Green Economy Journal Issue 49

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ISSUE 49 | 2021

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CLIMATE FINANCE: Funding renewable energy across the spectrum HELLO HYDROGEN: Is hydrogen the next mega industry?

THOUGHT LEADERSHIP: Are cities to blame for Covid-19?

TECH, SUSTAINABILITY, TRADE: A snapshot of Africa in the next five years

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PUBLISHER’S NOTE Dear Reader, I feel like the cork holding back investment in the green economy is about to be blown out!

The RMIPPPP preferred bidders, popular or not, will likely reach financial close early next year, and the REIPPPP BW5 preferred bidders will follow not long afterwards, and with some luck the winners of all three rounds of phase 1 of the Eskom Battery Energy Storage Flagship Project will be announced.

These projects will result in billions of US dollars being invested in South Africa and will trigger a multiplier effect throughout the whole economy.

At the same time, REIPPPP BW6 is scheduled for release along with DMRE bids for battery energy storage, gas, and coal being slated for now-ish. The DMRE plan for coal is now facing opposition through high court litigation brought by the Centre for Environmental Rights on behalf of: groundWork, Vukani Environmental Justice Movement in Action and the African Climate Alliance. Power to them!

Gas has arrived. Literally, with DNG (Karpower litigant in the RMIPPPP legal matter) receiving their first consignment of LNG from Holland. Clearly, DNG is set to become the next oligopolist in South Africa and wants no competition from the likes of the Turks.

Meanwhile, the private sector continues to be suffocated by energy and water constraints, and one pollution crisis after the next, a state of affairs that is leading companies to seek ever greater autonomy from state and local government services, and this is set to become a mega-trend over the next few years. SMES in the green economy are waiting in the wings to facilitate this shift, may the finance community please facilitate this in a less risk averse manner going forward.

Onwards and upwards as we conclude 2021!

Enjoy!

Gordon Brown, Publisher

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EDITOR: Alexis Knipe

alexis@greeneconomy.media JOINT PUBLISHER AND PRODUCER: Gordon Brown gordon@greeneconomy.media JOINT PUBLISHER AND PRODUCER: Danielle Solomons danielle@greeneconomy.media

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EDITOR’S NOTE As President Rhamaphosa said in his address at the Cop 26 Energy Session, bold action must start with accelerated decarbonisation of our energy systems. This involves harnessing new technologies to reduce our dependence on high-emission fossil fuels, including unabated coal power. It requires that we move to more sustainable and cost-effective energy sources.

A feasibility study for South Africa’s first hydrogen valley has just been completed. The hydrogen valley will serve as an industrial cluster bringing various hydrogen applications in the country together to form an integrated ecosystem (page 28). Don’t miss The race to green hydrogen in Africa on page 30.

While the energy transition is necessary for reducing global carbon emissions, this transition must also be fair and just. The financing partnership announced at COP26 between South Africa and a consortium consisting of France, Germany, the UK, the US and the EU aims to support our just transition to a low-carbon economy. On page 22, we discuss climate finance for the transition away from coal and don’t miss the article on page 18, which looks at the phenomenal work that the Development Bank of South Africa is doing in this space.

All this and so much more in Issue 49 of The Green Economy Journal.

Alexis Knipe, Editor

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All Rights Reserved. No part of this publication may be reproduced or transmitted in any way or in any form without the prior written permission of the Publisher. The opinions expressed herein are not necessarily those of the Publisher or the Editor. All editorial and advertising contributions are accepted on the understanding that the contributor either owns or has obtained all necessary copyrights and permissions. The Publisher does not endorse any claims made in the publication by or on behalf of any organisations or products. Please address any concerns in this regard to the Publisher.

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NEWS & SNIPPETS SPECIAL REPORT

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A snapshot of Africa in the next five years

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THOUGHT LEADERSHIP

Are cities to blame for Covid-19?

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FINANCE

The DBSA: developing development

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FINANCE A chance to change history in SA

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HYDROGEN Hydrogen in SA gets the green light

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WATER

What’s mine is yours. By SAGISA Process Engineering

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Not all droughts are the same

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WASTE The potential of waste in a circular economy.

By Interwaste

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CIRCULARITY Making the circular economy a reality.

By NCPC-SA

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WATER The worth of water. By SAGISA

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Building resilience in manufacturing and supply chains

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NEWS & SNIPPETS

PRESIDENT RAMAPHOSA: COP26 ENERGY SESSION “There is no longer any doubt that climate change presents a critical and urgent threat to humanity. This is so because it will have devastating consequences for our economies and societies if we do not take action now.

Bold action must start with accelerated decarbonisation of our energy systems. This involves harnessing new technologies to reduce our dependence on high-emission fossil fuels, including unabated coal power.

It requires that we move to more sustainable and cost-effective energy sources.

While the energy transition is necessary for reducing global carbon emissions, this transition must also be fair and just. For many developing economies this requires massive investment in alternative energy sources and other infrastructure. It requires substantial support for workers and communities throughout the coal value chain who stand to lose their jobs as well as their livelihoods. A just transition requires finance and support from wealthier nations to enable low- and mediumincome countries to protect employment and to promote development.

In South Africa, we have committed to ambitious emission reduction targets. Achieving these targets will require the transformation of our energy system at an unprecedented speed and scale. This will include the decommissioning, the repowering and the repurposing of coal-

fired power stations and the roll-out of renewable energy. But our ability to do so will be determined by the extent of support that we receive from developed economies.

The Political Declaration that we announced this week with the governments of France, Germany, the UK and the US, as well as the EU, represents an important breakthrough in this effort. Through this partnership, an initial amount of $8.5-billion will be mobilised over the next three to five years to support South Africa’s just transition to a low-carbon, climate resilient future. This will enable us to implement our ambitious goals and to develop a model for a just transition that we hope can be used elsewhere.

We are entering a brave new world bound together by our common destiny as humanity.

We owe this to ourselves, to one another and to the future generations.”

The 50MW Kincardine Offshore Wind Farm is located 15km off the coast of Aberdeenshire, in water depths ranging from 60m to 80m.

The Kincardine project was started in 2014

by Allan MacAskill and Lord Nicol Stephen, now both directors of Flotation Energy plc. In 2016, Cobra Group became the main investor in Kincardine Offshore Wind Farm. Cobra Wind has been responsible for project delivery, engineering, construction, installation and commissioning.

The development uses the highest capacity wind turbines ever installed on floating platforms. Kincardine will generate over 200GWh of green electricity a year, powering over 50 000 Scottish households.

Aaron Smith, chief commercial officer, Principle Power, says: “Kincardine is further showing the readiness and commercial potential of floating technology. With 80% of the world’s offshore wind resources in deep water areas, floating technologies like the WindFloat® open several new geographies to harness the boundless supply of clean energy contained therein.”

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Courtesy: KOWL

THE WORLD’S LARGEST FLOATING WIND FARM

The world’s largest floating wind farm.

ENERGY COUNCIL LAUNCHED The Energy Council of South Africa has been launched by founding members from across the energy value chain, both public and private. The Council will play a leading and collaborative role in the development and transition of the country’s energy sector.

The initiative is led by CEOs from Anglo American, Central Energy Fund, Eskom, Exxaro, Industrial Development Corporation of South Africa, Sasol, TotalEnergies South Africa and naamsa, who will serve on the interim board.

NEWS & SNIPPETS

POST-COP26 REFLECTIONS

By Paula-Ann Novotny, Webber Wentzel

Various outcome statements from UNFCCC Conference have been published: • The launch of the Adaptation Research Alliance (ARA), a coalition of global adaptation actors that will catalyse investment in action-oriented research and innovation for adaptation that strengthens resilience in communities most vulnerable to climate change.

