ON THE MONEY - Electricity minister is certainly not divorced from reality

ON THE MONEY Electricity minister is certainly not divorced from reality

ON THE MONEY

Does our new electricity minister believe in fact- and reality-based policymaking?

An odd question perhaps, but it seems a pertinent one given the levels of contestation and vested interests floating around the energy crisis (and therefore solving load-shedding).

For whatever criticisms one can throw at the new minister — in his previous job as infrastructure panjandrum there are certainly a few — being divorced from reality was not really one of them. His recent LinkedIn missive is testament to this.

Why is this important? Because for all the ill-necessity of having an electricity minister or a state of disaster, actually the role of being top cheese of the president’s national energy crisis committee (Necom) is to deal with reality-based policymaking — and doing battle with the countervailing forces in the political sphere.

This has of course been the success of Operation Vulindlela, slowly chipping away at the shibboleth of ideology-driven fake news that have surrounded so many reform issues.

We got a keen reminder of this last week when the hoary old chestnut of how much renewables actually cost was again raised by our mining & energy minister and the same fake news was forthcoming — implying that the costs of early Renewable Independent Power Producer Programme (REIPPP) rounds priced electricity provision at the same level now. This even after his own department’s emergency request had seen (overwrought) tenders for baseload renewables (renewables plus batteries) at prices much lower than those of earlier REIPPP rounds.

All this is very dull and repeats itself periodically, which is why the electricity minister will to have to take on such (political) battles and win them to drive the Necom plan.

But the landscape and these battles are not constant. We have seen a meaningful step-up since December in contestation over the just energy transition broadly, over state-owned enterprise reform (with conflicting messaging from the government and the president), and over the broader reform agenda, including ports.

The problem here — after the state of the nation address and all the usual start-year pageantry — is that investors (domestic and foreign) are feeling jaded. Sentiment is lower than it was last year or any time since 2017 — perhaps lower than during the state capture years when there was a sense of a turning point within reach.

There has been a broad abandoning by investors of a view that a political alternative is available next year — either from the DA or other opposition parties or from any of the new proto-parties. Some of this is unfair but not irrational in its view given the drama in Gauteng metros where no-one has come out smelling of roses.

The ANC of course will be hoping that the election ends up being a "better the devil you know" vote than a risk-loving, protest-vote-driven outcome.

Investor scepticism here is dangerous. Normally in an emerging market there is tension between those who think a turning point will occur and those who think it will be missed. But there is a consensus that the turning point is there, a possibility, a path that can have a probability assigned to it.

This was very much the discussion at the time of Ramaphoria — it is what has driven large asset flows in recent years in places like Brazil. Now, however, there is just a consistent gloom around SA.

The unfortunate fact is that nothing much can be said at the forthcoming investment conference to shift this. If anything, the endless parade of "deals" (often opex dressed up as capex or mysterious and lacking detail like the African Development Bank commitments last year) can actually make sentiment worse because investors know it’s a ruse.

This sentiment problem isn’t new, yet arguably there are signs of a turning point. Why are people not picking this up?

Eskom has 14GW of projects with or about to get grid access. The national energy regulator registered more than 1GW of new projects — with larger ones coming through — since the start of the year. Rooftop solar installation is gaining momentum and, with added tax incentives, may well reach several gigawatts this year.

Yet the problem remains the lack of a politically decisive path forward. It has always been widely recognised in commentariat circles that there is a lack of political basis for change as a society at present. But this has now (yes perhaps rather late) dawned on investors as well with an election staring us in the face.

The political climate can certainly drive investors, with elections often seen as major turning points for sentiment and capital flows. Yet just as SA misses out on commodity cycles, so it may well miss out on this electoral investment flow cycle that might have otherwise happened.

EXCISE DEMONS

This is all sounding bleak given that I am rather more positive than consensus on the ability to substantively solve load-shedding by the end of 2025 based on the momentum seen, even with all the known constraints. Yet the logistics, the labour market, the productivity, the education, the industrial policy crises are all brewing. These are all too big to just make promises in a speech without the underlying political change required.

There is no credible sense that a DA/ANC coalition would offer this kind of change and therefore would be wholly destructive to both parties (for different reasons). Both parties would have to excise their demons in too dramatic a way for such a coalition to be successful, which is just not possible — those demons being fundamental to their respective natures.

An EFF/ANC coalition by contrast can be more simply analysed and dismissed as the font of positive change. No-one has yet shown the political maturity that political change can be trusted through an opposition coalition — especially with the larger powers of national level.

We are left with a rather unsatisfactory hope that the reality-based policymaking we are looking for in the new minister can win through. Wins can ratchet up slowly, case by case, supported by capacity from wherever it is available — like business — but the capital flows more broadly will be limited and benefit of the doubt won’t, and is not, being given by investors.

I’ve said before that I don’t think SA takes it seriously enough that it isn’t a real commodity country if it sits out commodity cycles. The same is true of a lack of cycle around elections and reform. This is not how things are meant to be as an emerging market.

Attard Montalto leads on political economy, markets and the just energy transition at Intellidex, an SA research-led consulting company.