Overall Economic Performance

Macro Performance

South Africa is a middle-income market that has been emerging during the last few years. The country’s main assets are its natural resources and its increasingly developing financial, energy and transport sectors. Also, South Africa’s stock exchange is the largest one in Africa and is ranked among the top 20 in the world. All these elements make South Africa one of the fastest-growing economies in the African continent. Furthermore, the South African GDP has been growing (Trading Economics, 2015a) at a steady rate during the last decade, and is ranked 115th worldwide (CIA, 2015).

The South African economy is very diverse and invests in different sectors. Nonetheless, it is noticeable that the country has made an effort into switching from a mainly industrial to a more service oriented one during the last few years. Following is a chart describing the breakdown of the south African GDP between the different sectors (Alexander, 2015).

Despite all the progress South Africa has made to develop its economy, the country still faces several issues, which are discussed here. In the first place, unemployment is still a delicate matter. In 2014 over 24.3% of the South African population was unemployed, and 31.3% was below the poverty line (Trading Economics, 2015b). As stated by the International Labour Organization (Businesstech, 2015), South Africa had one of the highest unemployment rates by the end of 2015, and was the 8th worldwide. Furthermore, as a consequence of apartheid, inequality in the country is still rampant, along with the downfall of wages. The country is also seriously in debt. With its external debt amounting to over 38.2% of GDP (Colombo, 2015), the South African economy is, consequently, heavily dependent on foreign investments. Around $60.6 billion of South Africa’s external debt is in foreign currency, thus exposing investors to possible currency fluctuations against the US dollar. Further, a direct consequence of the introduction of the National Credit Act was the rapid decrease of unsecured loans. The main purpose of this act was to enable free access to credit, with a ban on any form of discrimination, and extending support to small businesses (Acts Online, 2015a). Consequently, as reported by the National Credit Regulator in its 2012–2013 report, 20 million South African citizens have over $140 billion worth of personal debt. Hence, South Africa might be exposed to the risk of a credit bubble. In fact, the country witnessed two periods of low interest rates, from 2004 to 2006, and a second one starting in 2009 and still ongoing (Colombo, 2015).

On the whole, the South African economy, despite being one of the most promising and attractive to investors in the world, and especially in the African continent, still faces challenges regarding policies in place, mainly concerning loans, employment and foreign investments. Nonetheless, the country is working towards practical solutions, also by nurturing the renewable energy sector. As a matter of fact, South Africa views green economy as a sustainable development path, “based on addressing the interdependence between economic growth, social protection and natural ecosystem” (Environment.gov.za, 2015). The ultimate objective is progressive economic growth, thanks to a constant flow of FDI and the creation of increasing number of jobs, hence strengthening the level of competitiveness of the renewable energy cluster, and South Africa as a whole. There is also a requirement for reforms to reduce environmental impact and for the development of cleaner sources of energy, as the country is heavily dependent on coal. For instance, the Renewable Energy Market Transformation Project was signed in 2007 in order to put in place policies and regulations for renewable energy development in South Africa, for which the government spent over $ 17, 3 million (Banquemondiale, 2015). The aim of the project is to develop new methods of energy creation and distribution, to further attract foreign and national investors and to consolidate the renewable energy industry as pivotal part of the country’s identity.

Micro Performance

Trade

South Africa has been a member of the World Trade Organization (WTO) since January 1st, 1995, and a member of the General Agreement on Tariffs and Trade (GATT) since June 1948. For trade in merchandise, South Africa’s main trading partners are the European Union, China, the United States, Japan, Saudi Arabia, India and Botswana. Between 2011 and 2013, the ratio of trade to GDP was 62.2%, and trade per capita was $4511 (WTO, 2015). South Africa’s top exports include agricultural products, diamonds, metals and minerals. Machinery and transportation equipment, on the other hand, account for 30% of the country’s imports, along with fuel, mining products, manufactured goods, and a share of agricultural products the country is unable to produce directly (WTO, 2015); the country is ranked 100th in trading across borders among 189 countries, based on time, cost and documents required, in order to export and import (World Bank’s Doing Business, 2015a).

