid-19 stimulus. Not all governments have responded to a rising chorus of voices demanding a green economic recovery.
The International Monetary Fund has been tracking national stimulus and economic recovery plans. So far, only a handful of them directly targets climate change, the IMF reports. On the contrary, some spending is headed in the opposite direction through government fuel subsidies and other fossil fuel-friendly measures. The IMF’s Covid-19 recovery tracker notes a lot of global spending on electricity cost relief. Other measures the IMF has noted include fuel price discounts for aviation. Some governments are buying fuel for their fishing fleets, while others are extending economywide fuel subsidies instead of eliminating them as the United Nations’ top leadership has called for.[xvi] The energy minister in Australia is flagging gas-fired power to stimulate the economy.[xvii]
There is particular concern over how China will design an overall economic recovery plan. Following the global financial crisis of a decade ago, Beijing launched a massive round of infrastructure spending that saw its greenhouse gas emissions soar to new heights. China is now by far the world’s largest producer of heat-trapping emissions. In a recent study published in the journal Nature Sustainability, scholars in Malaysia and Australia expressed concern over China’s vaunted Belt and Road Initiative, noting that Beijing has already directed nearly $575-billion overseas in efforts often aligned against sustainability objectives. They see more to come and are urging receiving nations and financing arms to put restrictions on the funding to ensure greater protections for biodiversity and other “indicators of environmental governance,” according to the research team, led by University of Queensland professor Divya Narain.[xviii]
For many countries, the lockdown response to Covid-19 has presented a horrific binary choice: economy at the expense of climate change, or climate change at the expense of the economy.
The socio-economic devastation the virus has inflicted is a reminder of our systemic vulnerability, and the importance of prevention and mitigation. As Anna Skarbek stresses, Covid-19 provides fresh evidence of the scale of economic shock the world faces if it fails to meet the targets of the Paris Agreement.
In a major study published in Nature Communications last month the dollar value put on the cost of climate inaction was between US$150-trillion and US$792-rillion by 2100 making the global shock even more financially catastrophic than coronavirus.[xix]
Fortunately, there is a third way out of this binary choice: Don Hall posts that one of the most hopeful things he has stumbled across since this crisis began is A Green Stimulus to Rebuild Our Economy: An Open Letter and Call to Action for Members of Congress which was published by a team of 11 prominent academics, scientists, policy experts, and non-profit advocates. More than 1 800 individuals and organisations signed on within the first nine days of its release.
The overall approach of the Green Stimulus Letter is based on five main principles namely:
1) health as the top priority for everyone
2) providing economic relief to directly to people
3) rescue workers and communities, not corporate executives
4) make a down payment on a regenerative economy while preventing future crisis
5) protect the democratic process while protecting each other
These five principles are supported by four key strategies:
1) create millions of new family sustaining, career-track green jobs
2) deliver strategic investments like green housing retrofits, rooftop solar installation, electric bus deployment, rural broadband development, and other forms of economic diversification to lift up and collaborate with frontline communities
3) expand public and employee ownership
4) make rapid cuts to carbon pollution[xx]
The research published in Nature Communications also points out that limiting global warming to 1.5°C would deliver a corresponding boost, with the global economy growing by US$616 trillion compared to inaction. Skarbek notes that research undertaken at Oxford University by Nobel-prize winner Joseph Stiglitz and climate economist Nicholas Stern concluded that climate mitigation actions deliver maximum economic growth multiplier benefits from a stimulus perspective.
The study catalogues more than 700 stimulus policies and makes comparisons with the global financial crisis of 2008. In the study they compared green stimulus projects with traditional stimuli, such as measures taken after the 2008 global financial crisis, and found green projects created more jobs, delivered higher short-term returns per pound spent by the government, and lead to increased long-term cost savings. Clean energy infrastructure construction is one example, generating twice as many jobs per pound of government expenditure as fossil fuel projects around the world. Others include expanding broadband so more people can work from home.[xxi] Stern also warned that stimulating new jobs in heavily emitting sectors was short-sighted. “The jobs of the past are insecure jobs,” he said. “[To create future jobs] we need the right kind of finance in the right place at the right scale at the right price.”
Net-Zero Zero-Net future
The strategic targeting of stimulus funds is therefore critical: the greatest risk to a systemic change in consumption and production patterns is for governments to occur increasing debt through spending trillions of dollars on propping up business, as usual, leaving no economic capacity to invest in building resilient local communities and moving toward a low-carbon future.
Researchers from the University of Oxford, the London School of Economics and Political Science, Columbia University, and the University of Cambridge, undertook a survey of 231 central bank officials, finance ministry officials, and other economic experts from G20 countries on the relative performance of 25 major fiscal recovery archetypes across four dimensions: speed of implementation, economic multiplier, climate impact potential, and overall desirability. Their study identified five policies with high potential on both economic multiplier and climate metrics: clean physical infrastructure, building efficiency retrofits, investment in education and training, natural capital investment, and clean R&D.