• The publication of a Joint Nature Statement by the Multilateral Development Banks, committing to give nature more prominence in their policies, analyses, assessments, advice, investments, and operations.

• The development of the COP26 Health Programme, which will enable transformational change in health systems globally to protect both people and planet while elevating the trusted voices of health professionals to present the health argument for higher ambition on climate change action.

• The formation of the Zero Emission Vehicles Transition Council.

• The commitment to four new “Missions” to catalyse investment to

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accelerate technologies to facilitate urban transitions, eliminate emissions from industry, enable carbon dioxide removal and produce renewable fuels, chemicals, and materials.

The launch of the Breakthrough Agenda which commits countries to work together to make clean technologies and sustainable solutions the most affordable, accessible, and attractive option in each emitting sector globally before 2030.

The commitment to the Global Action Agenda on Transforming

Agricultural Innovation.

S upport for the conditions for a just transition internationally.

F ocus on the Energy Transition Council.

Support of the product efficiency call to action, in recognition that high energy consuming products are a key driver of the growth in energy demand, and the proliferation of energy efficient equipment and appliances is an important part of sustainable economic growth and development.

NEW MARKETS FOR IPPs The amendment to schedule 2 of South Africa’s Electricity Regulation Act allows privately generated power to be transmitted across the national grid to company facilities in a willing-buyer willing-seller model, known as “wheeling”.

This will also facilitate power transmission from sites with good wind and solar resource to businesses whose locations are not conducive to cost competitive renewable energy production. Larger plants could potentially sell energy to several separate customers based on their electricity needs. Unlike in other markets abroad, where an IPP’s excess capacity can be sold back into the national grid, here the onus to find a power purchaser will rest with the IPPs. The threshold increase will stimulate an entirely new market for power trading in which actors will position themselves as brokers, linking private generators with customers.

The South African connection management interface space, already thriving on a small scale, can now look forward to the prevalence of much larger deals. While the infrastructure for it is already in place, the regulatory frameworks for wheeling are still being set into law.

RESEARCH GRANT AWARDED After a continent-wide search, with entries from 27 countries across Africa, award-winning Dr Gideon Idowu from Nigeria is the third recipient of the annual Jennifer Ward Oppenheimer Research Grant of US$150 000.

Idowu’s research explores how, through poorly enforced environmental laws, Africa contributes significantly to global marine plastic pollution, as well as the contamination of its own freshwater bodies, upon which many rural populations depend for drinking water. Idowu’s study intends to provide scientific evidence of the impacts of microplastics, to inform policy and attitudinal changes across the African continent.

COVID MASKS UNMASKED Since the start of the pandemic, disposable masks are lying discarded all over the country.

According to Brendon Jewaskiewitz, President of Institute of Waste Management of Southern Africa (IWMSA), the problem is snowballing.

“Studies have shown that globally, about 130-billion disposable masks are being used per month. That equates to an astounding 3-million per minute,” Jewaskiewitz says. He emphasises the issue of single-use masks and their disposal can’t be addressed without acknowledging that it is part of a bigger plastic pollution problem, and that human behaviour is at the core of it.

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SPECIAL REPORT

A snapshot of AFRICA IN THE NEXT FIVE YEARS Tech, sustainability and trade trends

In this special report, Fitch Solutions unpacks the broader medium- to longterm trends in technological adoption, and a stronger push for ESG, as potential drivers of long-term economic and social development on the rapidly expanding continent.

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round 603.5-million people in Africa are urban residents, and by 2030 we estimate that this will rise to 817-million, and further to 1.47-billion by 2050. Sub-Saharan Africa (SSA) is leading the growth, as the share of the urban population is projected to increase from 41.8% in 2021 to 46.8% and 58% by 2030 and 2050 respectively. With this rapid growth in urban clusters, economies across the region will see increased demand for goods and services particularly for consumer facing sectors such as food and drink, retail, autos, agribusiness, healthcare, ICT as well as industries such as power and construction.

SPECIAL REPORT

Source: UN, Fitch Solutions

We believe that this rapid growth in urban populations will also see increased focus on the use of new technologies and leapfrog innovations as well as sustainability, particularly through growing the renewable power sector, emissions reduction efforts and increasing restrictions on single-use plastics.

Africa: Urban population by sub-region, mn (2000-2035).

The rapid pace of urbanisation in Africa is being driven by three key factors: rural-to-city migration, in-city population growth and the modernisation of previously rural population clusters, where rural areas are transforming themselves into urban spaces because of natural population growth and accumulated density. The establishment of new cities in SSA has seen limited success in alleviating pressure on the more established cities in recent decades, particularly in West Africa.

The fortunes of Yamoussoukro (established in 1983 in Côte d’Ivoire) and Abuja (declared the capital in 1991 in Nigeria) offer important lessons for investors in consumer-facing sectors and current planners of new cities. Abidjan and Lagos are still significantly more populated than the other major and/or capital cities in these countries. Populations continue to prefer migrating to or staying in the larger, more established

cities with better infrastructure, more vibrant commercial hubs and proximity to ports and economic opportunities. We believe that across the region, countries will seek to increase investment in infrastructure, particularly through expanding and connecting existing cities and towns, through strengthening public-private partnerships and increased use of technology-driven solutions.

KEY SECTOR TRENDS Infrastructure. Businesses in the construction, energy and transport space can capitalise on the urgent need for development and expansion of existing cities. The infrastructure gap can be bridged through a significant rise in public-private partnerships (PPPs) for infrastructure in major cities through the development of tolled roads, low-cost housing,

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SPECIAL REPORT DEMAND ACROSS KEY SECTORS

Source: UN, Fitch Solutions

Regional issues about sustainability will remain mainly company-driven to support brand image.

Africa: Urban population, mn (2025). Note: Circled numbers indicate urban clusters of over 500 000 for countries with two or more clusters. sanitation, electricity, health and education. Governments that prioritise cooperation with the private sector through measures such as PPPs will see the most investment in sustainable electricity generation sources in their respective markets.

South Africa, Morocco and Egypt boast the most diverse and largest industrial bases in Africa and face the most significant pressure to move towards sustainable energy sources for critical value chains. According to the latest available data from ClimateWatch, South Africa accounts for around 1.06% of global greenhouse gas emissions, while Nigeria’s contribution stands at 0.73% and Egypt accounts for around 0.6%.

Source: Our World in Data, Fitch Solutions

PRESSURE TO REDUCE EMISSIONS WILL DRIVE GREEN INVESTMENTS

Africa and key markets: CO2 emissions, per capita (1990-2019).

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Power. Liberalised power generation markets and vast solar power potential will make Egypt and Morocco the renewables generation growth outperformers in Africa over our forecast period to 2030. By investing heavily in the expansion and improvement of their transmission and distribution and generation infrastructure, Angola and Zambia will see the most significant improvements in power grid efficiency over the decade, reducing losses from the grid and improving the reliability of their electricity supplies. Kenya and Morocco will be the most conducive power markets for sustainable investment in 2021, with the most attractive balance between renewables generation, grid efficiency and share of renewables in overall generation.

Telecoms, media and technology. The pandemic has enabled new digital-centric opportunities for growth, mainly driven by increased restrictions on movements. In key markets, such as Ethiopia, growth will be driven by new users coming online. In the region’s outperformers, we have highlighted cloud, streaming and manufacturing as key areas where Big Tech will lead. The African telecoms market is poised to provide longterm demand for data centres as it undergoes significant technological development. Data centre investments will propel demand and broaden the range of IT solutions available in the market, supported by global players Microsoft, Huawei and Amazon Web Services investing heavily to bolster their presence in the region.

On the downside, power supply challenges in key markets will increase reliance on costly alternative energy solutions, raising operational costs for investors. In addition, the dearth of adequate, secure IT infrastructure means that many countries will be increasingly vulnerable to data theft and growing cybercrimes, necessitating investment in cybersecurity.

