the green stimulus opportunity in south africa - amcham.co.za...green stimulus is a key opportunity...
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The Green Stimulus Opportunity in South Africa
National Business Initiative, April 2020
Business Action for Sustainable Growth
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The NBI Just Transition Plan
Projects To Unlock Green Stimulus
The Green Stimulus Opportunity
Executive Summary
South Africa And The Need For A Just Transition
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Executive Summary, Progress and Next Steps
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South Africa is severely exposed to climate risk, transition risks drive the need to invest in green
The need to stimulate the economy post COVID will require government borrowing that will weaken their ability to support the finance of transitioning South African industry
COVID19 poses an unprecedented threat to the South African economy. GDP is expected to contract at least by 4% to 10%, with up to 1 million jobs and 1600 businesses at risk.
Green Stimulus is a key opportunity to help fast-track job creation, improve liquidity and put South Africa on a path to economic recovery without compromising long term competitiveness
A Green Stimulus provides four strategic advantages to South Africa
1. Access to more funding | Up to $83bn additional funding available 2. Access to cheaper funding | On average up to 18bps cheaper bonds 3. Positive job impact | Up to 500k direct jobs unlocked in green investments 4. Economic prosperity in the long term | Mitigates up to R1.8Tr in transition risks and enhancing competitiveness
Today, leading nations are already voicing the importance and benefits of a 'Green Recovery' – multiple countries have already indicated that stimulus packages will be 'Green' stimulus packages. If South Africa does not invest in a similar way, we risk trade pressure, limited access to capital markets and ODA and entrenching structural challenges in our economy threatening long term competitiveness
In South Africa, various investment opportunities with substantial short- and long-term economic benefits could qualify for green stimulus and already exist as part of government or business plans
Accelerating Green Stimulus serves the purpose of fast-tracking South Africa's economic recovery, locking in long term competitiveness and advancing the country's Just Transition agenda
– a concrete NBI plan is already in place to bring it all together
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Executive
Summary
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Highlights since last time we met
We have agreed with the BUSA board to work on this together
We have secured a letter of support from DEFF
We have had some key discussions with other government stakeholders (DSI, DTI. Treasury)
We have secured support from key CEOs
We have begun some of the quantitative research
We have been providing input into national conversations about green stimulus
We have updated the narrative to include COVID thinking and the nature of short-term stimulus
We have agreed several sources of funding and are finalising contracts
NEXT STEPS
Finalise funding
Set up working groups (please email us your interest: Steve Nicholls ([email protected]) or Reitumetse Molotsoane ([email protected])
Setup 1st CEO dialogue
Continue with supportive research
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Proposed project structure
Directional decisions
Methodological comments
Development of content
Overall project management
Information
Working groups
Industry Group 1Heavy Industry
Industry Group 2Energy
Hydrogen
Commerce, trade, services, & pvt.households(incl. buildings)
Special workshopsE.g., agriculture, sector coupling, other overarching topics
Mobility & transport
Steering committee
NBI, BCG, BUSA (and selected companies/sectors)
Potential core working team (TBD)
CEO Process
Develop leadership and industry wide support
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How to get involved
Please let us know: • if you would like to join a working group (the core working
team will be largely decided by the working groups). You may be invited anyway.
• Are the working groups below complete? Does your company fit into the below or are the below to high level?
• If you would specifically like us to include your CEO in the CEO engagements
• If you would like to nominate someone for the steering committee
Initial Sector Working Group for Discussion (these can evolve as we progress, and spawn more specific working groups):• Energy• Heavy Industry• Mining• Mobility and Transport• Commerce, Trade and Services• Agriculture and Forestry
Initial Technology/Process Working Groups• Green Hydrogen• Adaptation
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Two Month Priority PlanJ u s t Tra n s i t i o n
Establish Governance Structure
Establish Steering Group Members, Write ToR, Invite Members
Determine Priority Sectors, Establish Working Group Members, Write ToR, Write NDA, Invite Members
Prepare Sector Kick-Off Decks
Prioritise priority sectors, schedule role out plan, research each priority sector and prepare kick off
deck
First Sector Consultations
Define working group formats, select facilitators, develop technology plan, set up MS
Teams folders and access rights
Prepare CEO Briefing Documents
Develop CEO awareness deck and narrative, select CEO champions and pre-meet with CEOs,
send invite from NBI and CEO champions; prepare ambition statement (modelled on ACA)
First CEO Consultation
Host first CEO consultation; write up and distribute notes clearly
articulating what is expected of them
JUN W3 JUN W4 JUL W1 JUL W2 JUL W3 JUL W4 JUL W5 AUG W1 AUG W2 AUG W3 AUG W4
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The Green Stimulus Opportunity
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In the short term (2020), COVID19 will put large number of jobs at risk
Economic stimulus packages must be
deployed to fast-track job creation and improve liquidity
However, this should not risk long term competitiveness
Source: April Monetary Policy Review, Business For South Africa – Scenario Analysis
Between
4-10% contraction in GDP*
Between
370k – 1Mjobs lost this year
At least
1600business insolvencies
* At a minimum (best case scenario)
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South Africa will have to borrow in order to incentivize the economy across the short, medium and long term. It is critical that each incentive does not compromise other timelines and that investment maximizes long term competitiveness.
