Graphic: DOROTHY KGOSI
Graphic: DOROTHY KGOSI

Industrial policy has been at the heart of most countries’ public policy in one form or the other for centuries. The global financial crisis and now the Covid-19 pandemic have led governments to introduce big economic stimulus packages that include support to domestic industry, highlighting once more the importance of industrial policy.

Building on the work already happening in the country, the just transition to an inclusive green economy needs to take a central place in these efforts and shape a Green New Deal for SA.

In its broad sense, industrial policy can be viewed as government interventions and policies that attempt to alter the structure of the economy towards sectors, technologies or activities that are expected to offer better socioeconomic development prospects than would occur in the absence of such interventions.

As such, the goals that can be pursued through industrial policy are varied, generally a function of time, place and context. So what should be the role of industrial policy in SA now?

Most would agree that the past is no blueprint for the future. SA is the most unequal society in the world. Poverty and unemployment are rife. The country is one of the most carbon-intensive economies globally and its ecological footprint has overshot its biocapacity for decades.

The National Development Plan targets an environmentally sustainable, climate-resilient, low-carbon and just society. In other words, it requires a just transition to an inclusive, green economy.

Yet, problematically, the green economy is too often seen as a sector. Most policy documents in SA understand the green economy as an add-on to the rest of the economy.

But there is only one economy, one society. Indeed, the transition to an inclusive green economy is a society- and economy-wide transformation. It is a socioeconomic process with deep implications for society and the economy.

The green economy is still too often seen only as an environmental concept. While put on the map by the range of environmental crises we face, it is rather a socioeconomic framework. It is enshrined in the concept of sustainable development, now structured around 17 sustainable development goals (SDGs).

Such goals range from eradicating poverty and ensuring access to modern energy, water and sanitation services, to fostering innovation and designing a climate-compatible and climate-resilient world. In the end, building an inclusive green economy aims to jointly achieve economic development, social progress, a more inclusive economy and environmental sustainability.

Said differently, green economics is just good, basic economics. So is it just relevant for high-income economies? Should low- and middle-income countries ignore it until they have reached a higher level of development? On the contrary, transitioning to an inclusive green economy should be at the core of all countries’ vision.

In the long run, the transition is set to bring multiple benefits, in the form of stronger, more resilient economic development, increased competitiveness, higher and better employment, reduced inequality, increased welfare and environmental sustainability. Delaying the transition carries substantial risks for the economy and society by potentially jeopardising competitiveness and curtailing the country’s access to markets and finance.

Just transition

Like every transition, it is disruptive and should be managed properly to maximise the benefits and minimise the negative effects. Particularly, the goal of a just transition should not be lost in the process. The transition should not be an elitist process but an inclusive, pro-poor transformation, enabling the reduction of poverty and equality through the diffusion of new, green technologies. Negative impacts should not be borne by vulnerable groups in society such as workers, the unemployed, the youth, women and low-income communities. They should even be better off through it.

Left to market dynamics, the transition to a green economy will not occur at the pace and depth required to position SA at the leading edge. It will most certainly not be just, either. Vested interests and market failures protect the entrenched economic structures. The same can be said of traditional politics and policy-making, which are rooted in a conventional conceptual framework and long-standing alliances.

Targeting the transition to an inclusive green economy and its translation into the public policy arena therefore signifies a huge and disruptive shift from traditional practices (policy-making and political settlements alike). Ultimately, the transition is a long-term endeavour that will unfold across several decades. It requires the transition of the country’s policy frameworks, economic structure and societal behaviours. Moreover, it is dependent on a substantial shift occurring in SA’s energy systems towards cleaner sources. But industrial policy and the transition to green industrial development should be at the core of it.

So where is SA in the process? A recent green economy review of SA’s industrial policy authored by Trade & Industrial Policy Strategies (Tips) shows that despite noteworthy progress, much work lies ahead.

To date, every industrial policy tool has been used, to an extent, to support SA’s transition to an inclusive green economy. Many “green shoots” supporting the transition to green industrial development are present in SA’s industrial policy. The Atlantis Special Economic Zone, localisation requirements in the energy and transport sectors, the National Cleaner Production Centre, the energy efficiency and research & development tax incentives, and the implementation of carbon pricing (through a carbon tax and carbon budgets) are testaments to that.

The Black Industrialists Programme and the Manufacturing Competitiveness Enhancement Programme have also allocated a share of their funding to the development of “green industries”. However, the bulk of industrial policy support remains channelled to traditional activities, without “green and just” conditionalities. Insufficient attention is paid to the transition of existing activities.

Sustainability objectives should become an integral pillar of SA’s industrial policy and embedded in government’s industrial development interventions. Support to industrial value chains should be strategic, time-bound and conditional on green performance improvements. Many policy and regulatory bottlenecks still hinder the development of new green industries. This is notably the case for renewable energy technologies and the circular economy.

Furthermore, direct fossil fuel subsidies amount to 2.2% of SA’s GDP. Counting indirect subsidies linked to externalities associated with fossil fuels, such as global warming and air pollution, fossil fuel subsidies reach 13% of the country’s GDP. Phasing out such subsidies and redirecting their resources to a “green and just” transition would have a huge effect.

Existing building blocks show that the transition is under way in SA. Whether it will be sustainable (in all its meanings) depends on seizing the opportunity to proactively design and implement a green industrial policy in SA. It’s the (green) economy, stupid!

• Montmasson-Clair is a senior economist at Trade & Industrial Policy Strategies in Pretoria.

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