Foreign Direct Investment

Foreign direct investment (FDI) plays a pivotal role in development and consolidation of South Africa’s economy at an international level. As reported by the Organization for Economic Co-operation and Development (OECD), when considering the Restrictiveness Index, South Africa ranks among the most flexible jurisdictions for FDI in the world (OECD, 2015). Furthermore, as at 2015, South Africa’s stock of FDI currently accounted for around 42% of the country’s GDP. In addition, over the course of the 2010, South Africa is witnessing a considerable flow of investments from the United States, several European countries, and increasingly from China, India and other Asian countries (Davies, 2015). The country attracted around 24% of all the FDI projects in Africa between 2007 and 2013, and was voted as the best investment destination in the African continent for two consecutive years, by the Global Financial Times Magazine (OECD, 2015).

Education

UNESCO reports (UNESCO, 2015) that the youth literacy rate in 2015, considering both sexes and individuals aged 15–24, is 99.02%. There are three bands of education in South Africa, as recognized by the South Africa’s National Qualifications Framework (NQF) (SouthAfrica.info, 2015a): General Education and Training, Further Education and Training, and Higher Education and Training. Following the 2009 division into Basic Education, and Higher Education and Training, the national Department of education has been strenuously working since 2004, in order to uniform the level of education across the country, often merging small universities into larger institutions, while each province (nine in total) has its own decentralized education department. Concerning public universities, South Africa has 23 so far, 6 of which are universities of technology. The government also developed, and promulgated in 1999, a financial aid scheme aimed at students in higher thanks to which over 1 million of them have benefited in 2015 (SouthAfrica.info, 2015). The country has been subject to a 40-year apartheid, whose discriminatory education system had been benefiting only white South African children, who were granted free quality education, in contrast with black children, who were given the so-called “Bantu education”. Taking its name from the Bantu Education act passed in 1953, it dictated what knowledge and skills the black children could be imparted with to enable them to conform to the role in society the government had envisaged for them, that of factory workers (Overcoming Apartheid, 2015).

Patents

According to the South African Patent Act 57 of 1978, the Companies and Intellectual Property Commission (CIPC) is responsible for all new patent applications filed within the country’s physical borders. Thanks to its membership of the Patent Co-operation Treaty (PCT), individuals are able to file national and international applications; the latter allows to select “the countries in which the applicant seeks protection” (CIPRO, 2015). The term of patent, that is, the maximum period during which it can be maintained, is 20 years from the filing date, in conformity with the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (WTO, 2015).

Clusters

There are many clusters associated with mining and metals, natural resources South Africa is widely recognized for. In fact, the mineral industry plays a vital role in the country’s economy, as well as the manufacturing and agricultural industries. Other notable clusters can be found, namely wine, tourism and biotechnology clusters. Yet another pivotal cluster in the development of the country’s economy and national identity is the renewable energy sector, the main topic of discussion of this chapter. The country’s Department of Energy has been implementing policies to foster this cluster, including the possibility for private investors to contribute to the production of power through renewable energy sources in the country (SouthAfrica.info, 2015).

Global Competitiveness

According to the Global Competitiveness report 2014–2015, released by the World Economic Forum (WEF), South Africa ranks 56th out of 114 countries on the Global Competitiveness index, 89th on the “Basic Requirements” rank, including institutions, infrastructure and macroeconomic environment, 43rd on the “Efficiency Enhancers” index, regarding higher education and training, goods market efficiency, labor market efficiency, financial market development, technological readiness and market size and, finally, 37th in “Innovation and Sophistication Factors”, thus proving its competitive strength. Nonetheless, South Africa is still plagued by several social problems, such as high income inequality, youth unemployment and inadequate access to healthcare (World Economic Forum, 2015).

