OPINION: 10 reasons why SA must develop an electric vehicle sooner
JOHANNESBURG - South Africa no longer has reasons to delay embarking aggressively on a mission to manufacture an Electric Vehicle (EV) for the domestic and export markets.
The initiative will contribute significantly as a catalyst to advancing the country’s economic growth, create jobs and open up entrepreneurial opportunities. The time is right, stakeholders are ready, opportunities are abound , while the market climate is favourable .
This is an opportune time to retrieve from the shelves projects such as the “Joule” (or another) the brainchild of Optimal Energy – an off shoot of the University of Stellenbosch, exhibited at the Paris motor show in 2008 but abandoned in 2012. Some said because it was born too early – some said it did not make “business cents” at the time.
1. Rising Petrol Price – An Albatross
The price of petrol in SA has shot off to the roof – an albatross around the necks of the middle income and poor citizens, who make the majority of the population. There is no guarantee that the recent price hike is the last for the year, but it certainly is a definite and constant sore point for the SA consumer. According to Cars.co.za the price of petrol was about R4.00 a litter in 2003/4, the price went up to R12.48 in 2013 – an increase of about 339% in a decade. Petrol and diesel prices again went up in June 2018 to R15.79 per litre of petrol, while diesel price is R14.25 according to the Department of Energy. The trend is likely to continue in an upward trajectory during the course of this year.
2. Looming Threat of Phase Out of Petrol and Diesel Powered Engines
Meanwhile, France, Germany, the UK and other European Union nations intend to ban the production and imports of petrol and diesel powered engine vehicles by 2040. This poses a monstrous and detrimental threat to the SA auto manufacturing industry, since almost all cars made in SA are propelled by Internal Combustion Engines (ICE) powered by diesel and petrol and to a lesser extent gas. The noted countries are all importers of SA manufactured vehicles. NAAMSA reported that SA exported R171.1 billion worth of vehicles sales to the world market in 2016. SA exported to European countries R46 billion worth of vehicles. SA vehicle exports to Germany was R46 76billion, to UK R8.9 billion, France R3.8 billion, including R14.3billion to Belgium and R5.5billion to Spain; respectively. The export value to Europe is nearly half of SA’s vehicle export market share of 2016. If the diesel and petrol powered ban were to be imposed, it would impact negatively on the SA economy. Media reports say cities such as Athens, Copenhagen, Madrid, Mexico City and Paris etc. are contemplating imposing bans on diesel engines as early as 2025 – which is likely to trigger similar reaction from many other cities of the first and middle income countries. SA currently produces and exports no EVs for both the local and domestic markets. But regardless, parallel to the impeding threat to the SA vehicle export market there is an opportunity waiting to be harvested through the production and export of a local EV.
3. SA Accounts for Only 0.6% of Global Vehicle Market Share – Production and Sales
The Automotive Export Manual 2017 reported that the car, truck and parts production in SA in 2016 accounted for 33% of the entire national manufacturing output. This was the largest formal manufacturing sector in the country, on which the government banks to enhance industrialization efforts. The sector contributed 7.4% to the GDP and accounted for only 0.6% of the global vehicle sales market share. SA produced and sold over 641 000 vehicle units in 2017 compared to China’s 29.1 million, US 12.9 million and Japan 9.2million, according to Statsa.com. Meanwhile the entire South African taxi industry fleet is supplied and serviced by foreign brands of Chinese, German, and Japanese vehicles manufacturers and others. SANTACO pegs the taxi fleet at more than 300 000 vehicles. Similarly, the private car, business and the haulage fleets are also of foreign origin - supplied and serviced by multinational companies with successful operations in SA. Most of these operations are subsidized by government as foreign direct investments, through the Automotive Production and Development Program (APDP). It is the aspiration of the APDP, an initiative of the Department of Trade and Industry to increase local content in vehicles and components, as well as the number of vehicles produced in South Africa to 1.2 million per year by 2020. This would auger well with the development of an EV in SA as means to plug that gap, while gradually transitioning away from ICE powered vehicles. Every year new brand vehicle manufacturers from all over the world enter the SA vehicle market, and very seldom do they depart soon after because of market failure. This is a clear indicator that they are all doing reasonably well – a sign of market potential for an SA built EV.
4. Respectable Exporter of Value Added Goods
SA is growing as a net exporter of value added goods and services - has the biggest, most diverse and successful trade balance in the region. The South African Revenue Services Trade Statistics reported that SA exported R104 320 billion and imported R88.6 billion worth of goods and services in 2017-2018, registering a surplus of R15 720 billion in February 2018. Approximately 26.3% worth of the exports went into the African continent, 32% went into Asia; 23.9% to Europe and 8% went to the Americas. The data also shows that the top export goods accounted for nearly 75% or three quarters of the exports. Primary goods, especially minerals such as coal, gems, precious metals and ores etc. and some agricultural products still account for the largest part of the exports, but fetch a very low dollar base. Value added or manufactured export goods accounted for 20.1% including vehicles and trucks, electrical machinery, computers, pharmaceuticals, synthetic fuels and oils, beverages, spirits, vinegar etc., according to the source. This is another positive sign of a receptive global market to SA products, which presents more reason to accelerate momentum to produce an EV.