To monitor the stimulus spend, a team of researchers from Johns Hopkins University has set out to measure what percentage of the billions of dollars that world governments are spending on the recovery might result in lasting reductions of greenhouse gas emissions. They note that studies of the impacts of past economic downturns, such as the recession of 2007 to 2009, provide scant information on what percentage of the recovery money spent delivered long-term benefits to the climate. Estimates of the 2009 recession show that somewhere between 5% and 16% had impacts on climate change-related issues.
They caution that information from the aftermath of earlier recessions shows that typically rebounds have more than offset greenhouse gas reductions from the recessions themselves and quickly surpass what might have been saved if it is not done well.[xxii]
There is precedent from targeted directing of public funds that have worked in the past: President Obama was able to introduce a stimulus package stacked with incentives for green investment and tougher environmental regulation after the economic crash of 2008.
A post-pandemic economic reconstruction based on restructuring the energy map makes sense.Enrique Dans
But for the Covid-19 event, signs thus far are mixed. The $2.2-trillion stimulus package agreed by the US Congress may have avoided sinking taxpayers’ dollars into a rescue plan for the country’s struggling coal industry, but it also failed to make any environmental requirements on those industries, such as the aviation industry, that were bailed out. Congress members have argued that in this case the holding up a desperately needed economic-rescue package in the name of climate action was an untenable proposition. However, care must be taken to avoid using that argument again.
The renewable energy sector is one of the sectors favoured by many commentators as a prime vehicle for stimulating the economic recovery while also mitigating climate change.
One of the concerns about RE in the past was its ability to carry the electricity mix, but as Tom Andrews, a senior analyst at Cornwall Insight notes, while the generation balance is likely to return to normal as countries come off lockdown, this has demonstrated that managing a grid with high renewable penetration is feasible. This may therefore become the new normal as more renewable generation is deployed across Europe.
Renewable energy is also supported by the International Energy Agency (IEA) who, in their Global Energy Review report, supported the view that renewables are the only power generation source that is experiencing rising demand and penetration amid the slump in energy demand brought on by Covid-19 industrial shutdowns. Due to priority dispatch for renewables and lower operating costs, the IEA expects solar, wind, and hydropower to experience uplift during the public health crisis and subsequent economic recovery.[xxiii]
In a policy brief for policymakers, the IEA presents four strategic considerations:
- Energy efficiency actions can support the goals of economic stimulus programmes by supporting existing workforces and creating new jobs, boosting economic activity in key labour-intensive sectors, and delivering longer-term benefits such as increased competitiveness, reduced greenhouse gas emissions, improved energy affordability and lower bills.
2. Governments can deliver stimulus at scale and speed by leveraging existing programmes and standardising designs, eligibility criteria and contracts; choosing shovel-ready options for retrofits and technology upgrades, and considering how energy efficiency can be built into all government stimulus programmes.
3. Important market considerations include aiming for high energy efficiency without constraining programme delivery; setting sufficiently attractive incentives to deliver high uptake without significantly increasing program costs and risks; considering the capacity of suppliers to scale up rapidly while maintaining quality and safety of products and services; and considering the consumer motivations and demand for products and services.
4. Government can facilitate better outcomes from large-scale investment programmes by addressing unnecessary regulatory barriers; turning short-term impacts into long-term transformations by raising energy efficiency standards; and considering the resource efficiency impacts and recycling sector opportunities as part of programme design.[xxiv] It is argued that apart from the climate change benefits, solar and energy storage in particular offer swift, job-intensive opportunities for growth, with average ground-mount sites able to be built in a few months and rooftop installations often taking only a day or two.
The EU’s C-19 recovery plan aims to do just that: their €750 billion ($825 billion) recovery package for the coronavirus pandemic includes plans to address the other global crisis, climate change. European Commission President Ursula von der Leyen views the proposal as a vehicle to steer the continent toward carbon neutrality by 2050, a critical deadline if the world is to avoid the worst effects of global warming. The EU plan calls for investments in clean technologies and value chains and for increasing investments in renewable energy, energy storage, hydrogen, and carbon capture as well as storage technologies. Funds under the plan would be directed toward installing 1-million EV chargers. It also proposes a renovation wave of basic infrastructure investments to create millions of jobs in construction, renovation, and other labour-intensive industries.