Retail. The Covid-19 pandemic resulted in significant disruptions to the retail sector as consumers ability was limited to movement restrictions and restrictions on retail store operations. Consumers adapted to eCommerce as it offers a safe and convenient way to make purchases. We expect eCommerce to remain a part of SSA consumer’s purchasing patterns over

SPECIAL REPORT the coming years. This will be supported by the region’s high mobile internet penetration rate and increasing investments in eCommerce services by consumer facing business such Mass Grocery Retailers (MGR) and clothing, footwear and accessories retailers. Video on-demand services are in the early stages of development and adoption in the SSA region as it has historically been dominated by pay-TV services. However, over the coming years, we expect streaming to make up a larger share of entertainment consumption, particularly as players in the industry are making efforts to invest in content that appeals to audiences across the region.

Healthcare. Digital health will strengthen healthcare operations, while telemedicine will increase health access in rural areas. Growing mobile phone ownership and internet access will further facilitate growth in digital health after the pandemic, although challenges remain.

Environmental sustainability in the medical device industry is still a minor issue considering the health benefits associated with the sector. Complex supply chains due to an over reliance of imports in SSA contribute to greenhouse gas emissions, but a complete ban on plastics in the medical device industry is still very unlikely and sustainable packaging will continue to become increasingly important. Regional issues about sustainability will remain mainly company-driven to support brand image.

Autos. Digital logistics start-ups and rising M&A activity will be key in the development of tech-enabled freight and logistics solutions across SSA. This will drive growth in new commercial vehicles sales in the region.

Ecommerce proliferation across the region is helping to drive last-mile delivery solutions and this in turn will boost light commercial vehicles and motorcycle sales. The growth of ecommerce and e-logistics will drive sustainable transportation initiatives as firms embrace environmental, social and corporate governance (ESG) initiatives by renewing Africa’s ageing CV fleet that is often more polluting and promote electric vehicles (EVs).

Although the sustainability drive in Africa will lag that of the rest of the world, there are a few pockets of the continent’s automotive industry that

THOUGHT [ECO]NOMY

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offer opportunities to improve sustainability. E-logistics firms will be at the forefront of purchasing EVs as the income gained from transportation services rendered will be used to cover some of the purchasing costs. We note that as businesses in Africa increasingly drive towards a higher degree of sustainability, they will find it easier to source funding for sustainable projects amid the ESG investing boom.

Logistics and supply chains. Deeper regional trade integration in the years ahead will allow countries to specialise and exploit economies of scale, thereby improving productivity and growth. However, pandemic-induced logistics bottlenecks have thrown global supply chains out of sync since 2020, causing delays at ports, causing container shortages and recordhigh shipping rates in 2021. On the other hand, economic disruptions due to the pandemic have accelerated plans to boost economic diversification and supply chain resilience all around the world, and Africa is no exception.

Increased digitalisation and streamlined customs procedures are key measures that will strengthen economic growth and deepen regional integration over the coming decade. Benefits will be concentrated in a few countries with strong logistics, security stability and those that are increasing efforts to ease trading across borders through strengthening hard and soft infrastructure.

AFRICA BEYOND THE PANDEMIC: Tech, Sustainability & Regional Trade Transformation | Fitch Solutions [September 2021] The Covid-19 pandemic has catalysed stronger progress towards digitalisation across key industries targeting Africa’s rapidly urbanising population. Sustainability will be more of a focus area, though targets will differ by country, and key initiatives will gain traction in varying degrees across industries, with the consumer and retail, autos and technology sectors best placed to lead.

Heavy industry will also play a key role, as the region’s population is set to benefit from higher electrification rates and a recovery in domestic and global demand for products as well as stable and strong long-term trade growth, which will support road and port infrastructure construction.

The report reveals: • How Covid-19 has accelerated e-Commerce and digital health uptake in SSA • The outlook for Africa’s data centre market • The acceleration of sustainability initiatives in SSA’s food and drink industry post-Covid-19

ORDER REPORT HERE FOR US$995 fitchsolutions.com

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Intra-Africa supply chains: digitalisation to unlock opportunities

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Sustainability in Africa’s autos: EVs, natural gas and ICE vehicles offer opportunities

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The top power markets for sustainable power investment in Africa

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Cooperation between public and private sector key for SSA power sector development post-pandemic

This commentary is published by Fitch Solutions Country Risk & Industry Research and is not a comment on Fitch ratings’ credit ratings. Any comments or data included in the report are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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THOUGHT LEADERSHIP

Are Cities to Blame for

COVID-19?

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.”

Charles Dickens, A Tale of Two Cities (1859)

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THOUGHT LEADERSHIP

Until recently, many experts prophesied an urban future but now the pandemic has made that future less clear or, more precisely, the definition of urban more problematic. Covid-19 has upended our fundamental relationship with the city. But even if Covid-19 had not done so, it is time to re-imagine our fundamental relationship with the city anyway. Covid-19 has just shone the spotlight on to the problem.

BY LLEWELLYN VAN WYK, B.ARCH; MSC. (APPLIED), URBAN ANALYST

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central theme arising out of the pandemic is whether Covid-19 signals the death of the city. As Tony Matthews puts it: “Many urban dwellers are redefining their sense of place in response to Covid-19. We may not view our cities the same way after this pandemic.

Our perceptions and priorities may change, perhaps permanently. As we start planning for cities after this pandemic, we should recognise this task is as much philosophical as practical.” 1 Pandemics do challenge existing perceptions, values, and paradigms about the meaning of progress, modernity, and success. Covid-19 is no different and is also challenging prevailing perceptions about urban life.

When a major global shock occurs, such as Covid-19 (or 9/11, or potentially future climate change related events), it fundamentally challenges all orthodoxy by stressing hitherto covert systemic fault lines, which are unable to withstand the unleashed forces.

Bruce Schaller perhaps sums it up best when, in the CityLab, he writes, “The oldest trope in America is back: Cities are bad. Cities mean density and density means human contact, and human contact, in the crucible of the pandemic, means illness and death.” The problem, he writes, is not cities and density.2 David Madden too observes that cities are once again being cast as threats to public health and social order and that some commentators

believe there will be a mass exodus from cities, a trend accelerated by home working, and that large, dense cities are no longer viable.

Samuel Kling, a Global Cities Fellow at the Chicago Council of Global Affairs, notes the long history of blaming urban areas rather than economic factors for physical and moral ills.3 But, he argues, density can be an asset for fighting coronavirus. He argues that the diagnosis of Covid-19 as a uniquely urban problem reflects historical tropes about the dangers of urban space more than current evidence. Citing statistical analysis, he argues that there is not a consistent connection between big-city density and coronavirus impacts.

On the contrary, he points out that some of the world’s most heavily settled spaces – Hong Kong, Seoul, Singapore – have proved to be the most formidable at containing Covid-19 while in the US, as an example, small towns in Georgia and Louisiana suffer along with New York City.

He argues that the demonisation of density harkens to the heyday of urbanisation in the late 19th and early 20th centuries when American civic leaders and reformers of the time embraced the notion that urban social problems – disease, poverty, immorality – stemmed from the physical environments of cities.

This ideology of “moral environmentalism,” as historian Alexander von Hoffman termed it, formed the foundation of US urban planning

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and reform for decades. Now, he thinks, this legacy is re-emerging with coronavirus, threatening, as it did in recent urban history, to lead to distorted, ideological responses that malign city life and obscure the root of the problem.

He concedes that while crowded tenements and inhumane conditions did indeed have deleterious effects on residents, the moral environmentalists tended to blame urban spaces while neglecting the economic system that created these spaces. He argues that the moralists believed that if changing the urban environment could solve urban social problems, the economic system of industrialisation could be left intact.