South Africa enters the COVID crisis in a recession, low fiscal space, 62% debt-to-GDP ratio, 29% unemployment, 50% youth unemployment and ratings agencies predicting negative growth and medium-term debt-to-GDP ratio trending to 90%. It is now almost certain that debt-to-GDP ratio will reach 100%.
GD
P G
row
thQ1 2020
Q2 2020
Q3 2020
Q4 2020
Q1 2021
Q2 2021
2025
2030
2035
2040
2045
2050
- 13%
0%
13%
The immediate health and humanitarian crisis: focus on saving lives. Boost health care capacity, address hunger, protect firms and households from cashflow limitations and evictions
Economic Stimulus and Recovery: focus on saving livelihoods. Boost demand, provide replacement income, facilitate new investment. The primary challenge is SMME and household stability in the real economy.
Long-term economic recovery: focus on saving the economy. Grow economic competitiveness through labour and capital productivity, enhance trade balance, reduce input costs. Resilience to future shocks is key.
Governments need to deter structural damage to the economy
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79
64
34
19 15 13 13 11 9 6
40
0
20
70
10
30
50
60
80
A precedent of Green Stimulus set post global financial crisis and entrenched through green stimulus post COVID widens the structural competitiveness gap between those that invest and those that don't
South Korea, European Union, China and many others used Green Stimulus to promote economic recovery post the global financial crisis
KOR CHN GERGBRFRA USA CAN JPNEU (total)EU (direct)
~$60bn ~$220bn ~$20bn~$10bn~$10bn ~$110bn ~$5bn ~$40bn~$60bn~$25bn
Country
Absolute
Green stimulus as per cent of total stimulus by the end of 2009 (in %)
Note: EU direct = EU wide package. EU total = including individual EU countries additional stimulus packages | Source: Green Stimulus Measures, ILO (2010)
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There is already green pressure on COVID related stimulus packages from around the world
Source: IMF, National Authorities, Oxford Economics
Size of stimulus package relative to GDP (%) (as of April 26, 2020)
Country
3 - 22 146 5 591 4 10 - 1036 423 342 11 1169 157 13 55 638 21
8 23 14 18 5 22 11 18 380 133 111 120 18 1569 138 21 64 448 125
MEX IND RUS KOR ARG ITA TUR IND CHN DEU GBR FRA ZAF USA CANSAU BRA JPN AUS
USD bn
USD bn
1%1% 2%
3% 3% 4% 4% 4% 5% 6% 7% 8% 9% 10%0%1% 9%
1%
32%
1%1%
3%
30%
16%13%
5%5%
10%12%
1% 1% 1% 1% 2%
2%
2%
Revenue and expenditure measuresLoans, equity injections and guarantees
$4.6bn
$3.2bn
South Korea embraces EU-Style Green Deal for COVID19 recovery (Apr 2020, Forbes)
Signatories to European green recovery alliance to put EU's Green Deal "[…] central to a resilient recovery after COVID19."Other signatories: Austria, Denmark, Finland, Latvia, Luxembourg, the Netherlands, Portugal, Spain, Sweden, Greece
(Apr 2020)
"When the acute phase of the virus is over we are planning an [additional] stimulus package that advances the nation technologically and helps the economy move towards climate neutrality."German Finance Minister Olaf Scholz (Apr 2020)
"By using the European Green Deal as our compass, we can turn the crisis of this pandemic into an opportunity to rebuild our economies differently and make them more resilient."