Most of the EU’s plan would be paid for via debt raised in capital markets, loans with very long-term maturities, by new taxes, including taxes on carbon emissions, a new carbon border adjustment mechanism, and taxes on big companies that benefit most from the single market. [xxv]
France also announced an €8 billion bailout of its automotive industry. However, the French plan is to boost domestic production of electric vehicles and see France emerge, as President Emmanuel Macron put it, “As the leading producer of clean vehicles in Europe.” The subsidy plans include exceptional support measures to help consumers purchase battery hybrid and all-electric vehicles.[xxvi]
South Korea ― the world’s seventh-largest source of planet-heating carbon dioxide ― too has set course to become the first East Asian country to reach net-zero emissions by 2050. The ruling party named its official climate manifesto the Green New Deal, becoming the biggest emitter yet to endorse moving toward the kind of industrial planning and social safety net expansion rarely seen outside of wartime. South Korea’s proposal includes ending public institutions’ financing of domestic and overseas coal projects, establishing a new program to retrain workers for green jobs, and making large-scale investments in wind and solar energy. The plan also pledges to research and consider a carbon tax.[xxvii]
As Enrique Dans put it, a post-pandemic economic reconstruction based on restructuring the energy map makes sense. We know we must do it, and we know the reason we haven’t done it so far is because it challenges the interests of a powerful few. The time has come to abandon outdated concepts, to change our mindset, and to put the use of renewables at the top of our list of priorities.[xxviii]
Some concern has however been expressed that a lack of a gender lens when designing the stimulus packages generally has favoured sectors dominated by men. In New Zealand, the Ministry for Women warned its minister that the stimulus package risked further exacerbating gender inequalities, particularly for wahine Maori, Pasifika, disabled and rural women. This is a likely unintended consequence of favouring infrastructure projects, a sector traditionally dominated by the male workforce. The ministry noted that women were just 14.4% of the construction workforce, and 24.5% of the electricity, gas, water, and waste services.[xxix]
Other industries such as retail, tourism and hospitality – also hard hit by the shutdown – employ high numbers of women. Johnston makes the argument that investing in social infrastructure such as health, caring, and education would create more jobs than the same investment in construction. It is argued that the absence of a gender lens is reflective of budgets being prepared without investigating ‘who” would benefit from the investment.
Cities are also responding to the opportunity. Amsterdam is pursuing a unique approach by adopting the so-called ‘doughnut approach’ developed by British economist Kate Raworth from Oxford University’s Environmental Change Institute. This model forgoes the global attachment to economic growth and laws of supply and demand in favour of a set of minimum needs required to lead a good life as encapsulated in the UN’s sustainable development goals which include food and clean water to a certain level of housing, sanitation, energy, education, healthcare, gender equality, income, and political voice.
Raworth puts it more succinctly’ “The central premise is simple: the goal of economic activity should be about meeting the core needs of all but within the means of the planet. The “doughnut” is a device to show what this means in practice.”[xxxi]She explains, “The world is experiencing a series of shocks and surprise impacts which are enabling us to shift away from the idea of growth to ‘thriving’.” This approach, she argues, recognises that our wellbeing lies in balance, and this is the moment we are going to connect bodily health to planetary health.
In the private sector, Covid-19 appears likely to reshape sustainable investing in part, because in the aftermath of the pandemic more focus will be placed on social factors, such as health and safety, and the treatment of staff. Some asset managers think that the pandemic will become an environmental, social, and governance (ESG) litmus test. They envision interrogating firms about their actions during the crisis to gauge the businesses’ sustainability credentials.
The pandemic may also help to focus the minds of private sector investors on other threats such as the impact of climate change. Few investors or companies took the risk of a pandemic seriously at the start of the year, and the threat of devastating floods or once-a-century storms often get a similar treatment, but C-19 may just change that.
Our wellbeing lies in balance, and this is the moment we are going to connect bodily health to planetary health.
And encouragingly a remarkable list of business leaders is adding their names to a call for stimulus funding to be invested in what they refer to as “the economy of the future.”[xxxii] Chief executives, chairs and senior executives from major organisations are urging for massive investments in renewable power systems, a boost for green infrastructure and buildings, targeted support for low-carbon activities, and other similar measures.