Business Environment and Policy

Legacy

History

South African History is divided into two main eras: colonialism and apartheid. The Dutch India Company were the first Europeans settlers to land in the southern tip of Africa in 1652, looking for the port of Cape Town, in order to resupply their trading expeditions that were passing the Cape of Good Hope, between the Netherlands and the Far East (CIA, 2015). At the beginning of the eighteenth century, the Cape settlement was taken over by the British, while the Dutch, also known as Boers or Afrikaners, made their “Great Trek” up north (Country Studies, 2015a). In 1867 and 1886, diamonds and gold were discovered, which led to consistent investments and immigration, boosting the economy as well as increasing the domination over the native population (Country Studies, 2015). The sudden gold rush inevitably resulted in conflicts, which eventually came to an end in 1902, during which the Dutch were defeated, in the Second Anglo Boer War. Eight years later, the Boers and the British were ruling together under the Union of South Africa, which officially became a republic in 1961, voted and ruled by whites only. The National Party passed the policy of apartheid segregating infrastructures, public services and residential areas in favor of the white minority over the black majority (Our Africa, 2015). Internal opposition led by the African National Congress (ANC), as well as boycotts and other sanctions from Western nations and institutions, forced the government to negotiate a co-operation with the ANC.

In South Africa’s first democratic elections in 1994, the ANC’s victory and Nelson Mandela’s presidency that followed put a definite end to apartheid. The ANC has since then kept a strong position as majority party in all elections.

Today’s Society

During the course of his mandate, Mandela successfully introduced a new constitution to reshape South Africa as a whole. However the country is afflicted with severe inequalities, in terms of housing, education and healthcare (CIA, 2015). If the Gini coefficient as a measure of inequality among values of a frequency distribution is taken into account, for the levels of income, it is noticeable that South Africa’s coefficient is amongst the highest in the world. Although it has changed politically, racial discrimination is pervasive and entrenched in the country’s economy (DeSilver, 2013). In fact, the end of apartheid has brought greater benefits to the white population than to the black and mixed race populations. Despite the fact that the vast majority (about 80%) of the national population of South Africans is black (CIA, 2015), the 2011 census revealed that the average annual household income of black citizens was 60,613 rand, roughly $8700 at the then-current exchange rate. This was about an astonishing one-sixth of the average annual income among white households, and a quarter that of the other minorities (2.5%) including Asian households. The wide gap of wealth distribution between ethnic groups, then, should not come as a surprise. South Africa is also very diverse in terms of languages—having 11 official ones—and religions, particularly in Christian branches (CIA, 2015).

Geography

South Africa and the Cape of Good Hope are at the crossroads of sea lanes between the Atlantic Ocean and the Indian Ocean. South Africa neighbors with Botswana, Lesotho, Mozambique, Namibia, Swaziland and Zimbabwe, all countries from which refugees seek asylum and protection, and whose economies rely heavily on trade with South Africa. Until 2012, South Africa had the highest GDP among African countries (The Economist, 2014). Regional cooperation has been formalized by the Southern African Development Community (SADC), with a common regional market and an agreement concerning the distribution of water (Country Studies, 2015).

Policy Choices

South Africa has been working hard towards a more balanced economy and society. Mandela’s government promulgated the Reconstruction and Development Programme (RDP) in 1994, the aim of which was to promote a competitive economy through socioeconomic policies (SA History, 2015), particularly with a focus on human resource capacity, fighting racial discrimination, especially in the workplace, developing a regional economy in Southern Africa, and democratizing the society. The country has since benefited from the policies put in place, specifically for accessibility of health care and reduction of inequality, although the economic development is still a major concern for the government.

Following the RDP, the Growth, Employment and Redistribution (GEAR) program was introduced in 1996, but was replaced shortly after by the Accelerated and Shared Growth Initiative for South Africa (ASGISA), that worked towards poverty reduction and employment creation. The ASGISA is now known as the New Growth Path (GNP) (SA History, 2015). With this policy, the government has successfully attempted to fuel the country’s economic development, by providing resources to meet social investment needs. While there was an impressive decrease of fiscal deficit to only 2.2% by 2000 (SA History, 2015), poverty, inequality and unemployment are nonetheless causes of concern.

