South Africa has various industry-related policies and master plans that take into account the changes wrought by the global energy transition, but the opportunities and risks arising from these changes must be addressed holistically across different sectors.

Further, jobs have been created in some of South Africa's industries, including in low-carbon industries, but have been offset by job losses, particularly in energy-intensive industries.

While a transition to more sustainable energy and production systems could reverse some of these losses, the country must consider what industries it can compete in and the structural changes that the transition will require and drive.

These were some of the comments made by researchers during the 'Green Industrial Policy Development Dialogue' hosted by economic research institution Trade and Industrial Policy Strategies (TIPS) on July 22.

Based on international experience, the global economy was increasingly moving to low-carbon products and South Africa had to strategically position itself in this changing landscape, said TIPS sustainable development economist Dr Michael Hector.

South Africa's Industrial Development Strategy 2026 was a good start, but needed to be further developed. Green industrial policy must not only be seen as a climate response, but as an opportunity for South Africa to diversify its industrial economy and achieve sustainable growth and job creation, he said.

Green industrial strategies emerged as part of the economic strategies of China, the EU and the US following the Covid-19 pandemic, and led to a global race to dominate future industries, such as electric vehicles (EVs) and renewable energy.

Additionally, developing economies were also increasingly using critical minerals and renewable-energy industries to build local supply chains, rather than being only exporters of raw materials, he said.

Themes identified in the three economic powers studied include State-led support, massive subsidies and tax incentives alongside attempts to strengthen domestic industries and secure strategic sectors, such as battery energy storage and EVs.

Other themes include technology development and skills development, with a focus on workforce transition and reskilling programmes.

Additionally, the researchers noticed that considerable amounts of investment were required, with the EU, for example, planning to channel about $35-billion to clean technologies and manufacturing between 2022 and 2031, said Hector.

The policies of these economic powers have external impacts, including increasing competition for green technologies. There are also growing geopolitical tensions around climate-protectionism, which are adding to costs for developing countries, such as South Africa.

“From international experience, we learned there is a need for policy coordination and institutional capacity, because the transition is cross-cutting and cross-departmental, and ties into climate change.

“Success cannot be achieved in silos and there is a need to improve coordination between sectors in the economy,” he said.

Further, the country must prepare for a world where green becomes standard and where green industry changes competition and market access, Hector added.

INDUSTRIAL TRANSFORMATION
There was a need for South Africa's just transition to focus not only on decarbonisation, but also on structural transformation, which was essential for broader economic development, said University of Cape Town Nelson Mandela School of Public Governance climate and development chief research officer Dr Nimrod Zalk.

South Africa's fixed investment to GDP ratio has fallen to 15%, and needs to be at about 25% for it to engage in meaningful economic development. Its carbon- and capital-intensive sectors dominate the capital stock of the country and remain export-dependent.

The country's industrial policies have typically been defensive and mostly focused on sectors in difficulty or facing challenges, such as a decline in employment.

While there should be strategies for these sectors, these need to be counter-weighted by strategies for sectors that have better growth and employment creation prospects.

A number of sectors had been growing and growing employment, he said.

While it seems obvious to include industries directly linked to low-carbon value chains, such as manufacturing components for renewable-energy systems, EVs, batteries and critical mineral mining and refining in industrial policies, these sectors are growing their employment off a low base.

Additionally, many of these industries face massive international competition, or hypercompetition, given China's dominance in these value chains, which may result in South Africa being unable to grow these sectors.

“We need to contextualise where we sit across the range of sectors that we need to consider for our green industrial policies,” cautioned Zalk.

Green industrial policies should focus on relatively low-carbon and relatively labour-intensive sectors that have a record of growth and creating employment, as well as industries where employment declines can feasibly be reversed.

If large public procurement programmes can be successfully leveraged, such as the electricity transmission grid expansion, then some decline in steel and structural metal products can be reversed, for instance.

Further, South Africa must support nascent green technology sectors, but what is needed in each is a realistic strategy that understands the value chain in depth, gives a clear indication of where the opportunities to grow these green technology sectors lie and balances ambition with realism.

A profound challenge facing South Africa was the need to restructure its heavy industries, which had seen must of the decline in employment over the past decade, emphasised Zalk.

“These are typically focused around the mineral and energy complexes. It is not simply a matter of letting them die out. South Africa needs these industries and we need to restructure them, and it will be extremely difficult,” he said.