In Europe, this call is aimed at making the European Union the ‘world’s first climate-neutral continent’ by 2050. In Australia, a leading business group is calling for the two biggest economic challenges in memory – recovery from the Covid-19 pandemic and cutting greenhouse gas emissions – to be addressed together, saying it would boost growth and put the country on a firm long-term footing. This group is among a band of community leaders and industry groups urging governments to back climate solutions in the pandemic recovery rather than projects that entrench or increase emissions. The Investor Agenda, a global group of institutional investors and managers in a statement said governments should avoid prioritising “risky, short-term emissions-intensive projects”, and that accelerating the shift to net-zero emissions could create significant employment and economic growth while improving energy security and clean air. As they put it, “The path we choose in the coming months will have significant ramifications for our global economy and generations to come.”[xxxiii]
The Australian business group has identified a number of opportunities including improving energy management in homes and buildings by plugging drafts, modernising equipment and backing local electricity generation and storage; boosting electricity networks by rolling out smart meters and moving edge-of-grid customers onto mini-grids; helping shift heavy industry to run on clean electricity and hydrogen, and supporting large and small energy storage. On transport, the group said it was an excellent time to prepare cities and major corridors for mass take-up of electric vehicles by installing or preparing charging points at service stations, in public and government car parks, and at apartment blocks. They suggest governments would have different preferences on whether to use regulatory reform, tax incentives, grants, or other approaches but, using the example of electricity, urged government to settle on a sound long-term design for market rules and climate policy could do as much to boost investment as direct public financial support.
The public too is wanting to use this moment to recalibrate the structure of the economy. Polls taken in the United Kingdom finds that most Britons want quality of life indicators to take priority over the economy. As reported by Fiona Harvey, a YouGov poll has found eight out of 10 people would prefer the government to prioritise health and wellbeing over economic growth during the coronavirus crisis, and six in 10 would still want the government to pursue health and wellbeing ahead of growth after the pandemic has subsided, though nearly a third would prioritise the economy instead at that point.
The finding comes as millions of people face economic hardship because of coronavirus and the lockdown, while some measures of the quality of life – such as air pollution and the natural environment – are showing signs of improvement.[xxxiv]
Perhaps Kallis et al (2020) summed it up best in their study when they noted: “As we move from the rescue to the recovery phase of the Covid-19 response, policy-makers have an opportunity to invest in productive assets for the long-term. Such investments can make the most of shifts in human habits and behaviour already underway.”[xxxv]
Build, Build, Build: Investing in Infrastructure
Not surprisingly, most governments are including infrastructure development as part of their recovery plans: it makes economic sense to invest in asset formation rather than encourage consumer spending. However, there are debates about what type and scale of infrastructure to invest in. Some commentators are arguing for investment in housing, while others are looking for large-scale infrastructure investments.
As the US Congress and the White House contemplate the next phase of the government response to the coronavirus pandemic and its economic toll, legislators are increasingly raising the prospect of enacting a multitrillion-dollar infrastructure plan that, they claim, could create thousands of jobs. As the novel coronavirus ravages the economy, parties appear to be coalescing behind the idea of something akin to a New Deal-style jobs program to help the nation cope with what is expected to be a deep recession.
Speaker Nancy Pelosi of California outlined the contours of their proposal, building off a five-year, $760-billion framework. Among the new provisions are an extra $10-billion for community health centres fighting the spread of the pandemic and a programme that would provide federal grants to pay for drinking water and wastewater utility bills in low-income households during public health crises. Democrats’ infrastructure plan includes billions of dollars to expand the country’s passenger rail network, improve Amtrak stations and services, maintain ports and harbours, increase climate resiliency and further address greenhouse gas pollution. It would also dedicate funds to expand broadband access, a response in part to the extent that millions of Americans have depended on internet connectivity while staying at home to slow the spread of the virus.[xxxvi]
It has long been argued that construction has a significant multiplier effect in terms of upstream and downstream job creation. At the same time, providing affordable housing appears to be a serious challenge for most governments. Paul Emrath marries these two issues together when he makes the case for investment in homebuilding based on the economic impact that residential construction has on the economy. The most obvious impacts of new construction, he notes, are the jobs generated for construction workers.
But, at the national level, the impact is broad-based, as jobs are generated in the industries that produce timber, concrete, lighting fixtures, heating equipment, and other products that go into a home or remodelling project. Other jobs are generated in the process of transporting, storing, and selling these products. Still, others are generated for professionals such as architects, engineers, real estate agents, lawyers, and accountants who provide services to home builders, home buyers, and remodelers. He found that in the US construction sector building an average single-family home created 2.9 jobs; an average rental apartment 1.25 jobs; and for every $100 000 spent on remodelling 0.75 jobs. The above numbers are for full-time equivalents, i.e., enough work to keep one worker employed for a full year based on average hours worked per week in the relevant industry.[xxxvii]
The British Prime Minister, Boris Johnson, seems to favour a “dig yourself out of the hole” approach as well, according to The Economist. In a speech on June 30, he announced a plan to increase capital spending to 3% of GDP, the highest consistent level since the 1970s, and will speed up £5bn of repairs to roads, schools, and hospitals. But Colin Talbot of the Centre for Business Research at the University of Cambridge makes the point that calling for more infrastructure without answering the questions of why and for what makes no sense. For example, will ailing towns be best served by becoming attractive commuter hubs for neighbouring cities, or by trying to revive their industries? Henry Overman of the London School of Economics argues that what ultimately makes places prosperous is a high density of skilled workers, which means thinking hard about education, welfare, and public health.[xxxviii]
There are however concerns about the quantum of funds needed to adequately fund infrastructure backlogs, notwithstanding the impressive numbers being quoted in government budgets. The findings of National League of Cities (NLC) new Covid-19 Local Impacts Survey of 1 100 US municipalities found that critical infrastructure is a key at-risk area as 65% of surveyed cities look to delay or cancel their infrastructure projects, which could create an “economic ripple effect” if actions aren’t taken to support capital expenditures and projects. As the vice-president of NLC put it, “I hate to say it, but the latest Covid-19 financial impact data we’re sharing with you today is painting a dire picture for our infrastructure future.”[xxxix]”
As the world tries to deal with the ongoing challenges of Covid-19, it is worth reminding ourselves that infrastructure investment and climate action are both urgently need and that with the right approach, both goals can be achieved simultaneously. This article provides some indications of what the right approach may be.
