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The attraction of global investment into our manufacturing sector is pivotal for driving industrialisation and economic growth, so understanding investor requirements in local manufacturing projects is essential for industry stakeholders - as are the expectations of importers sourcing goods from local manufacturers. Key factors influencing investment and import decisions include political stability, policy certainty, regulatory frameworks, infrastructure quality, workforce skills - and sustainability.
South Africa's competitive advantages in manufacturing, such as abundant natural resources and a growing consumer market, present considerable opportunities. However, realising these benefits requires addressing challenges in areas such as supply chain efficiency and technology adoption.
In terms of sustainability measures, a widespread transition from grid power to renewable energy, like solar, would enhance the local manufacturing industry’s position in global value chains, as well as support robust export levels in the next few years.
This transition can only be enabled by a fast-growing renewable energy sector, which is likely to see accelerated growth in Africa in the years ahead, as capacity requirements increase and the declining cost of renewable power continues to be able to deliver material savings versus increasingly expensive and erratic grid-sourced power
To outline the wider context of carbon emissions, the European Union, a key market for South Africa-based manufacturers, began implementing its Carbon Border Adjustment Mechanism (CBAM) transition phase in October 2023; it is scheduled to come into full force in 2026. This is the EU's tool to “put a fair price on the carbon emitted during the production of carbon-intensive goods that are entering the EU, and to encourage cleaner industrial production in non-EU countries.”
Meanwhile, the UK is putting in place its own CBAM, which will include agriculture far sooner. Canada and Japan are also working on their own CBAMs.
According to Africa Confidential, impact assessments suggest that South Africa’s economy will be hit hardest by CBAM in Africa, with a possible 4% drop in exports to Europe.
Against this context, it is clear that locally-based manufacturing companies that put in place infrastructure to significantly reduce their carbon footprint stand to stay on the right side of evolving global legislation with respect to carbon emissions and avoid any negative pertaining investment/export impact.
Operationally, transitioning from grid power to a solar energy solution, via a power purchase agreement (PPA) with an independent power producer, is a practical, cost-effective solution to achieving this goal.
Africa faces competition from other developing economies like India, China and Vietnam and South Africa needs to look at the specific incentives that can attract manufacturing to the country, including:
My main message for manufacturers, at the Plenary Panel discussion: Future-proof your energy strategy today. The world is competitive and South Africa has tremendous potential. Manufacturers need to future-proof their energy needs and their operations so that they can focus on their core business.