In an attempt to improve the overall situation, the National Development Plan (NDP) was launched in 2013, a long term strategic plan that aims to redress economic issues by 2030. The current president of South Africa, Jacob Zuma, announced his interest in pursuing a framework similar to the one unveiled in 2010 by the Malaysian government, the Government Transformation Program (PMO, 2015), in an effort to obtain the same “big fast results” (SA News, 2014).

It is, however, important to note that South Africa is still ranked first among the sub-Saharan African countries. Its economy, compared to other African countries, is relatively stable, and the country possesses well-developed institutions. Moreover, South Africa’s financial market is prominent and, thanks to clusters such as the renewable energy cluster, its scientific sector is prolific. Concerning the business environment as a whole, South Africa was ranked 43rd in the Ease of Doing Business in 2015 (World Bank’s Doing Business, 2015b). On the downside, the country is still struggling to overcome the lack of labor market efficiency, its flawed hiring and firing practices, unequal wages determination and, finally, poor worker-employer relations. Additionally, the university enrollment rate is alarmingly low, with only 15% of new students in 2010, thus limiting the potential for further development and innovation, particularly in scientific sectors (Centre for Global Competitiveness and Performance, 2010). Finally, the lack of proper infrastructure and national security continues to affect South Africa’s productivity and attractiveness for international investors.

Business Environment

A preliminary analysis of the nation’s diamond shows strengths and weaknesses across four main indicators: factor conditions, rivalry, demand conditions and lastly, related and supporting industries. These four drivers analyze the level of local and international competition, the structure of the home-market demand, the density and distribution of supplier industries, and finally, the key factors of production needed to compete in the chosen industry (Fig. 12.1).

Fig. 12.1
figure 1

South Africa’s business environment

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A similar framework of analysis will be adopted in the following section of this chapter, to delineate the business environment specific to the renewable energy cluster.

Regarding factor conditions, South Africa is characterized by pervasive corruption, ranking 67th out of 176 countries in 2014, in the Transparency International Corruption Perceptions Index (Transparency International, 2014). The diffusion of electricity across the country is uneven due to lack of proper infrastructure in certain areas. On the other hand, the country can benefit from a considerable amount of natural resources, a boost in the education sector that will hopefully translate into continuous innovation and availability of credits for enterprises. Concerning rivalry, there is an extensive jurisdiction in the matter of intellectual property protection, and dynamic business relationships with other African countries; both positive aspects that are inevitably limited by the inflexibility on labor matters, such as wages and working hours. Demand conditions have been improved by a growing population that reached 50 million inhabitants in 2012, a vast majority of which possess good to high level of education (Transparency International, 2014). The great diversity in ethnicities and cultures is also an extremely positive factor. The income inequality, however, affects the full potential of such a diverse and dynamic population. Related and supporting industries within the country benefit from quality research institutes, entwined with local businesses. The financial market is, as previously noted, well developed and stable, resulting in increasing flows of FDI and, finally, the country is home to multiple, extremely differing clusters like wine and tourism. There are still some restrictions on capital inflows and outflows, which constitute a threat for development of businesses in need of high investments, such as the renewable energy-related industries (Incompass Forex, 2015).

Analysis of the Cluster

History of the Cluster

The renewable energy conglomeration that is blossoming in South Africa is still an emerging cluster, as its inception dates back to only a little over 17 years ago. Nevertheless, through the years, it has gone through several important changes, which have contributed to its success, and consequent expansion.

In 1998, the former Department of Minerals and Energy released a White Paper on Renewable Energy (Department of Minerals and Energy, 1998) that was approved by the then government. This was the start of a long-term commitment to the development of renewable energy, and energy efficiency, in the country. In fact, South Africa’s energy efficiency is significantly lower than the average. In 2009, following the split of the Department of Minerals and Energy into the Department of Energy (DoE) and the Department of Minerals, a more detailed, fiscal and legislative oriented policy was drafted. Along with the further promotion of the development of the renewable energy sector, the guidelines of the new policy also focused on which measures to adopt, in order to reduce carbon dioxide (CO2) emissions. As a matter of fact, in the same year, the U.S. International Energy Information Administration (IEIA) estimated that South Africa is Africa’s leading carbon dioxide emitter, and contributes to 1.49% of total global CO2 emissions (EIA, 2015). This is due to the fact that the country is still heavily dependent on coal, and whose total consumption amounted, according to IEIA (Bp.com, 2015), to a staggering 72% in 2012.