[ii] Joye, C. 2020. “Calling a ‘VU’ shaped recovery: and creative destruction induced by GVC.” Coolabah Capital Investments, 7 April 2020. Available from: https://www.livewiremarkets.com/wires/calling-a-vu-shaped-recovery-and-virus-induced-creative-destruction-from-gvc?utm_campaign=8493&utm_medium=wire-page-share&utm_source=linkedin&utm_content=calling-a-vu-shaped-recovery-and-virus-induced-creative-destruction-from-gvc. Downloaded: Tuesday, 07 April 2020.
[iii] Briefing, 2020. “Rich countries try radical economic policies to counter covid-19.” The Economist, Mar 26, 2020. Available from: https://www.economist.com/search?q=rich%20countries%20try%20radical. Downloaded: March 26, 2020.
[iv] Briefing, 2020. “Rich countries try radical economic policies to counter covid-19.” The Economist, May 26, 2020. Available from: https://www.economist.com/search?q=rich%20countries%20try%20radical. Downloaded: March 26, 2020.
[v] Briefing, 2020. “Rich countries try radical economic policies to counter COVID-19.” The Economist, March 26, 2020. Available from: https://www.economist.com/search?q=rich%20countries%20try%20radical. Downloaded: March 26, 2020.
[vi] Olsen, S. 2020. “Experts: Spring’s missing home sales will be added in coming years. Zillow, June 3, 2020. Available from: https://www.zillow.com/research/zhpe-missing-home-sales-27209/. Downloaded: June 5, 2020.
[vii] Prasad, E. and Wu, E., 2020. “Anatomy of the coronavirus collapse.” The Brookings Institution, Monday, April 13, 2020. Available from: https://www.brookings.edu/opinions/anatomy-of-the-coronavirus-collapse/?utm_campaign=Brookings%20Brief&utm_source=hs_email&utm_medium=email&utm_content=86296128. Downloaded: Thursday, 16 April 2020.
[viii] Tankersley, J. 2020. “Economic pain will persist long after lockdowns end.” The New York Times, 13 April 2020. Available from: https://www.nytimes.com/2020/04/13/business/coronavirus-economy.html?campaign_id=9&emc=edit_NN_p_20200414&instance_id=17621&nl=morning-briefing®i_id=73055978§ion=topNews&segment_id=25091&te=1&user_id=4c2641b64be4fbc96d3272bb1a96ae71. Downloaded: Wednesday, 15 April 2020
[ix] Joye, C. 2020. “Calling a ‘VU’ shaped recovery and creative destruction induced by GVC.” Coolabah Capital Investments, 7 April 2020. Available from: https://www.livewiremarkets.com/wires/calling-a-vu-shaped-recovery-and-virus-induced-creative-destruction-from-gvc?utm_campaign=8493&utm_medium=wire-page-share&utm_source=linkedin&utm_content=calling-a-vu-shaped-recovery-and-virus-induced-creative-destruction-from-gvc. Downloaded: Tuesday, 07 April 2020.