Cities can generate lifesaving networks of social ties which combat isolation and mitigate the effects of disasters.

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Therefore, he argues, a standard method for improving impoverished, overcrowded urban neighbourhoods was simply to demolish them. He notes that while some urban voices argued for the building of urban parks to solve urban problems, the weaknesses of this reform vision – and its strengths – found clear expression in the era’s public parks movement, which touched cities across the country in the late 19th century.

Landscape architects, such as Frederick Law Olmsted, Charles Eliot, and Jens Jensen, sought to solve urban social problems through the reform of urban space. They imagined parks as a vital source of fresh air and naturalistic beauty – features that take on special gravity in cities now under lockdown. But they also treated parkland as a mechanism for solving cities’ thorniest social problems. Critically, parks, predicated on the idea that space was the problem, did not address the larger system that created inhumane urban spaces in the first place.

Urban park advocates embraced careful design because they viewed aesthetic reform as a tool for social reform. It was Olmsted, the movement’s leader, who stated that the reasons disease and misery and vice and crime has been much greater in towns could be attributed to a lack of fresh air

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and the constant stimulation of bustling city life. In his view, only “relief from” city life could return residents to “a temperate, good-natured, and healthy state of mind.”

Olmsted viewed urban life as a threat to “the mind and the moral strength” of residents. This aesthetic, rather than ecological approach to urban parks ironically resulted in park landscapes that were in and of

City leaders should remember their problem is the virus, not urban life.

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THOUGHT LEADERSHIP themselves artificial: hills levelled and built up, ponds dug, and existing vegetation replaced with thousands of foreign and native plants. The objective never was ecological: in reformist thinking, creating naturalistic spaces could improve public health alongside civic health, and cure physical ailments together with moral ones. They believed they could quell the threat of social disorder by providing a structured, common space for cities’ motley populations.

Some contemporaries of the time took their belief in parks’ healing powers to improbable lengths: As historian Paul Boyer writes, one park administrator claimed in a popular reform journal that with a bigger parks budget, he could decrease prostitution in his city by 98%.

But here is the critical issue: convinced that the environment was both disease and cure, park builders put their faith in spatial reform, not structural reform. More direct interventions – such as social housing, robust regulatory protections, and the elements of a welfare state – had to wait for reformers with different worldviews.

Tracy Loh and Charles Leinberger identify three natural enemies of urbanism: crime, terrorism, and pandemics. In the 1970s and 1980s, they note, crime seemed like an existential threat to American cities. In the 2000s, it was terrorism. Today they suggest it is pandemics, especially as Covid-19 sweeps across the country’s dense urban areas.4 For many people, these three cases provoke a fear of cities, especially the dense clustering of diverse populations. This fear can, they suggest, prevent decision-makers from understanding and implementing solutions to those problems. Fear can distort the market, leading public, private, and philanthropic sectors to fail to invest their money into the right places.

And more critically, given the events in Atlanta in June 2020, they add that fear of cities feeds racism.

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But looking at the real dynamics of crime, terrorism, and pandemics, one can see that, many times, this fear is misplaced. The actual relationship between urbanism and threats of crime, terrorism, and pandemics is not a straight and simple line. Noting the prevalence of Covid-19 cases in places such as New York City, Los Angeles, and Chicago – urban counties that are the heart of the US economy – it is easy to conclude that the pandemic is primarily a big city problem.

They point out that when cases are mapped per capita instead of by absolute number, a different story emerges. Los Angeles and Chicago are simply places that have a lot of people, and thus more Covid-19 cases.

More tellingly they note that the spread of the virus is driven by crowding behaviour, not just density, which is why there have been major outbreaks in rural areas such as Blaine County, Idaho, and Albany in Georgia.

One park administrator claimed in a popular reform journal that with a bigger parks budget, he could decrease prostitution in his city by 98%.

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They point to rural areas suffering relatively higher death rates from the virus because their hospital systems are quickly overwhelmed and their populations are underinsured, older, and have more underlying health conditions, which is all consistent with how the typical annual influenza affects the United States. They make the argument that cities, suburbs, and rural areas can all be affected by Covid-19.

Regardless of size or density, all places need to invest in the qualities that build resiliency. While fear of cities regarding pandemics may be misplaced, they suggest that the solutions to such crises can have a place everywhere. They remind us that Covid-19 is not the only crisis we are facing – climate change, regional divergence, and our aging population also call for more transformative placemaking.

So, what lessons will today’s city leaders take away from the pandemic?

As in the past, the answer partly depends on how they diagnose the problem. If they follow the precedent of moral environmentalism, they will fault the city itself. But doing so distorts the reality of the pandemic and obscures the systemic policy failures that have made certain places and

populations – particularly the marginalised – far more vulnerable.

A dense urban environment can be an asset in fighting disasters like Covid-19. Density means cities can more easily concentrate resources and social services where needed. Residents, in theory, have quicker access to hospitals and healthcare. And when nurtured by “social infrastructure” – community centres, libraries, and yes, public parks – cities can generate lifesaving networks of social ties which combat isolation and mitigate the effects of disasters. Building on these strengths can make cities more humane and resilient in the pandemic’s aftermath.

As Covid-19 enlarges the window of policy possibilities, city leaders should remember their problem is the virus, not urban life. They can improve their public health and transportation infrastructure by learning from the dense places that have managed to avoid the harshest impacts of the virus. They can strengthen the social infrastructure that serves as a first line of defence against pandemics, supporting neighbourhood institutions to promote cohesiveness while allowing for distance. They can tailor their responses to meet the threat of climate catastrophe, which cities – for all their flaws – remain best positioned to address. They can relieve the deeprooted inequality that has contributed to Covid-19’s uneven urban spread.

More critically, while cities are vulnerable amid the pandemic, they are not the problem. Recognising that fact is the first step, to addressing coronavirus on its own terms, as it appears not just in cities, but also in suburb and countryside – and to building a more resilient, humane urban life afterward.

While cities are vulnerable amid the pandemic, they are not the problem.

REFERENCES 1 Ibid.

2 Schaller, B. 2020. “Density isn’t easy. But it’s necessary.” CityLab, May 4, 2020.

.

3 Kling, Samuel. 2020. “Is the city itself the problem?” CityLab, April 20, 2020. .

4 Loh, T. and Leinberger, C. 2020. “How fears of cities can blind us from solutions to Covid-19.”

.

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FINANCE

THE DBSA:

DEVELOPING DEVELOPMENT Gordon Brown, GreenEconomy.Media, caught up with Lungile Tom, DBSA, to discuss the Bank’s competitive edge, an edge with compounding success that is built from building the success of others.

Lungile Tom, senior investment officer, DBSA.

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FINANCE

Our objective is to see projects become more bankable, fully-financed and to reach financial close.

projects. This support extends to local community trusts in the form of equity funding.

While this is a high-risk category, we have managed the risk and achieved success with these categories of funding from as early as Bid Window One (BW1) through to BW4, as well as round five and in the risk mitigation programme.

DBSA was very pleased that several bidders we supported in the RMIPPPP were successful in being named preferred bidders.

Let’s unpack this word “support”. As a development finance institute (DFI), I assume your support speaks to a more favourable set of lending terms than what may be available from commercial banks?

For example, aspiring black energy entrepreneurs who would not necessarily be able to raise an equity portion off their own balance sheets can apply to DBSA for funding, and would qualify for assistance?

Absolutely. From a BEE perspective, the pricing of that debt is very competitive when compared to what certain other institutions charge.

We provide finance to BEEs on a limited recourse basis. We can offer these because we are comfortable with the revenues being generated in the underlying project.