An important milestone in the development of the cluster was the approval of the White Paper on Renewable Energy (Energy.gov.za, 2015) in 2003, the main target being the production of 10,000 GW of energy by 2013, originating from renewable sources; namely, biomass, wind, solar and small hydro. A number of strategies were then developed, including the 2004 National Cleaner Production Strategy (Rogers and Banoo, 2004) that stressed the importance of the organic development and establishment of “practices of sustainable consumption”. The Biofuels Industrial Strategy, introduced in 2007, proposed a 5-year program to gradually introduce biofuels, such as bioethanol and biodiesel, and aimed to supply 2% of the country’s liquid fuel requirement, thus contributing to 35% of the renewable energy targets (Energy.gov.za, 2015). The 2008 Energy Act further supported the renewable energy planning, ensuring the availability of diverse energy resources, in sustainable quantities and at affordable prices, in an attempt to increase the diffusion and consumption of renewable energies, and assure future growth of the sector (Acts.co.za, 2015b). Along those lines, the Department of Energy released, in 2011, the Integrated Resource Plan (IRP), a 20-year additional plan targeting the electricity sector, with 11.4 gigawatts (GW) of renewables as the objective (Energy.gov.za, 2015). The South African renewable energy cluster is an example of a conglomerate of actors and institutions, adequately supported by the government, that work in excellent synergy towards common goals. The result is a dynamic environment capable of becoming, in the near future, a key player in the global renewable energy sector.

Cluster Today

From December 2011 to the present day, the South African government has initiated 64 projects for renewable energy, representing foreign and domestic investment of over $100 billion that will add 3900 megawatts (MW). Following this, South Africa was rated as the 12th most attractive investment destination for renewable energy. Now with the current pace of investments and the growth of the renewable energy sector, its contribution is expected to grow from 1% in 2012 to 12% by 2020. Once of the biggest benefits is the creation of opportunities in the job sector and for local companies the projects would involve up to 56% local content (SA Info Reporter, 2015).

Today, South Africa’s renewable energy cluster, also known as Green Cape, is expanding rapidly, and contributes to the energy production of several sources, such as solar photovoltaic, wind, concentrated solar, small hydro, landfill gas, geothermal, biomass and, finally, biogas (Mulcahy, 2014). Government officials estimate a contribution of total 18.2 GW by 2030, 42% of new build (Moodley & Van Weele, 2013), with a dramatic increase in the total available potential of renewable energies, with solar energy being by far the biggest contributor with 548 GW. Wind energy and hydropower follow, with 14.6 GW and 13,560 megawatt (MW) respectively. Forecasts for geothermal energy, estimated to be around 50 MW biomass, is expected to increase from 7.2 to 10.8 terawatt-hours (TWh) by 2040 and wave energy to increase progressively by a substantial 33 TWh per year by 2050 (Belward, Bisselink, & Bódis, 2011).

Value Chain

The inflow of FDI for boosting the renewable energy sector in South Africa is going to be very beneficial for the local vendors and citizens. For construction and setup of infrastructure for power generation plants, companies heavily depend on local sources for civil work. For instance, hydropower projects stem from 65% of local sourcing that also accounts for over 50% for geothermal power, and 60% for concentrated solar power (CPS) (International Renewable Energy Agency, 2015).

In addition to these benefits, the renewable energy sector has also resulted in the development of basic infrastructure, such as roads, several construction projects employment opportunities, research and development (R&D), manufacturing, construction, and installation and maintenance, as well as engineering. From the analysis of the value created by this sector, it is possible to conclude that the benefits generated by the clusters are both vertical and horizontal, hence, hybrid.