[x] Smith, N. 2020. “Paul Krugman is pretty upbeat about the economy.” Bloomberg, May 27, 2020. Available from: https://www.bloomberg.com/opinion/articles/2020-05-27/paul-krugman-is-pretty-upbeat-about-coronavirus-economic-recovery. Downloaded: Thursday, 28 May 2020
[xi] Finance and Economics, 2020. “How deep will downturns in rich countries be?” The Economist, April 16, 2020. Available from: https://www.economist.com/finance-and-economics/2020/04/16/how-deep-will-downturns-in-rich-countries-be?cid1=cust/ednew/n/bl/n/2020/04/16n/owned/n/n/nwl/n/n/A/452381/n. Downloaded: Friday, 17 April 2020
[xii] Cassidy, J. 2020. “The coronavirus is transforming politics and economics.“ The New Yorker, April, 6, 2020. Available from: https://www.newyorker.com/news/our-columnists/the-coronavirus-is-transforming-politics-and-economics?utm_source=nl&utm_brand=tny&utm_mailing=TNY_Daily_040420&utm_campaign=aud-dev&utm_medium=email&bxid=5be9f5bd2ddf9c72dc879e86&cndid=48809828&hasha=4c2641b64be4fbc96d3272bb1a96ae71&hashb=c9c1dba6c170b93151f4dd39d2d298d2cb950fd6&hashc=122c6030809ad6616af10d52091c32b56f95b8f727c69a827fdfdd7af1aa3c83&esrc=right_rail_magazine&utm_term=TNY_Daily. Downloaded: Sunday, 05 April 2020
[xiii] Briefing, 2020. “Rich countries try radical economic policies to counter COVID-19.” The Economist, March 26, 2020. Available from: https://www.economist.com/search?q=rich%20countries%20try%20radical. Downloaded: March 26, 2020.
[xiv] Muro, M., Loh, T., Ross, M., Schuets, J., Goger, A., Bateman, N., Frey, W., Parilla, J., Liu, S. and Tomer, A. 2020. “How COVID-19 will change the nation’s long-term economic trends, according to Brookings Metro scholars.” Available from: https://www.brookings.edu/research/how-covid-19-will-change-the-nations-long-term-economic-trends-brookings-metro/?utm_campaign=Brookings%20Brief&utm_source=hs_email&utm_medium=email&utm_content=86370408. Downloaded: Friday, 17 April 2020
[xv] Kallis, G., Paulson, S., D’Alisa, G., and Demaria, F. 2020. “The case for degrowth in a time of pandemic.” The Ecologist, May 18, 2020. Available from: https://theecologist.org/2020/may/18/case-degrowth-time-pandemic. Downloaded: May 31, 2020.
[xvi] Gronewold, N. 2020. “E.U.’s coronavirus recovery plan also aims to fight climate change.” E&E News, May 28, 2020. Available from: https://www.scientificamerican.com/article/e-u-s-coronavirus-recovery-plan-also-aims-to-fight-climate-change/?utm_s
[xvii] Skarbek, A. 2020. “Why it doesn’t make economic sense to ignore climate change in our recovery from the pandemic.” Available from: https://theconversation.com/why-it-doesnt-make-economic-sense-to-ignore-climate-change-in-our-recovery-from-the-pandemic-137282?onomic%20sense%20to%20ignore%20climate%20change%20in%20our%20recovery%20from%20the%20pandemic. Downloaded: Friday, 08 May 2020
[xviii] Gronewold, N. 2020. “E.U.’s coronavirus recovery plan also aims to fight climate change.” E&E News, May 28, 2020. Available from: https://www.scientificamerican.com/article/e-u-s-coronavirus-recovery-plan-also-aims-to-fight-climate-change/?
Downloaded: May 30, 2020.
[xix] Skarbek, A. 2020. “Why it doesn’t make economic sense to ignore climate change in our recovery from the pandemic.” Available from: https://theconversation.com/why-it-doesnt-make-economic-sense-to-ignore-climate-change-in-our-recovery-from-the-pandemic-137282? Downloaded: Friday, 08 May 2020.
[xx] Hall, D. 2020. “From what is to what if: A green stimulus and the importance envisioning the ‘impossible’”. Resilience, 22 April 2020. Available from: https://www.resilience.org/stories/2020-04-22/from-what-is-to-what-if-a-green-stimulus-and-the-importance-envisioning-the-impossible/. Downloaded: Saturday, 25 April 2020
[xxi] Harvey, F. 2020. “Green stimulus can repair global economy and climate, study says.” The Guardian, May 5, 2020. Available from: https://www.theguardian.com/environment/2020/may/05/green-stimulus-can-repair-global-economy-and-climate-study-says. Downloaded: Thursday, 28 May 2020.
[xxii] Fialka, J. 2020. “Researchers will track whether coronavirus recovery spending benefits climate.” E&E News, May 13, 2020. Available from: https://www.scientificamerican.com/article/researchers-will-track-whether-coronavirus-recovery-spending-benefits-climate/?Downloaded: Thursday, 14 May 2020
[xxiii] Hall, M. 2020. “COVID-19 weekly briefing: Evidence abounds of renewable energy gains at the expense of fossil fuels as the clamor for a green recovery rises.” PV-Magazine, 6 May 2020. Available from: https://www.pv-magazine.com/2020/05/06/covid-19-weekly-briefing-evidence-abounds-of-renewable-energy-gains-at-the-expense-of-fossil-fuels-as-the-clamor-for-a-green-recovery-rises/. Downloaded: Saturday, 09 May 2020.