The strength of the underlying project allows us to take a position and provide debt financing to that BEE entrepreneur, at a competitive level, compared to other BEE funding instruments, such as preference shares, which are more costly to the BEE entrepreneur. This is DBSA’s competitive edge.

Recourse versus limited recourse versus non-recourse funding.

What are the points of relaxation between these different categories of funding?

In this space, the funding that you find is “limited recourse” financing. We rely solely on the value of the underlying project and not on the lender’s balance sheets. These are the key principles of project finance, and BEE is financed on a project finance basis.

GB: What role has Development Bank of South Africa (DBSA) played in support of the DMRE’s procurement programmes?

LT: DBSA was instrumental in supporting the IPP office (the agency designated with implementing and rolling out procurement programmes on behalf of the DMRE) at inception. We provided the seed capital for the establishment of the IPP office. Since then, DBSA has continued to support the initiatives of the IPP office.

DBSA has supported several projects that bid in the early and subsequent rounds of the procurement programmes, by providing senior and mezzanine debt, and most importantly for the Bank, in focussing on funding the BEE component.

The DMRE programmes seek to address multiple economic development imperatives through the various bidding rounds, and these align perfectly with the mandate and objectives of DBSA. We assist many black equity partners, including black women-owned entities, with BEE funding, which enables them to take stakes in the IPP

In the context of the REIPPPP and of the renewable energy sector generally; what role does DBSA play within the broader value chain?

This speaks to the activities of the DBSA and how we are structured as an organisation. We have divisions, with some units that work solely on providing planning services and assistance to various state organs, such as municipalities and other institutions.

In this context, we move on from planning to project preparation, where we become greatly involved, and indeed instrumental, in supporting projects to reach bankable feasibility stage. At this stage, we can open the project to other funders. We carry a project through to the stage where other funders come in. And we provide this project support within South Africa as well as to the rest of the continent.

Key criteria within projects are seldom aligned. They are quite specific to country and sector, requiring specialised project preparation work.

Our space primarily deals with project finance, and these are bankable projects ready to be financed, but as indicated we do have a division focused on project preparation.

19

FINANCE We also fund municipalities and state-owned companies, so the nature of the finance depends on the structuring of that project or financial need. Once projects are funded, we continue to oversee the operations, maintenance, and support the monitoring of outcomes of whatever infrastructure project it would be.

The municipalities form the biggest chunk of our business, as the DFI. We already provide capacity and bulk infrastructure support. Adding another layer of EGIP funding shows how involved we have become in the entire municipal value chain.

Specific to the REIP, and even more specific to wind energy projects, how would you define DBSA’s role? What percentage of your portfolio is allocated to renewable energy and/or wind?

Subject to correction, of our energy portfolio, renewable energy is approximately 42%. I would say wind projects account for 10% of the 42%. We see growth in the renewable energy sector in South Africa aligned with the integrated resource plan (IRP). As DBSA’s mandate is to facilitate the IRP, we see our portfolio of renewable energy projects projected to grow to approximately 50% of our total portfolio, with wind projects likely to account for 15 to 20%. This is a projection, and it will ultimately be driven by the market and availability of projects under development in South Africa and Africa.

DBSA is accredited by international organisations like the Green Climate Fund (GCF) and the Global Environment Facility (GEF). How does this enable the Bank to fulfil its mandate in the region?

Our accreditation allows us to be more proactive in responding to market failures or gaps in the market that need to be addressed. This occurs when the private sector is unable or unwilling to provide funding for a particular investment type deemed developmentally advantageous.

We worked with GEF in the small IPP programme where we developed a solution to assist black entrepreneurs to have access to adequate competitive financing into their project. Likewise, with GCF, in support of embedded generation because we saw a need for a higher level of first-class or credit enhancement in those projects. We worked with the GCF to come up with something concessional to support the bankability of those projects and to offer more affordable funding.

Let’s talk about DBSA’s support of the small embedded generation projects under the Embedded Generation Investment Programme (EGIP). I understand that the initial book is closed. Please outline the details of the programme.

The EGIP was designed to support projects in the embedded generation space. These are projects that have private off-takers in the commercial and industrial space as well as municipalities. We saw a growth in this sector and identified a need for a first-class credit enhancement in the capital structure of those projects.

DBSA WINS 2021 IJ GLOBAL ESG AWARD

We rely solely on the value of the underlying project and not on the lender’s balance sheets.

We provided the credit enhancement in the form of a subordinated debt, with a higher, more competitive rate than would be offered to REIPPPP projects, improving the affordability of these projects to endusers. A facility of this nature is second ranking to senior debt, but also comes in at a cost that is concessional to the project.

Our objective is to see projects become more bankable, fully-financed and to reach financial close. We want to see this space grow.

As we saw in BW5, the subscription level was five times the capacity bid. Nevertheless, there are many projects developed on sites with available resources and all that’s needed is an off taker. It then becomes about trying to grow that market, which in turn may allow energy users to secure their energy supply and trigger further development.

Lungile Tom speaking at Windaba 2021.

CAREER HISTORY

Lungile L Tom is a senior investment officer at DBSA, specifically focused on project-financed projects across various infrastructure sectors in South Africa and the rest of the Africa. Tom is a chartered accountant (CA (SA)) and a 2020/2021 Harvard South Africa Fellow.

Her educational background includes Master of Philosophy (MPhil) in Development Finance.

The judges identified DBSA as the winner of the Sub-Saharan Africa category, recognising the DFI for its issuance of its first ever €200-million green bond to target climate mitigation, adaptation or indeed both. The green bond was issued through a private placement with French DFI Agence Française de Développement (AFD) and structured in alignment with DBSA’s Green Bond Framework, which reiterates the lender’s commitment to playing a role in the transition to a low-carbon economy. The framework is aligned with the International Capital Market Association (ICMA) Green Bond Principles.

One judge pointed to “lots of firsts in this transaction”, adding that it was “difficult not to applaud the channelling of such extensive investment into affordable and clean energy in South Africa”. Another judge added: “It is right and proper that development banks take the lead in ESG and set an example for others to follow.”

“The bonds have been structured in alignment with the DBSA’s recently released Green Bond Framework, which reiterates the DBSA’s commitment to playing a role in the just transition to a low-carbon economy; this is the first green bond issuance by DBSA and the first time a South African issuer issues bonds in Euroclear France.”

20

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FINANCE

A CHANCE TO CHANGE HISTORY IN SOUTH AFRICA

Climate finance for a transition away from coal

In the opening days of COP26, a financing partnership was announced between South Africa and a consortium consisting of France, Germany, the UK, the US and the EU. The partnership aims to support South Africa’s just transition to a low-carbon economy.

Essentially a just transition is one where no one is left behind.

BY EMILY TYLER*

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FINANCE

T

he announcement made international headlines and is highly significant for many reasons. The finance offer is large; it has a strong element of justice; it’s not just about a few individual projects; and it’s for a country that has long been shaped around its dependence on coal.

This partnership represents an important opportunity for South Africa at a critical juncture, if it is approached judiciously and if the domestic politics can be managed. A failure to engage the partnership strategically will squander the moment, resulting in an incremental outcome that won’t unlock the just transition the country so desperately needs. A failure to tame the politics would put the entire flow of finance at risk.

SIGNIFICANCE OF THE FINANCE Pitched at an initial US$8.5-billion, the partnership has the potential to be one of the largest individual climate finance transactions to date. Large Green Climate Fund transactions hover closer to the US$1-3-billion mark.

Its justice element is important. It has an explicit focus on supporting those who face immediate transition impacts, such as the approximately 80 000 coal miners and the communities who depend on them. The partnership envisages that the climate finance will enable an energy sector transition, which is different to the usual focus of climate finance on individual green projects.