European Commission President Ursula von der Leyen (Apr 2020)
"The world must work together, as it has to deal with the coronavirus pandemic, to support a green and resilient recovery, which leaves no one behind."Climate Secretary, Alok Sharma (Apr 2020)
"[The new legislation] demonstrates how forward-thinking policy can be used to boost the state economy and create jobs while bringing abundant, clean, renewable energy to all New Yorkers."Secretary of State Rossana Rosado on New York State's new legislation for green recovery (Apr 2020)
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Green stimulus a key opportunity SA must take advantage of
Four reasons why…
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Up to
$83Bn more in international funding
accessible
Additional funding 2
On average
18bps cheaper for Green Bonds vs. Vanilla
Bonds
Cheaper funding 3
Up to
500k direct jobs unlocked in green
investments
Positive job impact 4
Mitigate transition risk of
>R1.8Trto ensure long term economic prosperity
Long term economic prosperity
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$83Bn in additional funding available for “green” projects, over and above secured funds
• Climate change mitigation• Climate change adaptation• Sustainable use and protection of water and marine resources
• Transition to a circular economy, waste prevention and recycling• Pollution prevention and control• Protection of healthy ecosystems
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Co
rpo
rati
on
s
Fin
anci
alIn
stit
uti
on
s
Ho
use
ho
lds
Inst
.In
vest
ors
PE/
Infr
astr
.Fu
nd
s
23
(4%)
Tota
l
9
(2%)
DFI
s(m
ult
ilate
ral)
DFI
s(n
atio
nal
)
Go
vern
men
t b
ud
gets
183
(32%)
DFI
s(b
ilate
ral)
Clim
ate
Fun
ds
57
(10%)
73
(13%)
579
(100%)
3
(1%)
132
(23%)37
(6%)
55
(10%) 5
(1%)
$83Bn
CommercialConcessional and commercial
Origin of climate finance, Ø 2017-2018 ($Bn)
To qualify, project must meet one of six objectives
Additional funding 1
Sustainability aspects are already requirement for general funding1
Increased demand for funding post-COVID19 makes this a critical pre-requisite to access limited funds
1. Funding which is not explicitly dedicated to "green" initiatives | Source: World Bank
151. Development finance institutions 2. Includes the international bank for reconstruction and development (IRBD) and the international development Association (IDA) 3. Includes commission of the European communities and the European development Fund | Source: OECD 2016–2017 Climate related development finance database
Top 10 multilateral DFIs1 and institutions ($37Bn)
Top 10 bilateral providers (DFIs1 and agencies) $24Bn Top 10 climate funds ($5Bn)
Int. finance Corp.
European Inc. Bank
($B)
The World Bank2
EB for Restr. And Dev.
3.50
Inter-American DB
EU Institutions3
Asian DB
Asian Infra. Inv Bank
African Dev. Bank
GGGI
10.50
5.50
4.60
3.80
3.40
2.90
1.60
1.30
0.02
($B)
0.6
Japan
Germany
USA
France
United Kingdom
Norway
Netherlands
Sweden
Switzerland
1.5
Canada
7.2
6.7
4.3
0.8
1.3
0.7
0.5
0.4
Strategic climate fund
Least Dev Count. Fund
Int. Fund for Agr. Dev.
($B)
1.2Green Climate fund
Global Env. Facility
GEF general
Clean technology fund
Climate Inv. Funds
Adaption Fund
0.3
Nordic Dev. Fund
1.0
0.9
0.1
0.6
0.3
0.5
0.1
0.1
Backup
$67Bn (80%) of total committed green stimulus funding in 2017
Additional funding1
30 providers cover ~ 80% of $83bn of green stimulus funding in 2017, which indicates the orientation of some of South Africa’s biggest trade partners and multilateral funders
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Green stimulus drives long term economic prosperity and can mitigate up to R1,8Tr in South Africa's transition risk
1. “Transition risk” is widely regarded as the risk that the value of assets and income are less than expected because of climate policy and market transformations, such as the switch away from coal-fired power | Source: Understanding the Impact of a Low Carbon Transition on South Africa; Climate Policy Initiative (2019)
Long term economic prosperity 4
Createsjobs and improves social well-being
Creation of as much jobs as coal, and up to 2.5X more in the best case, with increased resilience and quality of work
due to higher skilled workforce
Enhances economic competiveness on an
international level
Close widening "green gap" between SA and its main
trade partners e.g.; EU and China, and remain
competitive and relevant for new markets / demand
Improves SA'sclimate resilience
Adaptation measures to mitigate local climate change risks and ensure water, food and energy security needed
Mitigates up to >R1,8Tr of SA'stransition risk
Measures address SA'stransition risk of >R1,8Tr in
present value terms between 2013 and 2035 due to
stranded assets1
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Projects To Unlock Green Stimulus
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Green investment opportunities with substantial short-and long-term economic benefits
Buildings
Drive retrofitting measures and high-efficiency building constructions
Industry
Promote energy and resource efficiency, waste management, de-carbonisation activities incl. green hydrogen
Transport
Launch public transport expansion and fleet renewal programmes
Energy
Accelerate large scale renewable energy deployment and grid expansion and upgrade
Agriculture and land-use
Promote agricultural resilience programmes and accelerate land use management
Water
Accelerate water conservation and water mgmt. measures
Wild life economy
Promote wildlife conservation and develop high-value eco-tourism sector
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The Just Transition Plan
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A coordinated national effort
is requiredon critical questions
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What is the roadmap to a Just Transition, particularly in the
geographies and sectors that will be most affected?
Based on physical and climate risk, what is an appropriate level of
ambition to reduce GHG emissions by 2050?
What concrete measures can be implemented in each sector
and how can we create an enabling policy environment to
reach the ambition?
