National conference: Trade & Industrial Policy Strategies (TIPS) 2017 Annual Forum

South Africa - 21 November 2017

Title: The need for coordinated renewable energy, trade and industrial policy – avoiding unintended socio-economic consequences
Author(s): Cameron, M., Kritzinger-Van Niekerk, L. & Viviers, W.

In recent times industrial policy has attracted criticism for ‘picking winners’, which is associated with distorting markets and competition while also potentially exposing government to capture by vested interests. In the modern global economy both developed and developing economies need to pursue their industrial policy agendas within their own as well as global operating environments. The challenge, however, is how to design and implement sectoral policies that are simultaneously competition friendly and growth enhancing. Fortunately, from the academic policy research environment have emerged alternative concepts of a ‘new’ or ‘systemic’ industrial policy approach, which are based on new technologies and support society's long-term objectives.

Key themes running through the paper include: (a) the systemic implications and challenges associated with industrial and related (trade and investment) policies, and the need for alignment with, and support from, other policy environments such as energy, education, etc.; (b) the fact that systems thinking provides an important foundation which assists policymakers and other decision makers; (c) (with reference to the Hausmann and Blanchard models) the fact that a country also becomes what it produces (through skills and technology-intensive relationships), as seen from a human capital perspective; hence, the importance of the link with other policy areas such as education and training. Quantitative data and analysis are provided to illustrate how these themes relate to South Africa. In addition, to reinforce the importance of policy co-ordination and integration, developments in the renewables industry are discussed, with a particular focus on exports emanating from the solar photovoltaics industry. Furthermore, recent developments and the current status quo in the South African renewable energy procurement space are discussed in order to demonstrate possible unintended consequences of policy misalignment.

The policy implications arising from the study include: (i) the need for industrial and related policies to create more opportunities for entrepreneurs to engage in cost recovery; (ii) the possibility that exporting more skill-intensive goods will deliver significant long-term benefits to the economy through an (empirically demonstrated) increase in human capital; (iii) the importance of having a key demand side driver of education and training; and (iv) the fact that South Africa cannot afford, in the current depressed economic climate, the socio-economic consequences of additional job losses stemming from business closures, nor the loss of domestic and foreign fixed investment and new employment opportunities due to the misalignment in energy policy and the effective implementation thereof.