[xxiv] IEA 2020. “Energy efficiency and economic stimulus.” International Energy Agency, 8 April 2020. Available from: https://www.iea.org/articles/energy-efficiency-and-economic-stimulus?utm_campaign=IEA%20newsletters&utm_source=SendGrid&utm_medium=Email. Downloaded: Monday, 20 April 2020
[xxv] Gronewold, N. 2020. “E.U.’s coronavirus recovery plan also aims to fight climate change.” E&E News, May 28, 2020. Available from: https://www.scientificamerican.com/article/e-u-s-coronavirus-recovery-plan-also-aims-to-fight-climate-change/?Downloaded: May 30, 2020.
[xxvii] Kaufman, A. 2020. “South Korea tackled the coronavirus. Now it’s taking on the climate crisis.” Huffington Post, May 8, 2020. Available from: https://www.huffpost.com/entry/south-korea-coronavirus-climate-crisis_n_5ea9e0d5c5b633a85444940b. Downloaded: Saturday, 09 May 2020
[xxviii] Dans, E. 2020. “In a post-pandemic world, renewable energy is the only way forward.” Forbes, May 5, 2020. Available from: https://www.forbes.com/sites/enriquedans/2020/05/03/in-a-post-pandemic-world-renewable-energy-is-the-only-wayforward/#55d0f9b517b6. Downloaded: May 6, 2020.
[xxix] Johnston, K. 2020. “Govt’s COVID-19 response slammed for ‘favouring men’.” The New Zealand Herald, 22 May 2020, A8.
[xxx] Boffey, D. 2020. “Amsterdam to embrace ‘doughnut’ model to mend post-coronavirus economy.” The Guardian, 8 April 2020. Available from: https://www.theguardian.com/world/2020/apr/08/amsterdam-doughnut-model-mend-post-coronavirus-economy. Downloaded: Thursday, 09 April 2020
[xxxiii] Morton, A. 2020. “Australian businesses call for climate crisis and virus economic recovery to be tackled together.” The Guardian, 4 May 2020. Available from: https://www.theguardian.com/environment/2020/may/05/australian-businesses-call-for-climate-crisis-and-virus-economic-recovery-to-be-tackled-together. Downloaded: Wednesday, 06 May 2020
[xxxiv] Harvey, F. 2020. “Britons want quality of life indicators to take priority over the economy.” The Guardian, 10 May 2020. Available from: https://www.theguardian.com/society/2020/may/10/britons-want-quality-of-life-indicators-priority-over-economy-coronavirus. Downloaded: Wednesday, 13 May 2020
[xxxv] Hepburn, C., O’Callaghan, B., Stern, N., Stiglitz, J., and Zenghelis, D. 2020. “Will COVID-19 fiscal recovery packages accelerate or retard progress on climate change?” Smith School Working Paper 20-02.
[xxxvi] Cochrane, E. 2020. “Infrastructure week returns as Trump and Democrats eye post-virus jobs plan. “ New York Times, April 1, 2020. Available from: https://www.nytimes.com/2020/04/01/us/politics/infrastructure-week-coronavirus.html?campaign_id=9&emc=edit_NN_p_20200402&instance_id=17271&nl=morning-briefing®i_id=73055978§ion=topNews&segment_id=23606&te=1&user_id=4c2641b64be4fbc96d3272bb1a96ae71. Downloaded: April 3, 2020.
[xxxvii] Emrath, P. “National impact of home building and remodeling: Update estimates.” NAHB, April 1, 2020. Available from: https://www.nahbclassic.org/fileUpload_details.aspx?contentTypeID=3&contentID=272642&subContentID=738975&channelID=311. Downloaded: June 16, 2020.
[xxxviii] The Economist, 2020. “Boris’s infrastructure plans.” The Economist, July 1, 2020. Available from: https://www.economist.com/britain/2020/07/01/boriss-infrastructure-plans?utm_campaign=the-economist-today&utm_medium=newsletter&utm_source=salesforce-marketing-cloud&utm_term=2020-07-01&utm_content=article-link-5. Downloaded: July 2, 2020
[xxxix] Musulin, K. 2020. “NLC: Financial impact data paints ‘dire picture’ of cities futures.” Smart Cities Dive, June 24, 2020. Available from: https://www.smartcitiesdive.com/news/nlc-financial-impact-data-paints-dire-picture-of-cities-futures/580383/. Downloaded: June 29, 2020.View more
What digitalisation acceleration means for sustainability
By Jaco du Plooy, product manager for Eaton Africa
Last year took a truth which people working in the technology sector were well aware of and threw it into sharp relief for society as a whole. While the global Covid-19 pandemic has caused a level of disruption to daily life, at a level not seen for a generation or more, it’s clear that that disruption could have been significantly more challenging were it not for the digitalised nature of much of daily life. Data has now moved beyond being the bedrock of industry and is now – like water and power – an embedded and indispensable factor for modern life.