What are the associated social and economic costs
and what are the support requirements of the
international community?
What are the consequences of local and global inaction and
how would the country adapt to physical risk?
In the context of a post-COVID
economy
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The project exists at two levels, the NBI process and the NBI Process + BCG analytics and support
The NBI and BUSA working together with
business partners
The NBI project with significant
analytical support from
BCG
+
Business Leadership
Dialogues: CEO Engagement
Business-led Mulit-stakeholder Dialogues
Climate Transitions Research
Programme
Communications and Knowledge Dissemination
BCG Global Experience
BCG Analytics and Quantitative Assets
Accelerate 'green' infrastructure to support the economy post-COVID 19
Still
to
be
fu
nd
ed
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Phase 1 aims to accelerate 'Green Stimulus' post-COVID 19…
… and fulfil a dual objective of:
Key Activities Deliverables
• Develop long list of green infrastructure projects (leveraging Business for South Africa initiative and industry engagement)
• Assess feasibility and impact per project (socio-economic and environmental)
• Prioritise and short list key projects for implementation
• Define enabling government and industry interventions to unlock project execution
• Track green funds and COVID response funds – prepare and articulate structured responses for prioritised applications
• Shortlist of Green Infrastructure projects to be accelerated assessed along key dimensions (not exhaustive) :– Gross Value Added– Jobs created– Emissions reduction
potential
• Report on enabling interventions (e.g. policy reform, administrative debottlenecking etc.)
• Funding opportunities pipeline and prepared responses
Stimulating economic growth & job creation
Advancing SA'sClimate change agenda
Detail - Phase 1: Post-COVID green stimulus
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This study has the potential to move SA away from …
And create enormous value by …
Stalled progress due to resistance from pockets concerned about being left behind
Inconsistent policies & regulations which incentivise counterproductive behaviour
Self-optimized company scenario planning due to national level uncertainty
Limited and haphazard cooperation between companies
Unlocking & channelling local & international support to high need & impact areas
Laying a foundation for consistent and effective policy development
Defining an optimized pathway at national level to decrease uncertainty for business
Mobilising coordinated cross-industry collaboration
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ReferencesBCG, 22 March 2020. Covid-19 Economics: V-to-U, the risk of structural damage, and the impending policy battle.
JP Morgan, 20 March 2020. Coronavirus update: COVID-19 and the markets.
London Business School, February 2020. The economics of a pandemic: the case of Covid-19.
Econometrix, 15 April 2020. From our chief economist, Vol10920/0412. Massive downward revisions by IMF of forecast growth in 2020 for all countries, but remarkably optimistic for 2021
McKinsey and Company, 13 April 2020. COVID-19 Briefing Materials, global health and crisis response.
PWC South Africa, 31 March 2020. Thinking through the possible Economic consequences of COVID19 for South Africa.
Singular, 8 April 2020. 2020: How to pivot a crisis into a time of opportunity? Singular’s view: COVID-19 impact in South Africa.
WEF, 14 April 2020. Coronavirus: 5 predictions for how the economy might recover. https://www.weforum.org/agenda/2020/04/alphabet-soup-how-will-post-virus-economic-recovery-shape-up/
World Bank, 14 April 2020. Planning for the economic recovery from COVID-19: A sustainability checklist for policymakers. https://blogs.worldbank.org/climatechange/planning-economic-recovery-covid-19-coronavirus-sustainability-checklist-policymakers.
Harvard Business Review, 3 March 2020. What Coronavirus Could Mean for the Global Economy. https://hbr.org/2020/03/what-coronavirus-could-mean-for-the-global-economy?ab=hero-main-text.
UCT GSB PRESS OFFICE - 6 April 2020. Everything has changed: The world and South Africa's economy after COVID-19. https://www.gsb.uct.ac.za/ideas-exchange/covid-19/everything-has-changed-economy-after-covid-19
World Economic Forum, 2014. Global Risk Report. In NBI, November 2015. NBI Green Economy Finance Project Research Report – Project Overview: The power of collective action in green economy planning
NBI, November 2019. NBI Climate Mapp (download from your favorite app store).
NBI, 2018. 2018 CDP Infographics. https://www.nbi.org.za/communications/infographics/
Stats SA, 2018. Online economic statistics.
DTI, 2017. Online database of commodities traded.
NBI, 2019. 2019 CDP Infographics. https://www.nbi.org.za/communications/infographics/
Climate Policy Initiative, March 2019. Understanding the impact of a low carbon transition on South Africa. https://climatepolicyinitiative.org/wp-content/uploads/2019/03/CPI-EF-Understanding-the-impact-of-a-low-carbon-transition-on-South-Africa-2019.pdf
Harvard Atlas of Economic Complexity, last accessed Nov 2019. https://atlas.cid.harvard.edu/