The deal is significant because it has been announced despite South Africa’s coal legacy and influential incumbents. The country has spent over

Global capitalism is now oriented towards a low-carbon economy.

SPECIFICS OF THE SUPPORT

The financing partnership mobilises an initial R131-billion (US$8.5-billion) over the next three to five years. Some of this in the form of grants and some is concessional debt finance (cheaper than commercial debt). The partnership is intended to enable a range of outcomes. One is to speed up the process of moving away from carbon in the electricity system.

South Africa has recently updated its nationally determined contribution to the international emission-reduction effort.

Importantly, the finance will support the workers and communities who will be affected as the country moves away from coal.

Another aim is to support a sustainable solution for the South African power utility’s debt and ensure its long-term financial sustainability in the context of power sector reforms.

Lastly, finance will be channeled towards the development of the electric vehicle and green hydrogen sectors.

100 years building an economy whose competitive advantage is based on coal as its primary energy source. The legacy of coal is evident in physical infrastructure, the way the energy sector is organised and the form of energy sector institutions. It influences the way finance flows and power sector contracts are written. And there are powerful groupings who have vested interests in keeping it all this way for as long as possible.

Ironically, it is this legacy that enables South Africa to offer the world significant and globally cost-efficient emission reductions as it changes course. South African electricity is the most carbon intensive in the world.

Because renewable energy is now the cheapest form of power supply, decarbonising the country’s electricity supply by accelerating the phase down of the coal fleet will yield a large volume of emission reductions at very low cost, especially compared to more expensive emission reduction options in other sectors and countries.

But the political and institutional challenges to realising this transition are very real.

PACING PROVOCATION The global target of achieving an average of net-zero carbon emissions by 2050 is an enormous challenge. It requires rapid and disruptive change as economies and societies globally are decarbonised within ►28

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FINANCE

THOUGHT [ECO]NOMY

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09 24

Objective and intention of case study

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SUPPORTING JUST TRANSITIONS IN SOUTH AFRICA | Just Transition Case Study | Climate Investment Funds [September 2020] The term “just transitions” is used to acknowledge that there are multiple framings of just transitions related to a variety of theories of change and world views. This has resulted in a situation, whereby there is no one clear definition of just transitions, but rather a range of positions, principles, and practices.

At the heart of the just transitions discourse(s) is the debate on whether addressing humancreated environmental challenges, including climate change, inevitably requires choosing between protecting the planet or precarious jobs and the economies that sustain (and simultaneously exploit) people and nature. The falsity of the dichotomy is best summed up in the slogan: “There are no jobs on a dead planet.”

The recent economic and social impacts of the pandemic, including massive job losses, have provided an illuminating example of the devastating effects of a global systemic shock.

It is imperative for people to recognise that climate change has the potential to introduce or exacerbate similar systemic shocks. Therefore, attention to climate change and fundamental change at the global and local scales are of the utmost urgency and importance. Just transitions focus attention on important questions related to change, including: - Who decides what kind of transitions are needed?

- How are different groups included in the decision-making processes?

- Who benefits and loses in change processes?

- How can benefits be distributed and losses mitigated in both safe and just ways?

By raising these questions, the concept of “just transitions” highlights the significance of encompassing issues of inclusivity and justice in change initiatives.

Importance and principles of just transitions

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Just transition framework in the context of South Africa

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Project Case 1: The Sere Wind Farm Project

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Project Case 2: Xina Solar One CSP Project

FINANCE

THOUGHT [ECO]NOMY

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greeneconomy/report recycle

35

CLIMATE FINANCE TO TRANSFORM ENERGY INFRASTRUCTURE AS PART OF A JUST TRANSITION IN SOUTH AFRICA | Research report for SNAPFI project | University of Cape Town [July 2020] The just transition transaction (JTT) has been developed in technical detail since 2019 by Meridian Economics (2020) and making the financial deal is work in progress. This case study reflects on the JTT, seeking to understand its architecture. The purpose of the study is to understand the potential of a just transition transaction to accelerate the phase out of coalfired power and to fund development projects.

The spatial scale of the analysis is national, in that Eskom debt threatens South Africa’s financial sustainability. Physically, the Mpumalanga province is a key focus of this study. This province of South Africa contains its central coal basin, most of the coal-fired power stations are surrounded by poor communities with several small rural towns dependent on coal for livelihoods. Mpumalanga is a micro-cosm of the challenges of sustainable energy development in South Africa – environmentally, socially and economically.

What is a just transition?

South African interpretation

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Courtesy of The Conversation

South Africa will need all the support it can get to keep up with the pace of change. three decades. But technology and finance are already driving the transition. This can be seen in the massive decline in the cost of renewable energies and the accelerating shift of financial portfolios to green investments. Global capitalism is now oriented towards a lowcarbon economy.

As a small open economy, South Africa can neither resist nor control these forces. And the country is in a vulnerable starting position as one of the world’s most carbon-intensive economies. There is not much time to avoid being economically marginalised as wealthier and nimbler economies mobilise around net-zero goals. South Africa will need all the support it can get to keep up with the pace of change.

Fortunately, as studies by the National Business Initiative and Meridian Economics-CSIR show, accelerated electricity decarbonisation has two big plusses. It is the cheapest way of providing a reliable electricity supply to the economy. And renewables have the shortest lead time to build. So they are the quickest and cheapest way to lift the country out of its current power cut woes.

DAUNTING DETAILS The just transition partnership announcement has achieved both a political space and an implementation platform (the taskforce) to start working out the support details. These details include the type of financing instruments, what the finance will be used for, the mix of

Key elements of the problem

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The just transition transaction

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Renewables ownership in the just transition

grant and debt, and financing terms and conditions. An initial scope of supported actions, financing sources and terms will be identified within six months, with a full partnership work programme and investment plan outlined within a calendar year.

Currently, there are many views on what the details could look like.

These include Eskom’s Just Energy Transaction, Meridian Economics’ Just Transition Transaction and the Presidential Climate Commission.

The taskforce will have to work out how to: • Ensure that alternative, attractive and sustainable economic livelihoods are created in the regions that have depended on coal • Prioritise spending on activities that will help to fundamentally re-orientate South Africa’s energy sector as opposed to only achieving incremental change • Ensure that the grant and concessional finance components of the partnership leverage rather than crowd-out commercial investment • Achieve a transition pace aligned with South Africa’s international climate commitments.

POLITICAL POWER But if the technical details are formidable, a recent address by the Minister of Minerals and Energy, Gwede Mantashe, demonstrates that the domestic politics are even more so. In direct opposition to Ramaphosa’s vocal support of the partnership and decarbonisation trajectory, Mantashe argued that South Africa should continue to exploit its coal resources, suggesting that the partnership is an attempt to pressurise the country to conform to an international agenda that is not in the country’s best interest.

Despite the economic realities of a global energy transition well under way, and the increasingly obvious technical, economic and social failings of South Africa’s coal-based energy system, the political challenges to leaving the coal legacy path are clear.

* Emily Tyler, honorary research associate, African Climate and Development Institute, University of Cape Town

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ENERGY

IT’S A

GO FOR GREEN

The South African Wind Energy Association has put its voice of support behind the first-of-its-kind green financing deal, announced at Cop26 climate talks.

BY SAWEA

Noupoort Wind Farm.

S

peaking on behalf of the wind power industry and the country’s broader renewable energy sector, this deal, which comprises multi and bi-lateral grants, concessional loads, guarantees and private investment, will provide impetus for South Africa’s accelerated uptake of green energy.

Mark Tanton, SAWEA “We view our sector as a key implementer board member. for the country to decarbonise its power sector and increase its energy availability.

Hence, we look to the various policymakers within the Department of Forestry, Fisheries and the Environment, the Department of Mineral Resources and Energy; and the Department of Public Enterprises to facilitate and lead this transition, which will no doubt be abetted by this financing deal,” says Mark Tanton, SAWEA board member.