Cluster Map

Fig. 12.2 gives a graphical representation of the renewable energy cluster map in South Africa and its main actors.

Fig. 12.2
figure 2

South Africa’s renewable energy cluster

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Principal Actors

South Africa’s renewable energy sector has created lots of opportunities for:

  1. a.

    Upstream:

    1. 1.

      Local construction companies, due to the fact that these projects require a high amount of work.

    2. 2.

      Local transportation companies, because the technology required to produce renewable energy is manufactured in countries outside South Africa; most of the material is then imported, resulting in an increase of the local transportation companies’ business activities.

    3. 3.

      Consultants, to satisfy the need of specialists to identify and suggest suitable locations to start developing the project, in order to gain maximum output and reduce the overhead costs involved.

  2. b.

    Downstream:

    1. 1.

      Transmission cable manufacturing companies. Power requires a physical medium in the form of wire or cable in order to be delivered to the end user. The establishment of several projects scattered across the country, has resulted in an increase in the amount of cable required, due to the remote location of the said projects. These cables cannot be imported, mainly due to costs, and are consequently sourced locally as per the requirements. The outcome is an increase in business opportunities for the local companies.

  3. c.

    Education and jobs: Power-generating stations require local workforce, to ensure smooth operation of the units and prevent breakdowns. All the required workforce cannot be sourced from outside the country, hence the increase in the demand for local employees with engineering background, “Research and Development” (R&D), manufacturing, construction, installation and maintenance. Further, the increase in demand for specific positions has resulted in a boost to the education sector as an increasing number of locals wish to become eligible for the available positions.

  4. d.

    Related clusters: The finance sector is also greatly benefiting from this cluster, considering that the vast majority of projects require financing and loans.

  5. e.

    Government agencies:

    1. 1.

      The Department of Energy (DoE) is responsible for the progressive inclusion of renewable energy resources, along with nuclear energy, in order to meet the country’s future electricity needs and reduce its carbon dioxide (CO2) emissions (Gov.za, 2015).

    2. 2.

      The National Economic Development and Labour Council provides support for researchers and local labor unions, thus amplifying the amount of available information and increasing the standards for labor hours and pay scales (NewNedlac.org.za, 2015).

    3. 3.

      The Department of Trade and Industry overviews the regulation of taxes and governmental concessions for projects concerning renewable energies (KPMG, 2015).

Cluster Diamond

The diamond model, introduced in the second section of this chapter, identifies different dimensions of microeconomic competitiveness, also referred to as drivers, and offers an interpretation on how they interact (The Diamond Model, 2015). Concerning this cluster in particular, the structure of the South African market demand is certainly the most determining factor, although all four drivers need to be carefully examined to determine the dynamics within the cluster itself (Fig. 12.3).

Fig. 12.3
figure 3

Cluster diamond

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Concerning related and supporting industries, there are several construction, logistics and service companies, as well as raw material manufactures. Thanks to the availability of these companies, it is relatively easy to establish power-generating stations. On the downside, significant initial investment is required. Despite a lack of skilled workers, the input conditions are overall satisfying as of now. Government financing of the education sector will certainly produce qualified workforce in line with the constant growth of the renewable energy sector. The demand conditions are also excellent, aside from the hopefully temporary lack of infrastructure. As the demand for electricity is always increasing, the government is focused on reducing CO2 emissions, and on fostering the now blooming renewable energy sector. In fact, not only is this sector now considered as high priority, but also South Africa has begun exporting electricity to other African countries, thus improving the quality of life and possibly the productivity of the continent as a whole. There has been an increase of taxation on the trade of electricity not generated from renewable sources and an increasing number of international investors seeking opportunities in South Africa. However, the taxation structure is flawed and exposed to volatility, and the at times overzealous regulations approved by the government constitute a limit to the worker policies adopted by companies already struggling with the rising cost of labor.

Strategic Issues

Policies in Place

Despite its undeniable attractiveness and promising future, the renewable energy cluster has several obstacles to overcome, the vast majority of which are a direct consequence of the policies established by the government, or lack thereof, and inherent to South Africa. It is, however, important to note that these limitations do not affect exclusively the renewable energy cluster and industries, but the country as a whole, and will hereby be addressed as national issues, rather than cluster-specific only.

