South Africa’s Industrial Policy Needs Urgent Reform for a Sustainable Future

South Africa’s industrial policy is under scrutiny as experts warn that key economic strategies, including fossil fuel subsidies and carbon taxation, need urgent reform to ensure long-term sustainability.

During a Trade and Industrial Policies Strategies (TIPS) webinar, specialists highlighted the pressing need for a shift away from fossil fuel dependence, a revision of outdated industrial policies, and a focus on value-added manufacturing rather than raw commodity exports.

Fossil Fuel Subsidies Tripled with Minimal Economic Benefit

One of the most concerning revelations was that South Africa’s fossil fuel subsidies have tripled from R39 billion (2018-2023) to R118 billion in 2024, with little tangible benefit to the economy. The increase has largely been driven by the global energy crisis and rising oil, gas, and coal prices following Russia’s invasion of Ukraine.

Muhammad Patel, senior economist at TIPS, argued that these subsidies divert valuable resources that could be better spent elsewhere.

“Fossil fuel subsidies are problematic. We are channeling more resources into them without clear economic or environmental benefits,” said Patel.

South Africa, as a G20 member and COP28 signatory, has committed to phasing out inefficient fossil fuel subsidies. However, implementation remains slow, raising concerns about the country’s ability to transition to renewable energy in time to meet global climate targets.

Carbon Tax: Too Low to Drive Meaningful Change

Another major issue is South Africa’s carbon tax, which currently sits below $10 per ton—a stark contrast to rates in the European Union (EU) and the United States, where taxes range between $30 and $50 per ton.

The carbon tax, introduced in 2019, was designed to reduce greenhouse gas emissions and help meet Paris Agreement commitments. However, experts argue that the current rate is too low to be effective.

“We are not truly accounting for the cost of emissions,” said Patel. “While increasing the carbon tax has consequences, failing to do so means we lag behind global decarbonization efforts.”

The South African Reserve Bank has also warned that without a stronger carbon tax system, local industries will struggle to compete in global markets where border carbon adjustments (CBAMs) are becoming the norm.

Moving Beyond Mining Dependency

TIPS senior economist Neva Makgetla stressed the need for South Africa to diversify its industrial base instead of relying on commodity exports.

“There is a core argument in development economics that we should move away from commodity dependency. Mining creates few jobs and is subject to boom-and-bust cycles,” Makgetla explained.

South Africa’s mining industry employs fewer than 500,000 people, and downstream beneficiation—while offering economic potential—is highly capital-intensive and often less competitive than imported alternatives.

A well-structured industrial policy should prioritize renewable energy investments, high-value manufacturing, and technology-driven industries to create sustainable jobs and economic resilience.

The Path Forward: Rethinking South Africa’s Industrial Policy

With global economic and environmental pressures mounting, South Africa cannot afford to delay industrial policy reforms. Key steps include:

Phasing out fossil fuel subsidies to free up resources for green energy investments.
Increasing carbon tax rates to align with international markets and incentivize emissions reductions.
Reducing reliance on commodity exports and fostering industries that create sustainable jobs.
Investing in renewable energy and green technology to stay competitive in global trade.

Without these reforms, South Africa risks falling behind in the race towards a sustainable and resilient economy.

{Source IOL}

Follow Joburg ETC on Facebook, Twitter , TikTok and Instagram

For more News in Johannesburg, visit joburgetc.com