Banele Ginidza

South Africa's industrial policy needs a rethink in several areas, including the review of fossil fuel subsidies, which have tripled from R39 billion in the period between 2018 to 2023 to about R118bn in the current term with little tangible benefit for the economy.

These are the views of a panel of experts during a discussion on Rethinking South Africa's Industrial Policy at the Trade and Industrial Policies Strategies (TIPS) webinar on Wednesday.

They said the review also needed to encompass the country's carbon tax tariffs currently below $10 per ton on imports while the country's exports to market, including the European Union (EU) and the US and range between $30 per ton to R50 per ton.

The increase was largely driven by the global energy crisis, with consumer subsidies rising to reflect higher prices for oil, gas, and coal following Russia's invasion of Ukraine.

The largest share of fossil fuel subsidies in South Africa in 2023 went to oil and gas consumption, carbon tax exemptions, and the electricity sector.

The experts discussed that South Africa committed to phasing out inefficient fossil fuel subsidies as a member of the G20 in 2009 and, more recently, as part of the COP28 agreement, to tripling the world’s installed renewable capacity to 11 000GW by 2030 and to transitioning “away from fossil fuels in energy systems in a just, orderly and equitable manner…to achieve net zero by 2050.”

Muhammad Patel, senior economist at TIPS, said fossil fuel subsidies took more resources out than they helped secure.

"Fossil fuel subsidies are problematic. We are channelling more resources into them. One needs to ask about the equality element, who benefits and how they actually are benefitting," Patel said.

"We really need to take a long look at fossil fuel subsidies, how they align with our decarbonisation goals and the opportunity cost of these resources in our fuel system."

The discussion, centering on the carbon tax implemented from June 2019 to help, was low according to South African Reserve Bank estimates.

The tax was aimed achieve Nationally Determined Contributions under the Paris Agreement, with the rate initially set at R120 per ton of CO2 emissions, increasing annually to R190 per ton.

"Why it is important, we are not getting the cost of emissions implications," Patel said.

"For other types of policies where carbon tax is an input like CBAM and the extent to which we are decarbonising our economy. In short, the carbon tax is criticised for being on the lower end. There are obviously consequences for raising the carbon tax but there is a fine balancing act that needs to be looked at."

TIPS senior economist, Neva Makgetla, said an industrial strategy was needed so that the country could move away from commodity dependence but also implement benficiciation of minerals with caution on the comparative price to cheaper imports, as high beneficiation costs were counter productive.

"There is a core argument in development economics that we should try and move away from dependency on commodities because they tend to go into cycles. When the prices are high its fabulous," Makgetla said.

"There are benefits to depending on mining. There were massive riches in this country when prices were high but the trouble is when they crash, you focus on the good or the bad?

"Mining in particular, unlike agriculture, creates few jobs everywhere in the world. We have under 500 000 jobs in mining itself and in the refineries its less and they are highly capital intensive and that's the nature of the industry in the whole country."

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South Africa's industrial policy requires urgent overhaul towards sustainability