Job Market

The job market suffers from both an increasing unemployment rate and the need for a skilled workforce to occupy newly available positions resulting from the country’s economic growth. Human resources (HR) departments seem to lack, in most organizations, the skills necessary to conduct smooth and balanced hiring/firing processes. As a result, it is hard for otherwise perfectly employable citizens to find a stable position, and upon being full-time employed, to avoid being abruptly fired and quickly replaced. This clearly shows a major flaw in the system, as it produces educated and capable workers, while at the same time failing to offer adequate support in terms of job stability. Needless to say, this will most likely harm the country’s productivity and the now booming industries, such as the ones in the renewable energy sector. It could even preclude the country from benefiting from all the resources invested in the education sector, as more and more South Africans might seek better opportunities and job conditions abroad.

In the long term, a “brain drain” will also tarnish the country’s image and reputation, harming its attractiveness for foreign investors, and reducing the much-needed flow of FDI. In this case, then, it is not so much an issue of policies in place, but rather the lack of regulations and the lack of synergy between the education sector, and the job market that is incapable of employing the increasing number of skilled workers on offer.

Corruption and Security

As previously mentioned, South Africa is still considered as a highly corrupt society. This is yet another topic the government needs to address in order not to diminish the country’s attractiveness and threaten the development of local industries. Furthermore, foreign companies looking for new countries to outsource their activities, and establish partnerships, might opt against South Africa for a less corrupt and safer country.

FDI Inflow

The lack of a homogeneous pricing and tariffs framework negatively affects international trade, as the government has not yet produced policies aiming for common tariffs on imports (South African Institute of International Affairs, 2012). The interest foreign investors have shown in the South African market should not be taken for granted. Rigid, and most of the time fruitless, policies can in fact discourage investors. As relates to today still, South Africa still heavily relies on FDI to sustain its continuous growth and cannot afford a decrease in inflow.

Infrastructure

Another already widely discussed issue is the lack of proper infrastructure in the country. According to the World Bank, infrastructure is, and should be considered as, the principal leverage for the country’s economic growth (Juma, 2012). This clearly holds true for South Africa, as it prevents promising industries and businesses from exploiting their full potential, and severely affects their level of competitiveness, especially on an international scale. Further, the signs of positive growth that the country has been showing even during recession, namely the 2008–2009 crisis, need to be properly sustained by acceptable infrastructure, failing which all the reforms and initiatives undertaken to allow the country to grow will be of no use.

National Debt

South Africa has been gathering capital through debts, a heavy burden for the government to sustain in the long term. Considering its appeal to foreign investors, amidst concerns regarding its actual attractiveness the government should focus on FDI rather than further expanding the country’s debt.

Parts of the Diamond

The four drivers identified in the third section of this chapter, concerning the cluster diamond, are certainly not lacking in flaws either.

Heavy initial investment is required for establishing a renewable energy generating plant, especially when considering them on a cost-per-unit basis (i.e. $/kW) (Beck & Martinot, 2004). The government does provide incentives to support the renewable energy sector; however, the amount of initiatives undertaken depends mainly on the country’s GDP and economic results. If the country were to suffer a decrease in productivity, the incentives offered to support the growth of the sector might drastically diminish as well.

In order for the renewable energy cluster to flourish, skilled workers are mandatory (Sajs.co.za, 2015). Due to the dichotomy the country faces concerning the job market, it is still difficult to find skilled workforce suitable for the more technical positions, which poses a threat for the country’s overall productivity and the survival of the renewable energy cluster.

Further, the efficiency of the power grid records a loss of 8–10% in transmission of electricity (World Bank, 2015), resulting in an increase in the cost of electricity per unit for customers. In addition, due to the lack of proper infrastructure and the, at times, remote locations of renewable energy projects, it is fair to estimate even greater losses for the government and the economy in the short and long term.

