A new path to sustainable industrial development amid climate change - IDC
By Joanne Bate
The COP28 summit currently underway in the United Arab Emirates, has put a firm spotlight on the damaging effects of climate change in developing economies including South Africa.
For a country that’s grown accustomed to a festive season, often characterised by rain and cool weather, signs of a rapidly shifting weather phenomenon are now ominous – the impact of climate change is painfully transparent.
In fact, the entire southern Africa region is in the throes of El Niño - a climate related variability that is likely to impact agricultural and food production. Poor rainfall could potentially impact crop yields – especially in the Free State, KwaZulu-Natal (KZN), Northwest and Limpopo. This only accounts for the physical risks of climate change.
In addition, developed countries’ responses to climate change pose transition risks for developing economies. For example, the European Union’s Carbon Border Adjustment Mechanism implemented in October 2023, could undermine the competitiveness of South Africa’s exports if industry does not transition. If this risk materialises, it would further impact the country’s weak economic performance.
This is something the country cannot afford. Statistics South Africa’s report released early this month already shows weaker gross domestic product (GDP) growth for the second quarter than initially reported – revised downwards from 0.6% to 0.5% – and the economy contracted by 0.2% in the third quarter of 2023.
In simple terms, South Africa faces an onerous yet surmountable path to addressing, unemployment, poverty and inequality - the stubborn trifecta of challenges that have characterised a post democratic South Africa.
What is certain though is that the country needs to pivot to a sustainable development path that can effectively drive inclusive growth while insulating the economy from impacts of climate change. Success in this regard requires a concerted effort to drive employment creating growth in an environmentally responsible manner. The Industrial Development Corporation (IDC) has identified four pathways for driving sustainable industrial development.
New pathways for sustainable industrial development
In a document released on the 3rd of December at COP28 titled “Pathways for Sustainable Industrial Development”, the IDC has effectively defined its role in helping South Africa meet its commitments to addressing climate change.
In setting these pathways the IDC, considered a range of factors that are shaping the future performance of the economy, some of which are outlined in this discussion. It’s a fact, South Africa’s Nationally Determined Contributions (NDCs) cannot be achieved without reducing industry emissions, which account for 26% of total emissions by sector. Even in the absence of the NDCs, industrial output for export markets needs to transition to maintain international competitiveness.
Failure to do so would result in a reduction in exports, undermining industry’s contribution to GDP, employment, and the balance of payments amongst other effects. Even more damning, the impacts of climate change are projected to proceed twice as fast on the African continent.
These changes in climate and shifts in weather patterns will disrupt agricultural and industrial production and food systems, thereby threatening livelihoods. Already 2023 is on course to becoming one of the hottest ever recorded in the country.
The “Pathways for Sustainable Industrial Development” are a framework for navigating the perceived and real tensions between expanding industrial capacity for shared prosperity and limiting greenhouse gas emissions.
The strategy goes beyond mitigating environmental harm, and instead focuses on creating long-term inclusive growth and employment through the low-carbon transitions. The IDC identifies four pathways for South Africa to achieve sustainable economic development.
Catalysing low carbon transitions and green growth
For South Africa to maintain and leverage the existing industrial structure for growth and employment creation in the long term, its companies need to adopt cleaner technologies, fuels and processes. This includes large-scale investments in existing hard-to-abate industries such as chemicals, steel and mining to transition, which are at risk due to the Carbon Border Adjustment Mechanism.
This allows us to leverage South Africa’s abundant renewable energy ands outhern Africa’s critical minerals to foster international competitiveness of industry, in the same way that energy from cheap coal drove the country’s initial industrialisation phase.
Renewable energy is not only important for the energy transition but is a critical input in the production of green hydrogen, which is key to transitioning the hard-to-abate industries. The IDC has been working towards developing a green hydrogen ecosystem, in acknowledgement that maximising growth from the transition is dependent on taking an integrated approach to “green investments”, which entails linking the energy transition to the transition of industries for continued international competitiveness and value and job creation in the value chains.
Economic diversification and jobs-rich industrialisation
What a country produces and exports matter for growth, inclusion and energy intensity levels related to climate change and its impacts on the levels of GHG emissions. South Africa’s industrial structure is dominated by mineral resources and resource-related manufacturing goods, which are: capital-intensive, with limited scope for employment creation and inclusion; and energy-intensive, contributing to the country’s relatively higher emissions per capita.
Consequently, one of the pathways for sustainable industrial development is diversifying the country’s industrial structure. This includes investments in the development of sustainable and inclusive value chains and enabling ecosystems. Research conducted by the DST/NRF South African Research Chair in Industrial Development and the Centre for Competition, Regulation and Economic Development indicates that by expanding medium and high technology manufacturing such as machinery and equipment, South Africa would be able to increase value addition and employment.
Climate resilience of vulnerable sectors
It is now widely recognised that extreme weather events and shifts in weather patterns due to climate changes may cause disruptions to various production systems and ecosystems.
Thus a key pathway for South Africa’s sustainable development must entail investments in building capabilities to withstand climate-related shocks. Given the acute threats to agricultural production, the development and growth of regional food value chains to leverage different weather patterns for food security; and investments in technology adoption and adaptation that support climate and economic resilience of the agricultural value chains is crucial.
In addition, climate resilience entails supporting companies to be able to recover quickly from weather, seasonal and climate-related shocks.
In the wake of April 2022 floods affecting the KZN, Eastern Cape and Northern Cape provinces, the IDC responded with its Flood Relief Fund in partnership with the Department of Trade Industry. The fund was a combination of concessionary loans, and grant funding for humanitarian relief for affected formal and informal township businesses. A total of R1.25 billion was disbursed, safeguarding more than 8 500 jobs from the shock of the floods.
Ensuring resilience means that both public and private finance institutions need to consider driving resilience.
Regional value chains are key for climate and economic resilience
Regional value chains are not only important for food value chains but are key to unlocking value addition from green growth. For example, there have been several discussions at COP28 on developing beneficiation strategies for Africa’s critical minerals.
This is because critical minerals underpin clean energy systems and are key inputs into modern technology and communications systems. The continent’s endowments and capabilities thus present an industrialisation opportunity for the region.
Joanne Bate is the Chief Operations Officer at the IDC. She is also chair of SA’s Green Hydrogen Commercialisation Panel and serves on the Presidential Climate Commission.
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