Strategies for these sectors will need to deal with challenges even at a firm level, as ten energy-intensive companies account for about 40% to 50% of emissions from their sector, for example.

The restructuring of the heavy industries should also focus on attracting new entrants, such as companies working within the low-carbon steel, and green iron and steel value chains. The restructuring should also support investment in resource efficiency and the circular economy, he recommended.

STEEL

Meanwhile, the high carbon intensity of steel products was a global challenge, not only in South Africa, said TIPS sustainable development senior economist Muhammed Patel.

Globally, blast furnaces account for the majority of steel production, while electric arc furnaces (EAFs) produce about 30% of global steel. Globally, there is an increase in EAF production because, when combined with low-carbon electricity inputs, they can help to lower overall emissions from production.

South Africa had a higher proportion of EAFs, producing about 50% of the country’s steel, but its assets were ageing. Moreover, blast furnace steel plants had an average age of 40 years compared with the global average of 20 years, which meant that they were more carbon-intensive than newer EAFs, he said.

Steel is a strategic sector that feeds into important downstream value chains, including construction, mining, manufacturing and the automotive industry. This makes it a backbone of industry in South Africa.

However, while near-term improvements could be secured through enhanced energy efficiency, greater use of EAFs and the use of low-carbon energy sources, long-term and deep decarbonisation of the steel industry hinged on the trajectory of technologies that were still emerging, Patel pointed out.

These newer, emerging technology are not yet significantly mature and are associated with significant capital costs and risks.

The market pressures the steel industry faces also come at a moment when there is excess steel capacity globally and producers cannot profit in international markets, domestic demand is weak and retrofitting costs are significant.

Additionally, owing to the carbon-intensity of South Africa's production, its traditional export markets are at risk.

Between 2006 and 2024, South Africa saw a significant reduction in its crude steel production, which was driven by both domestic and international dynamics, growth in imports and a decline in exports to traditional trade partners over this time, Patel said.

“This issue is often raised by the industry in terms of competitiveness and its ability to survive over the long term.

“The costs and risks associated with the emerging technologies mean that South Africa must make a strategic decision on whether the decarbonisation of its iron and steel sectors is a long-term ambition,” he said.

BATTERIES

Meanwhile, South Africa has the foundation to build a competitive battery industry that can be built on its existing industrial base and using its critical minerals endowments, said TIPS senior economist Lesego Moshikaro-Amani.

“South Africa cannot match the scale of subsidies offered in China and our objective should not be to replicate the Chinese model, but to build a battery industry that aligns with South Africa's industrial, climate and economic priorities,” she said.

In the near term, the country can focus on battery assembly and mineral refining, as well as forming strategic partnerships to secure technologies. The long-term view should focus on developing the country's capabilities in batteries and producing and recycling batteries.

Building a competitive battery industry required coordination across government, industry, academia and financiers, and South Africa had the foundation for a competitive industry, Moshikaro-Amani enthused.

Batteries represent an important industry to support broader green industrial strategies for the country. However, the country does not yet have an industrial policy for the battery industry, despite having a potential advantage in vanadium flow batteries.

Importantly, instead of pursuing a standalone battery industry policy, South Africa should integrate its industrial strategies to link batteries to the renewable energy and critical minerals sectors.

South Africa had some battery manufacturing capacity and capabilities. Unusually, its battery companies were typically small and medium-sized enterprises (SMEs); however, they faced challenges in terms of limited economies of scale, she pointed out.

There are no dedicated incentive frameworks for batteries and for green manufacturing more broadly, meaning there is no coordinated policy support along the value chain.

Further, developing battery technologies requires significant capital and research and development. In the South African context, SMEs are playing an important role in the industry and it is important to ensure they are supported to grow and contribute to the local battery industry.

South Africa's Battery Energy Storage Independent Power Procurement Programme favoured established foreign suppliers, despite South Africa having a vibrant industry with local players assembling and adding value to batteries, she illustrated.

Public procurement is important to help build demand.

A lesson learned from the successive Renewable Energy Independent Power Producer Procurement Programme was that tenders must be designed to align procurement with industrial policy by strengthening local content requirements and embedding industry links and opportunities for local manufacturers in the documents, she said.

Supporting the battery value chain and industry locally requires strengthening market development, implementing clear local content thresholds for battery manufacturers and aligning renewable energy and battery energy storage procurement with localisation goals.