The US$8.5-billion package, committed by the UK, France, Germany and the USA, is intended to speed South Africa’s transition away from coal and represents a new model of green financing for emerging economies.

This forms part of the global Accelerating Coal Transition Investment Programme, formulated by the Climate Investment Funds (CIF). The programme is the first to target developing countries that lack adequate resources to finance the shift away from coal, which is crucial to limit the global temperature rise to 1.5 degrees Celsius by 2030.

“This makes sense as sustainable, cost-effective financing, is necessary to enable developing countries to be able to implement their climate change mitigation targets and accelerate the required energy transition away from carbon-intensive power production to renewable energy,” adds Tanton, who also reiterated that this announcement coincides

with the expected parliamentary tabling of SA’s Climate Change Bill this month.

While many details as to the structuring of the funds and exactly how it will be utilised are still to be ironed out, SAWEA notes there are several considerations. This includes the just energy transition as well as Eskom’s need to upgrade and add new transmission lines and renew its distribution network to accommodate additional green electrons.

“In a nutshell, we need to remove CO2 from the atmosphere as fast as possible, and at the same time we need to drastically increase our Energy Availability Factor, so that we can bring a halt to the ongoing and crippling load shedding. The answer to all of this is a renewables-dominated power system, which is also the most cost-competitive system for South Africa,” concludes Tanton.

Cabinet has endorsed a new Nationally Determined Contribution (NDC) range of 420- to 350-million tons of carbon dioxide equivalent (Mt CO2-eq) for 2030, which represented a marked improvement on its 2015 pledge of 614 Mt CO2-eq to 398 Mt CO2-eq.

THE CLIMATE CHANGE BILL

• P rovides for a coordinated and integrated response by the economy and society to climate change and its impacts • Provides for the effective management of climate change impacts • Addresses that mitigation efforts should be based on the best available science, evidence and information • Gives effect to SA’s international commitments and obligations in relation to climate change.

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HYDROGEN

HYDROGEN IN SA GETS THE GREEN LIGHT

Green hydrogen is a key priority for the country’s economic development. The Department of Science and Innovation, Anglo American, Bambili Energy, Sanedi and Engie have completed a feasibility study for South Africa’s first hydrogen valley.

Plus: SA’s race to green hydrogen THOUGHT [ECO]NOMY

SOUTH AFRICA HYDROGEN VALLEY | Final Report |

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[September 2020]

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greeneconomy/report recycle

Three catalytic green hydrogen hubs have been identified in SA’s hydrogen valley: Johannesburg, Durban/Richards Bay, and Mogalakwena/Limpopo. These hubs have been identified based on locations with potential for a high concentration of future hydrogen demand, the possibility to produce hydrogen (access to sun/wind, water infrastructure), and contributions to the just transition.

T

he hydrogen valley will serve as an industrial cluster, bringing various hydrogen applications in the country together to form an integrated ecosystem. The initiative is part of the work being done to support the implementation of the National Hydrogen Society Roadmap, which was recently approved by Cabinet.

SA’s proposed hydrogen valley will start near Mokopane (Limpopo), where platinum group metals (PGMs) are mined, extending through the industrial and commercial corridor to Johannesburg and leading to Durban. The feasibility study can be accessed in the report box on the left.

Natascha Viljoen, CEO of Anglo American’s PGMs business, says: “The opportunity to create new engines of economic activity through hydrogen has been validated through this feasibility study with our partners. As a leading producer of PGMs, we have for some years been working towards establishing the right ecosystem to successfully develop, scale up and deploy hydrogen-fuelled solutions. These include investing in innovative ventures and enabling technologies, as well as forging wide-ranging collaborations across industry, to fully harness the transformative potential of green hydrogen for our economy in SA.”

HYDROGEN

The opportunity to create new engines of economic activity using hydrogen has been validated through this feasibility study.

“The study identifies potential projects that could constitute the South African hydrogen valley and kick-start the country’s hydrogen economy,” adds Michèle Azalbert, MD of green hydrogen, ENGIE. Zanele Mavuso Mbatha, CEO, Bambili Energy, says: “We are pleased to be working with Anglo American Platinum, ENGIE and the government in developing the hydrogen valley programme for the country.”

THE BOEGOEBAAI GREEN HYDROGEN PROJECT The Boegoebaai “green hydrogen” development has been designated a Strategic Integrated Project (SIP) in the South African National Development Plan and is in the Namakwa Special Economic Zone. The project’s location and classification as a SIP are key enablers to exploring Boegoebaai’s potential as a global green hydrogen hub.

S

asol has been engaging with the Infrastructure and Investment Office of the Presidency to develop a hydrogen economy in South Africa. The company has signed a Memorandum of Agreement (MOA) with the Northern Cape Development Agency to lead the feasibility study to explore the potential of Boegoebaai as an export hub for green hydrogen and ammonia. This study is expected to take approximately 24 months. The outcomes of this feasibility study will determine the next step of development.

Sasol has signed a MOA with the Gauteng Provincial Government to leverage Special Economic Zones that have been earmarked as enablers to unlocking South Africa’s green hydrogen market potential for domestic use, such as mobility and aviation. In parallel, Sasol has partnered with the Industrial Development Corporation who will provide joint funding for the feasibility study.

“We are very excited to be leading this feasibility study as part of unlocking South Africa’s potential to be a global green hydrogen and green ammonia export player with the potential for sustainable aviation fuels in the future. This will also be anchored by local demand for green hydrogen.

It is a tangible step forward for Sasol, as we seek to play a leading role in establishing the Southern Africa green hydrogen economy,” says Priscillah Mabelane, executive vice president for Energy at Sasol.

POLICY MILESTONES

• In May 2021, South Africa’s cabinet approved the Draft Upstream Petroleum Resources Development Bill. The bill, which will replace part of the existing Minerals and Petroleum Resources Development Act, aims to provide a legislative and regulatory framework that is conducive to investment in hydrocarbons on the back of significant gas discoveries since 2019.

• South Africa’s government is expected to approve the Hydrogen Society Roadmap by 2022.

• Green hydrogen is featured in the South African Renewable Energy Masterplan and the Automotive Masterplan.

• In July 2021, Sasol Limited and the IDC concluded a memorandum of cooperation to jointly develop and shape the energy environment to advance South Africa’s green hydrogen economy.

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Source: Fitch Solutions

There is potential to create an ecosystem anchored on localisation to enable sustainable benefits for the country.

Sasol continues to advance several catalytic projects to develop both local and export opportunities in the region. This Boegoebaai project is one of a number of green hydrogen, ammonia and power-to-X (P2X) opportunities, which Sasol is assessing as part of its new strategy.

“There is potential to create an ecosystem anchored on localisation to enable long-term, sustainable benefits for communities and the country.

The project has the potential to provide a significant number of long-term sustainable jobs, infrastructure investment and skills development in the country, enabling a just transition,” adds Mabelane. As the lead project integrator, Sasol will bring together strategic partners along the value chain and other enabling role players that will drive industrialisation of the Northern Cape.

HYDROGEN

[ECO]NOMIC THOUGHT

THE RACE TO GREEN HYDROGEN IN AFRICA | Excerpt taken from report: Africa beyond the pandemic* [September 2021] *See report on page 8

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greeneconomy/the upshot

As countries across the world move towards more sustainable energy sources, Fitch Solutions examines five major Africa economies (Angola, Egypt, Nigeria, Morocco and South Africa) that will participate in this transition. The green transition potential of these states will depend on three key factors: infrastructure, policy and expertise.

Despite vast natural solar and wind potential across Africa, the bankability of green projects will depend strongly on the investment and legal risk profiles of countries as well as the development of a conducive sector-specific policy environment.

