[Letter] The perils of relying on the government

According to Trade & Industrial Policy Strategies senior economist Gaylor Montmasson-Clair, since 2012 SA has imported $10bn worth of solar panels, lithium-ion batteries and inverters (“How SA is losing out on its own renewables boom”, August 14).

Most imports occurred over the last three years, and ever more intense load-shedding has become entrenched. While this will add to the resilience of those who can afford to buy imported equipment, the flip side is the lack of growth of local manufacturing capacity and skills development. 

The greatest temptation to fix this situation would be for the government to “step in” and provide subsidies for local manufacturers — and impose tariffs on imports. Ultimately, though, the costs of such interventions would in the former case be more and higher taxes to continue supporting any such plan, and in the latter case higher costs on imports that will ultimately inhibit citizens’ ability to import cheaper products and wean themselves from the failing entity that is Eskom. Such industrial policy would also fail to address the relatively lower skills base in renewable energy with which the country is saddled. 

Local manufacturers of solar panels and batteries ought to proceed carefully before calling for government support. Pressure should be placed on the government to remove the bottlenecks preventing private generation and feeding back into the grid — this already would stimulate more manufacturing and industrial development in general. Fixing the issues that plague the railways and ports would significantly lower costs.

A more agile labour law regime would allow manufacturers to employ more people, [and] more flexible training and skills-development programmes. Streamlining the visa application process for skilled international businesspeople would allow them to invest and work in SA, sharing their experience and expertise along the way.   

The stalling of the Renewable Energy IPP Procurement Programme illustrates the perils of relying on the government. It is one thing for the government to introduce master plans, subsidies, tariffs ... but these forms of state involvement and support do not by themselves guarantee the best market-focused businesses and products will win out.

With more reliance on the state comes the risk that, should the state fail, the damage is far wider than it would otherwise be in a more competitive market. 

Originally published here.