Our networked era means that colleagues have continued to collaborate through cloud productivity tools, that vulnerable customers have continued to shop through online grocery services, that vital medical information has continued to be shared with those who need it, and that friends and family have continued to see one another’s faces even under the strictest of lockdowns.
Many businesses – and especially those involved in professional services – have reaped the benefits of digitalisation by continuing to operate virtually as though their offices are still open. This is not to say, however, that every business was well prepared for this unforeseen event. Many had to rapidly bring forward plans that were on the horizon, moving services to the cloud and creating ways for staff to access vital data, and achieving virtually overnight what was road-mapped for the coming years.
In a global survey by law firm Baker McKenzie, 78% of Technology, Media & Telecoms businesses, along with 74% of Financial Institutions and 65% of Consumer Goods & Retail businesses, accelerated their digital transformation plans as a result of Covid-19. As Microsoft CEO Satya Nadella put it in April, we saw ‘two years’ worth of digital transformation in two months.
The confluence of trends around data and power
While this pace of change is worth remarking on in itself, it’s possible that we haven’t yet begun to truly reckon with the consequences of this digitalisation acceleration. While it might seem grandiose to say, it seems likely that digitalisation is just one of an interconnected set of trends that will truly change how our world operates – and the pandemic has brought the timeline for that change markedly forward.
To understand why, we need to consider the fact that, as well as replacing or reworking existing systems with data centre-based technology, digitalisation is always also a transfer of energy from one system to another. The rise in home working is a perfect example of this: while the energy demands of cloud computing likely rose as a result of home working, and those powering videoconferencing services certainly did, this replaced commuting, which was to a large extent directly powered by burning oil.
Likewise, online grocery shopping enables more efficient delivery routes rather than many individual trips, on-demand retail eliminates the energy expenditure of over-production and warehousing, and online banking reduces the need to power and maintain financial real estate.
Digitalisation of systems, then, is also an electrification of systems. A stable supply of electricity is critical for digitalisation to flourish in South Africa. With the population estimated to continue growing until 2082, and reaching just over 80-million people, this will result in a steep increase in electricity demand.
While this may, on the face of it, sound like bad news for our climate goals, the truth is that shifting demand towards electrified systems will stimulate the need for adopting renewable energy, which is now generally cheaper per watt than fossil fuel alternatives. As well as being inherently more power efficient, thanks to the hyper-efficient nature of modern silicon, digitalisation opens avenues for carbon reduction as its emissions are directly related to the emissions of the grid as a whole.
From digitalisation, to electrification, to renewable energy: this cycle closes back on itself in the fact that renewable energy requires digitalised systems for its effective generation, transmission, storage, and usage. While wind and solar are now highly efficient and economical ways of generating electricity, they are by their nature less predictable and consistent than fossil fuel-based generation.
Digital systems will be required to rapidly react to fluctuations in production, and the power held in those systems will also play a role in managing the grid’s performance. Already, stores of power like data centre backup systems and electric vehicle batteries are being used to help support the grid’s frequency and performance.
As digitalisation, electrification, and renewable adoption accelerate, these interconnections will become deeper and more dynamic: this confluence of trends is a virtuous cycle that speeds itself up.
Digitalisation and sustainability at once
As this cycle continues, I would predict that we will see the distinction between these trends start to fade away. In its earliest days, when digitalising a system meant building on-premise data centre infrastructure, decisions around digitalisation were taken largely independently of power considerations.
Over time, data centre applications became mission-critical, such that those decisions became dependent on the quality, availability, and reliability of power to ensure continued operation. Today, data and power have become co-dependent considerations: governments make policy decisions around power with data centre rollouts in mind, and data centre operators in turn plan construction in accordance with grid capacity.
Tracing that shift into the future, we may see digitalisation and sustainability become, in many regards, synonymous terms. The share of overall power needs going into data centres and networking is growing rapidly, and this will drive and support the acceleration of renewable adoption. Far from being competing concerns, the cloud will be the route to decarbonisation, and vice versa.
At the beginning of 2020, much of the digital transformation that occurred existed only in the form of medium-to-long term planning – an ideal business goal that was still subject to capacity and favourable conditions. The pandemic brought all that forward and made it an immediate necessity in ways that nobody could have predicted.
Today, electrification and renewable adoption similarly exist on a planning horizon, subject to checks and milestones as they are patiently brought into reality. Over the coming years, we will see how the ripple effect of accelerated digitalisation cascades through all our essential systems, leaving us with a very different, much greener approach to the world.View more