Why SA is so energy inefficient

[duncan drennan]

I found these two particular paragraphs stood out in an overall interesting article.

Consider that one of the major differences between South Africa and Asian Tigers is that the tigers did not develop resource-based economies, but service and knowledge economies. Countries (especially in Africa) with much resource wealth continue to suffer human poverty -- the resource curse or Dutch disease.

We are consciously using our cheap energy to get foreign investment. Keeping our energy dirty (coal-based) keeps it cheap. China (the Forum on China-Africa Cooperation), Russia (Putin visit) and Canada (Alcan at Coega) are three countries that have closed deals on aluminium smelters (the most energy-hungry of operations) in South Africa this year. We have no trade strategy besides “we want FDI� and will do anything for it.

Full story on M&G

I find the comparison between the Asian Tigers "knowledge economies" and "resource economies" fascinating. Had to look up what "Dutch disease" was, and found some answers on Wikipedia

Dutch disease is an economic concept that tries to explain the seeming relationship between the exploitation of natural resources and a decline in the manufacturing sector. The theory is that an increase in revenues from natural resources will deindustrialise a nation's economy by raising the exchange rate, which makes the manufacturing sector less competitive.

The next question that comes to mind is, "What happens when our electricity supply cannot support the foreign investment?"

Eventually Eskom has to start pushing up prices to force lower usage and to cover the expenses of investing in new power developments. It is mentioned in the article, but I'm not sure how many people realise that we have some of the cheapest electricity in the world. How far reaching will the impact of a steep rise in electricity costs be to our society and our economic growth?

[Dave A]

I'm tempted to climb on my education hobby horse again. But I wonder how much of "Dutch disease" is really driven by need.

[Dave A]

I've been giving a fair amount of thought to the "Dutch Disease" concept because instinctively I'm not buying it. The problem cannot be as simple as the effect on exchange rate.

I've been reluctant to make a post on it as yet, mostly because the underlying foundation of my theory is potentially offensive without a rather long-winded explanation. But here's a story that kinda relates:

Africa struggles to turn natural resource exports into lasting wealth because it fails to manage the revenues openly enough, World Bank experts said on Monday.

"We don't know how governments and the elites receive their money," World Bank petroleum economist Eleodoro Mayorga Alba told a seminar on managing extractive industries in Africa.

"There is a rapid growth in oil, gas and mining production and revenues but there is also a general failure to transform resource wealth into sustainable development," Peter Van der Veen, manager of the bank's oil, gas and mining policy division said.

African energy output accounts for 12% of world production while its share of global oil and gas consumption is 3,4% and 2% respectively, experts say.

The world's poorest continent owns 9,5% of global crude oil reserves and 8% of gas reserves and exports more than 70% of its oil and gas production.

But lack of efficient oil revenue management stymied development, the experts said.

More than 40% of Africans live on less than $1 a day, more than 200-million are threatened by serious food shortages and Aids kills more than 2-million a year.

"In order to take advantages from oil and mining revenues, African countries must set up mechanisms by which they become able to use rationally the revenues," Gotthard Walser, senior mining specialist said.

"We have to know who pays who and how much he paid him to avoid the secret agreements and non-transparent ones," he added.

Van der Veen said increasing transparency and bolstering the accountability of companies working in the extractive industries would help African turn resource wealth into sustainable growth that could alleviate poverty.
full story from M&G here

[Dave A]

More food for thought on Dutch Disease. (Maybe it needs its own thread).

While South Africa's large trade deficit in January of R11,9-billion was in part due to seasonal factors, underlying trade conditions are probably set to get worse unless industrial-sector exports improve considerably, according to analysts.

Once again the monthly trade balance shifted strongly into negative territory in January, with the trade deficit similar to the high levels in October and November last year.

South Africa recorded a worst-ever deficit in October last year of R12,943-billion, while a R67,1-billion deficit was recorded for 2006 from a R22-billion deficit the year before.

The market had been expecting a marked shift in the trade balance from December's small surplus to a deficit in January, but the general consensus was that the deficit for the month would only be in the region of R2-billion to R7-billion.

While the trade balance had been expected to return to deficit largely because of the resumption of oil imports, the underlying export performance across a number of trade categories was particularly poor compared with December last year, analysts told I-Net Bridge.

Mineral exports declined by a massive 48% on the month to R3,1-billion, and the balance on the mineral trade account made up for about 27% of the total monthly deterioration in the overall trade account.

Other significant contributors to the monthly deficit were machinery and equipment, base metals, transport equipment and chemical products, all of which showed significant declines in exports while imports climbed.
full story from M&G here