OLD MUTUAL INVESTMENT GROUP: Expert Opinions: Edition October 2019 / January 2020



SA has a highly carbon-intensive economy. We’re one of the top 20 largest emitters of greenhouse gases (GHG). On a

per-unit-of-gdp basis, we rank well above the global average.

This should be seen in the context of the global effort to decouple economic growth from fossil-fuel use. The winners will be those countries, and companies, that can decarbonise their growth. SA’s participation in the global economic race comes with a handicap that we can ill afford considering our high levels of poverty, unemployment and inequality.

SA relies on coal to generate about 90% of its energy requirements and some 20% of all our liquid fuel requirements. Sasol and Eskom collectively account for around 50% of our annual GHG and some 85% of domestic coal consumption. However, simply turning off these two entities to address climate concerns is not a solution; certainly not in the short term, and especially when considering how important these companies are to the running of our economy as well as sources of employment.

Coal lives matter

The Mineral Council SA reports that the coal industry employs some 82 000 people (down from a historical high of 120 000 in the 1980s). Eskom provides work for over 50 000 people in its primary coal fleet. Sasol, while being a global company, provides the bulk of its 31 000 jobs in SA. Any effort to decarbonise our economy needs carefully to consider potential jobs losses as well as, more broadly, long-term national socioeconomic development.

From a purely financial perspective, Sasol is one of SA’s largest taxpayers. Last year it contributed R39.5bn in taxes to government. Coal miners contribute not only tax and mining royalties but are also important sources of foreign revenue.

Mining in general is the largest contributor to SA’s foreign-exchange earnings, with a 40% share. And the coal sector is the largest revenue generator within mining, outweighing the gold and platinum sectors.

Yet the coal sector faces headwinds both globally and locally. Already, coal demand has peaked globally and the decline of coal-fired power generation is projected to be steeper than previously estimated. Aside from mounting public pressure against coal, a large part of the shift is being driven by our economics and the steeply-falling prices of alternative energy. The implications of these global dynamics are material for SA, especially if phasing out of coal is not well planned.

Vital factors

In SA’s transition to a low-carbon economy, the implications of an orderly retreat are material not only for those directly employed in the coal value chain but also for the economy and the investment returns of SA savers. On the plus side, an increased role for renewables in the SA energy mix (up to 60%) is seen as technically viable. With this come the benefits of net new job creation and the potential for local supply-chain development. So while SA has the challenge of fossil-fuel dependency, we have also been blessed with leading global solar and wind resources. Capturing these benefits while managing the socio-economic transition risks will require a coherent plan from government with broad support from civil society, labour and business.

The current risks surrounding Eskom show how vulnerable we are to a collapsed energy system. Along with this, addressing climate-change issues has never been more pertinent. Through global concessionary climate funding, it is possible both to fix Eskom and to solve the transition to a lowcarbon economy.

Duncan…coherent plan essential

This presents SA with the unique opportunity to reset our long-term energy plans and drive perhaps a massive industrialisation programme. We require government to take an intentional stand and work aggressively towards our Paris Accord commitments.

At present, our National Determined Contributions (the intended reductions in GHG emissions under the UN Framework Convention on Climate Change) explicitly state the need for a just transition. They also acknowledge the declining role of coal in our economy. The inexorable energy transition is underway globally.

SA Inc would do well to work collectively in this endeavour.


Old Mutual is a licensed financial services provider.