The basic indication for economic growth, within a country’s borders, is measured by the Gross Domestic Product(GDP) indicator. The GDP is a sum of household consumption, investment, government spending and net exports. A multifaceted approach is required to understand the positive relationship between the proliferation of the Electric Vehicle(EV) market and economic growth, which will be explored throughout this article.
Ideally, a country wants to be a net exporter, meaning that the currency value of its exports exceeds that of its imports. In 2021, South Africa had a trade balance surplus with exports and imports totalling R162.79 -and R126.96 million respectively (SARS, 2021). South Africa’s total vehicle exports account for 12.5% of exports, which makes up 4.3% of GDP (Lamprecht, 2022). Proliferation of the EV markets in Europe and America diminishes the demand for South African non-electric vehicle exports. EU lawmakers have also placed a ban on fossil-fuel cars from 2035 (France24, 2020), indicating clear cut demand issues in the near future. Mikel Mabasa, CEO of Naamsa(National Association of Automobile Manufacturers of South Africa), indicated that if EV’s are not in the pool of vehicles to export soon, the export amount will decline from R201.1 billion(2019) to R40.3 billion. This would also result in 55 000 jobs losses within the OEM(Original Equipment Manufacturer) sector (Mabasa, 2020)and translate into economic downturn if upskilling for a just-transition is not facilitated.
EV market catalysts
Catalysts for the growth of the EV market, and economic growth as a result thereof, include: South Africa’s endowed resources to produce lithium-ion batteries, increased Official Development Assistance(ODA), more stable prospects for energy security and EV charging station infrastructure development.
The prospects for lithium- ion battery manufacturing in South Africa, as a catalyst to drive locally manufactured EV’s, are promising. There are numerous electrode materials to select from to produce lithium-ion batteries. The fastest growing, in demand, is Nickel Manganese Cobalt Oxide(NMC) because of the high energy it provides as well as its low internal resistance. Currently, the global demand for this type of lithium-ion battery is 28% of global EV sales and is expected to grow to 53% by 2027 (Greencape, 2022). NMC 811 is made up of Nickel(80%), Manganese(10%), and Cobalt(10%). South Africa and the Democratic Republic of the Congo holds 78% (Manganese Investing News, 2022) of the world’s resources of Manganese and 70% (Cobalt Investing News, 2022) of the world’s Cobalt supply, respectively. Major economic growth lies within creating a domestic market to produce not only lithium-ion batteries but also electric vehicles to use domestically and export.
Funding gap and economic growth
At the end of 2021, The International Just Energy Transition Partnership(JETP) was signed between South Africa, France, UK, US and Germany to provide Official Development Assistance(ODA) to facilitate decarbonisation efforts in South Africa. In order to realise the partnership’s finance and implementation strategies, the Investment Plan( JETP-IP) will be finalised and approved in November 2022 at COP27 where a long-term partnership action plan will be decided on.
At the beginning of 2022, $8.5 billion was mobilised as initial investment for projects over the next 3-5 years (Presidential climate finance risk team and the international partners group, 2022). A key priority within this partnership is to streamline investment towards the Green Hydrogen and Electricity Vehicles sector. The large funding gap, which had been a major stumbling block in the evolution of the EV market in South Africa, is predicted to decrease as a result of this partnership.
Economic growth from this partnership will range from the creation of green jobs within the electricity vehicles sector(technicians and R&D), to the infrastructure required to host the influx of EV’s in South Africa.
A major concern for developing the EV market in South Africa is unstable energy security. During Cyril Ramaphosa’s most recent national address, he alluded to the decreased threat of this problem as the JETP is largely investing in grid maintenance and expansion (Ramaphosa, 2022). Eskom’s monopolistic powers are diluted through the establishment of an independent transmission company and further plans to separate its distribution and generation businesses by the end of this year. The power shift towards more private counterparts, such as Independent Power Producers(IPPs), will hopefully create a more competitive energy supply market in South Africa. Additionally, IPPs and private companies now have more incentive to invest in grid maintenance projects that have better prospects of delivering higher return on investment.
Household consumption as a factor of GDP
South Africa’s reasons for the slow uptake of Electric Vehicles(EV) is understandable. The ongoing war in Ukraine, proved to be the reason why South Africa is compelled to move towards self-sufficiency for prolonged periods of political tension. At citizen-level, Eskom is in the process of developing “fee-in tariff” measures to incentivise individuals and businesses to install solar panels on their rooftops and to sell off excess power to Eskom. This could tip the scales in favor of individuals as they can save on electricity bills and this will empower them with greater confidence to buy an EV with a home-charging station.
Top EV manufacturers such as Porsche, Volvo, BMW, Mercedes-Benz and Audi offer optional value add-ins such as home chargers with installation (Business Insider, 2022). Within the context of economic growth, households will have more disposable income to spend in the economy that would otherwise have been spent on petrol/diesel.
All in all, South Africa has the capacity within, and the support from outside its borders, to reap great economic benefit from developing its automotive industry to a more sustainable one. A collective effort to draw all points of supply and demand is crucial to ensure that a holistic plan is developed to reach the needs of current and future South Africans.
GUEST AUTHOR: Renate van Rooyen
Renate is currently studying development finance at the Stellenbosch Business School. This year she really deep-dived into the sustainability side of things. Worked on an international project for a regenerative farmer in Spain – focused on Catalonian consumer sentiment regarding organic food and regenerative farms. She’s an Ambassador for the Global Alliance of Universities on Climate.
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