5. African Market Growth Potential
Observers in the auto industry assert that Africa has become a dumping ground for the Asian market of used ICE cars, some of which are over ten years old and do not meet the global emission standards. Nigeria, Tanzania and Kenya (and other African states) which have growing middle class populations, are among the biggest consumers of the subject product. The argument is that the vehicles are serving a good purpose by providing transportation for people and goods at relatively low prices. This is however not sustainable in the long run, because it is an aspiration of nations to reduce carbon emissions in their countries sometime in the future, as a way of averting or reducing human induced climate change. In this respect Africa is a potential market for the EV in the future.
6. Domestic Market Growth Potential
The number of registered vehicle population in SA was slightly over 12 million in 2017 according to the electronic National Administration Traffic Information System (eNatis). All of these vehicles are ICE powered by diesel and petrol. Meanwhile analytics and vehicle data service provider Lightstone Auto reported that government purchased about 4 273 vehicles in 2016, and 10 of which were EVs. Government, as an arbitrary policymaker and the ultimate authority, can and should help create a market for locally produced EVs. For example, for reasons such as carbon emission reductions, the promotion of local industrial development, and prompting the green economy, all of which are the aspirations of the National Development Plan (NDP), government can pronounce an all-binding executive order that the next purchase of government vehicles fleet must shift from ICE to EV by 2025 – or at least a significant fraction thereof. This will include all vehicles purchased for all tiers, spheres and entities of government, including national, provincial departments and local municipalities, SOEs and other state subsidiaries such as science and other councils, universities, schools, the police, military, correctional services etc. The blanket executive order can at a later stage be directed to a gradual decrease of the bus, haulage and taxi fleets powered by petrol and diesel, to be replaced by relevant EVs.
7. Market Potential from Multi-Lateral Trade Agreements
It is an undisputable fact that South Africa’s EV may encounter challenges before making a breakthrough into the global EV market, but all this will not happening in a vacuum. SA is a partner in many regional, continental and global trade pacts and treaties. For example, there are numerous bilateral relationships with numerous individual nations in the EU, and with the US under the auspices of Africa Growth and Opportunity Act (AGOA). The DTI indicated that Africa’s trade with the US –AGOA has been declining over the last few years, mainly as result of the reduced oil and gas imports from Angola and Nigeria. This has left a gap of over $50 billion which needs to be serviced. SA is the current chair of the SADC, a member of BRICS all of whose economies dwarf that of South Africa by far. SA is also a member of the G20, the G77 countries, and has recently signed into the Continental Free Trade Area which may eventually include all 54 countries on the continent. With this type of economic and political leverage, SA can muscle in its way into to the global EV market.
8. Obligation of the Paris Agreement Signatories
SA, along with 196 other countries has ratified the Paris Agreement of 2015. The countries made commitments through the nationally determined contributions (NDC) to reduce national carbon emissions. The NDC embodies the means and ways by which countries intend to reduce greenhouse gas (GHG) emissions, which may be by policy and regulations or emission quotas. SA is one of the leading GHG emitters on the continent, contributes 1% of global GHG emissions because of the over 80% of coal based electricity generation, petrochemical industries and cement production, as well as one of the fastest growing motor vehicle fleets on the continent. They country is embolden to a moral obligation locally, regionally, continentally and espoused responsibility to lead by example in helping to reduce GHG emissions in effort to minimize the effects of climate change. Pursuant to the aspirations of the Paris Agreement, SA like all other partner nations must play its role in the contribution to achieving the objectives of the treaty, by gradually phasing in an EV fleet.
9. Finance and Investment
It is ever indubitable that financing such an endeavour will not come easy, but this is not a surprise. There are clear cut opportunities in place, while others SA must still create. The clamour call made by the President Ramaphosa to attract $100 billion from both local and international investors is a good start. Yes, it may be difficult to raise but it is also possible and plausible to do. An official manning the Joule EV display model at the climate change COP 17 conference in Durban in 2011 told the author, that at that time, about R8 billion was required to place the Joule on an assembly plant. Of course with the lapse of time, the amount required has probably doubled or it is even more at this stage – but compared to $100 billion... The JSE market capitalization is reported to be over $1.1 trillion, the seventeenth largest financial market in the world. Of course this is not free money – but it worthy of serious consideration. It symbolizes a vibrant and powerful financial and investment climate to source funding from. The likes of the African Development Bank, the African Investment Forum, BRICS Bank (New Development Bank), the Public Investment Corporation, the Industrial Development Corporation and many other global investment facilities must be solicited into the fray. It is also important to highlight that while wooing in other people’s money to invest in SA projects, it is also critically necessary to ensure that there will be return on investment, incentives, tax holidays etc. The investor’s money must be adequately protected, corruption must be guarded against and must not be tolerated even in the slightest, and government must be seen to be acting harshly and decisively against the corrupt.