The quality and quantity of infrastructure required in the renewable energy sector constitutes probably the biggest threat to the development of the sector. In particular, it is important to note how delays in the launch of new projects impose constraints that the government cannot afford.

Finally, the continuous outsourcing of technology from advanced economies poses another problem for the renewable energy sector, as it prevents it from developing its own technology, thereby implying increasing initial investment, and reduction in the autonomy of the cluster’s principal actors.

Policy Recommendations

Government

There are several ways the government can improve the overall situation of the country; for instance, in the area of unemployment, supporting manufacturing exports and labor-intensive services could boost employment creation (Edwards and Lawrence, 2012). On this note, the government has promoted interesting initiatives, such as the New Growth Path, whose objective is the creation of 5 million new jobs by 2020 (Economic Development Department, 2011), with a particular focus on younger generation. However, there is definitely room for improvement in the relationship between unions and employers.

Highly individualized tariffs are more likely to harm the economy and the country’s competitiveness than common tariffs. Nevertheless, other African countries, particularly those neighboring with South Africa, should be offered more incentives, at least at the very beginning of business relationships, to fuel cross-border transactions, as the country can exert first mover advantages in these emerging economies. Additionally, a good synergy amongst African economies could improve the overall economic situation of the African continent as a whole, allowing a more even distribution of resources across African countries. In fact, this could also result in the development of unity on a continent basis, which can only increase the attractiveness of South Africa.

Infrastructure is an omnipresent and intra-sectoral issue, constituting one of the biggest threats to South Africa’s development (SA CommercialProp News, 2015). The government is well aware of this problem, and has launched the National Development Plan, to improve the quality and distribution of infrastructure within the country. A possible way to further improve the situation would be that of involving the private sector in the development of infrastructure, as consistent investments are required to obtain good results in the shortest lead time possible.

Private Sector

The private sector should consider working for national objectives as the government offers attractive incentives, which are extremely useful to assure a steady growth. For example, South Africa’s Department of Energy has approved 13 new renewable Independent Power Producer bids (South Africa Info, 2015).

Further, South Africa has one of the highest rates of public investment in education in the world, with 7% of gross domestic product (GDP) and 20% of total state expenditure spent on education. Nonetheless, higher education is neither easily accessible nor affordable for an increasing number of citizens (South Africa Info, 2015). The cost of education rose by 9.3%, as of March 2017, constituting an insurmountable barrier for over 33% of South Africans aged 5–24 (Statistics South Africa, 2015). It is fair to assume that South Africa still has a dysfunctional education system that sees consistent investments, but whose accessibility is in constant decline. In order for the country to fully benefit from the investments made in the education system, all those who wish to enroll in university courses should be able to do so at reasonable fees, and more financial aid should be available as well. Racial discrimination, which still seems to be the principal cause of social inequality in the country, should be slowly eradicated and the economy will surely benefit from the increase in skilled workers. Besides, companies in the renewable energy sector, which are in desperate need for educated workers with specific skills and knowledge, could partner with universities, and develop programs in accordance with their needs and possibly offer scholarships too. Universities will then be able to mitigate risks and share costs, and more would-be students will have easier access to higher education institutions.

In South Africa, there is one major apolitical trade association, the South African Chamber of Commerce and Industry, whose objective is to strengthen and develop South African businesses. It encompasses the four largest trade associations in the country: the South African Chamber of Business (SACOB); the Foundation for African Business and Consumer Services (FABCOS), whose members are mainly micro-enterprises and businesses in the informal sector; the National African Federated Chamber of Commerce (NAFCOC), whose primary goal is to sustain black economic empowerment; and, finally, the Afrikaanse Handelsinstituut (AHI), a multi-sectoral employer organization. Moreover, there are also regional business chambers in the all nine provinces (Common Wealth, 2015). Each one of these trade associations has a peculiar mission and—understandably—different objectives. However, a combined effort of all four is likely to improve the overall situation of all groups in each association. Good cohesion at a trade association level can only empower citizens and will result in better socioeconomical conditions both for disadvantaged South Africans and the government as well.