10. Number of EV Population Constantly Rising
According to a recent forecast by the International Energy Agency the population of the EV is projected to rise to 220 million units by 2030. This is as result of aggressive combat against climate change, dropping manufacturing and battery costs, and a growing middle class population across the world etc. The IEA asserts that there are currently nearly 3 million EV cars on the roads worldwide. China is leading the pack with nearly 600 000 units in 2017, a notable 72% increase from previous years. This is an equivalent of SA’s annual output of petrol engines cars – SA must take serious note. Of course the US, Japan, Norway and many EU states have warmed up to EVs. Meanwhile in SA, just over 300 EV units have been sold in the past year according to Lightstone Auto. At this point an EV market growth may appear to be a far cry compared to the advancement of comparator countries like China, US, Japan and others, but as Tata Madiba correctly observed that, “It seem all impossible until it is done.” – Every journey to anywhere – in any direction begins with the first step.
Critics of the EV correctly argue that it is still an expensive exercise to develop an EV. But it is also a known fact that before the 19th century a self- propelled, diesel or petrol engine powered car was a distant imagination, much less an aeroplane or wireless mobile phone. But because of the innovative nature of the human mind, coupled with relentless probing and insatiable desire and search for adventure, an automobile was developed. Over time the automobile was subsequently improved to the greatest heights of efficiency, performance, comfort, endurance and beauty. EVs are criticized for having a low travel range, there is shortage of recharge infrastructure, there is also fear of the EV impacting negatively on the petrol and diesel manufacturing and supply sector, resulting in the loss of jobs. All these are valid concerns, but they are also not entirely insurmountable. For example, there is a gradual but constant shift towards the off-grid electricity to independent power producers. Wind and solar farms are springing up all over the country. Moreover, if early pioneers had relented to fear of adventure and exploration, the world would not be enjoying the vast and explosive science, technology and innovation the world experiences today. It is for these reasons that SA must dig in and make an SA built electrical vehicle. Some observers soberly suggest that it may be necessary to introduce, parallel to the EV production, a transitional fleet of hybrids (EV/Petrol or gas powered) in order to smoothen the pathway to a complete EV introduction in SA and the continent. This is a valid and reasonable consideration. Realistically the ICE vehicles may still be around for a little while longer before a total phase out can be realized and broadly accepted. As much as it will be a painful process for some, with casualties along the way, it also remains an undeniable fact that eventually the transition to EV will happen. It is thus better to move fast proactively in anticipation of the looming change rather than be taken by surprise, as sloppy laggards.
Only SA has the capacity to hold itself economically submerged or self-propel above the self-restricting 0.6% market share of global car manufacturing and sales.
As the economic powerhouse and leader on the continent, SA can no longer afford to address its woes with timid, half-hearted measures and reactive approach. President Cyril Ramaphosa, Trudy Makhaya and the “four lions” must go for the juggernaut - unleash the country’s fullest potential, and refrain from looking up to other nations for approval. SA must avoid staying trapped in the conventional methods of addressing unconventional problems.
The country must take calculated risks, go for the total onslaught for economic development – embark on an aggressive self-propulsion forward, upward and unapologetically. A toothpick prick can never put down a raging bull elephant, symbolized by the constant negative economic growth, poverty and unemployment – one needs a powerful, high calibre weapon to execute such a tasking.
This weapon is constituted by aggressive research and development – thorough feasibility studies, marketing and advertising, domestic and international investment soliciting of unprecedented proportions. This includes adopting a proactive attitude and ridding SA of this risk-averse attitude and replace by embracing its inbred pioneering spirit.
This land of Nelson Mandela’s birth surprised many a nation in the world in 1994 by demonstrating the highest degree of political maturity -negotiating a peaceful transition from the Apartheid regime to a democratic dispensation. Despite some vivid national socio-economic hardships which are still experienced by the ordinary citizens, SA’s Constitution is still ranked amongst the best in the world. This is a country that denuclearized voluntarily, forged and sustained an unprecedented synthetic petrochemical industry in SASOL; home to the world renowned Square Kilometre Array – a multi-national radio telescope project which is certain to revolutionize astronomy and the fourth industrial revolution; a nation which brought back the rhino population from the brink of extinction to become home to over 85% of the global species. President Cyril Ramaphosa’s clamour call for the $100 billion investments is good, but $500 billion is better, while $1000 billion (trillion) is the best route home to economic recovery. This is so because the $100 billion already falls short of the R1.671trillion national budget of fiscal year 2018/19, which is unlikely to make a dent into the under 1% economic growth rate, 27.7% unemployment rate, the bulging unemployed youth, over 52% living in abject poverty, as well as the 17 million plus (out of 56 million) grant dependent citizens.
Martin Matlebyane: Environment, Science and Technology Specialist at the US Embassy and TMALI scholar in his private capacity. The information is obtained from free public sources and does not reflect the views of the author’s employer.
The views expressed here are not necessarily those of Independent Media.
- BUSINESS REPORT