CURRENT EMISSIONS AND FUTURE TRANSITION Over the medium-to-long term, countries across the globe will increase focus on the development and adoption of sustainable energy sources, including green hydrogen. SA, Morocco and Egypt boast the most diverse and largest industrial bases in Africa and face the most significant pressure to move towards sustainable energy sources for critical value chains. According to the CarbonBrief, Nigeria is among the top 20 largest emitters in the world, the second highest in Africa after SA in absolute terms.

WHY GREEN HYDROGEN? The proliferation of low-carbon hydrogen across multiple sectors will be key to achieving global climate goals, in line with the Paris Agreement signed in 2015 (and COP26). Green hydrogen is distinguished from other types of hydrogen, as it is produced from renewable electricity making it the cleanest hydrogen format, unlike the incumbent market leaders, grey and brown hydrogen, which are produced from fossil fuel based energy. Blue hydrogen is also fossil fuel based but utilises carbon capture and storage (CCS) systems to mitigate the emissions and is also, therefore, low carbon.

Although we expect Africa’s major economies to participate and move towards sustainable energy production and usage, most states in SSA will lag regions such as Central Eastern Europe and MENA and to a greater extent vis-à-vis developed states. Nevertheless, we believe that SA is best-positioned to drive the regional energy transition, followed by Morocco and Egypt, and that other traditional oil and gas producers such as Nigeria and Angola, though lagging, could benefit from leveraging their existing natural resources, infrastructure and human resource capabilities to participate in production and export of hydrogen.

SUSTAINABLE INDUSTRIAL DEVELOPMENT AND ENERGY TRADE The use of green hydrogen could benefit multiple sectors, and for Africa these can be summarised into three main categories: • Mobility. Hydrogen can be used to fuel maritime transport vessels, aircraft, private vehicles and freight trucks.

• Industry. Green hydrogen can be used as a fuel for energy-intensive industries such as the production of green steel. Businesses in the mining, manufacturing and construction sectors will benefit most by the transition to green steel.

• Trade. Several countries in the region possess vast natural resources (natural gas, solar and wind potential) to produce blue and green hydrogen, but lack sufficient infrastructure, domestic industrial clusters and supportive regulatory environments to drive higher local use. Considering this, some states will look to develop hydrogen technologies and position themselves to become major hydrogen exporters in the short-to-medium term, while transforming local industries on a longer-term horizon.

POLICY DIRECTION AND OPERATIONAL CONSIDERATIONS The openness to foreign investment coupled with bureaucratic and legal environments will be key to attracting private sector participation in renewables and green hydrogen production. Morocco, Egypt and SA are more welcoming to foreign investment and offer stronger incentives for technology and energy industries, relative to Nigeria and Angola. In these states, progressive pro-business investment policies have driven considerable industrialisation and development of renewable energy sources with notable success in public-private partnerships (PPPs), relative to Nigeria and Angola.

In terms of bureaucracy and the legal environment, SA boasts strong contract enforceability and performs significantly better than Egypt, Nigeria and Angola according to our Operational Risk Index metrics for “Trade and Investment Risk”. As seen in Nigeria and Angola, the risk of slow policy reform momentum and the dominance of large state-owned entities in the energy hydrocarbons sectors will negatively affect foreign direct investment into green energy solutions.

SA TO SHINE THROUGH TO 2030 SA is well-placed to utilise existing natural resources, such as wind and solar, to produce renewable power for green hydrogen production.

The country will likely attract significant investor interest in green energy as it is the region’s most industrialised economy with the largest installed non-hydroelectric renewables capacity base in SSA and a strong PPP track record. Looking ahead, the presence of platinum, steel, energy and related industries in the country, which will allow for efficiency gains in the production and use of green hydrogen. For domestic use, the government plans to launch a hydrogen corridor, which will involve heavy-duty fuel cells for the country’s air, freight and rail network as well as trucks. However, we highlight several key downside risks, such as regulatory delays as well as political tensions that might deter more risk-averse investors.

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HYDROGEN

MOROCCO AND EGYPT TO PROGRESS IN TANDEM Both countries are well-positioned to export green hydrogen to proximal demand markets, such as Europe. Egypt’s and Morocco’s non-hydropower renewables sectors will continue to attract significant investment through to 2030, with vast untapped solar and wind power potentials proving attractive to investors. Egypt outperforms Morocco due to a comparatively higher green hydrogen rewards profile underpinned by a strong demand outlook, despite greater project and legal risks. Rising competitiveness and falling equipment costs have made solar and wind power Egypt’s cheapest source of electricity. This will contribute greatly towards the country becoming a regional electricity and green hydrogen export hub.

ANGOLA AND NIGERIA In both countries, the development of non-hydropower renewables capacity has been limited due to continued project delays and regulatory hurdles. Investors are wary of burdensome legal risks and foreign currency repatriation risks, particularly given the long-term and capital-intensive requirements of green energy investments. Nigeria is mostly likely to rise in the rankings by 2030 as future demand variables are the key factors feeding into the Hydrogen Suitability Index score for Nigeria. Among these indicators are Nigeria leading the region in road freight capacity and dry natural gas consumption, while being second in the SSA region (behind only SA) in terms of crude steel production. However, the most prominent factor is Nigeria having the largest gas-fired power generation capacity in SSA, which points to the potential for blending hydrogen with the gas to reduce emissions from the power sector going forward.

BARRIERS TO PRODUCTION There are numerous challenges preventing SSA markets from developing industrial-scale hydrogen production operations, broadly stemming from the pervasive lack of economic, political and electricity security across most markets. We highlight three key aspects limiting the region’s capacity to develop its hydrogen production sector at present namely: inadequate renewables electricity supply and constraints in access to freshwater; lack of existing related utilities and transport infrastructure and human capital; and sluggish renewables uptake preventing the build-out of green hydrogen industry. Given the high costs of storing and transporting hydrogen, Egypt and Morocco’s proximity to European markets hold strong export potential in the future.

TRANSPORT LOGISTICS The low-volumetric energy density of hydrogen (in both compressed gas and liquid forms) makes the storage of hydrogen challenging. This limitation is felt most strongly in onboard storage, but it is also a risk in the delivery and distribution of hydrogen. Several chemical, solid state and other approaches (that could lead to higher stored energy density) can be used in countries to manage the use and, primarily, transportation of hydrogen from point of production to point of use through pipelines, roads and shipping networks.

EXPERTISE NEEDED Growth in the hydrogen and fuel cell industries will lead to vast new demand for workers in these sectors. Many of these jobs do not currently exist and do not have occupational titles defined in official classifications. They require different skills and education than current jobs, and training requirements must be assessed so that this rapidly growing part of the economy has a sufficient supply of trained and qualified workers. The most critical skills needed to drive the production of green hydrogen are likely to be those from technical workers. Labour needs will span three core areas that are: • Research and development, engineering and manufacturing • Operations and management • Training, communications and outreach SA, Egypt and Morocco have strong levels of skills availability by regional standards, particularly for mid-entry level roles, but will likely need to import workers for more specialised roles. In this way, businesses need to be mindful of the barriers to importing foreign workers and the added complications in obtaining the necessary travel and work permit documents considering changing restrictions related to Covid-19.

POLICY RISK AREAS When it comes to local use of hydrogen, we believe that African countries including its largest economies will face numerous challenges in producing, storing and trading green hydrogen. From a policy perspective, according to the International Renewable Energy Agency (IRENA), countries need certain key pillars for clean hydrogen development: • A cohesive national or regional strategy (as seen in the EU, Japan and Australia). Countries also must develop robust industrial policies across the value chain, particularly for heavy industries and boost PPPs especially in renewable energy development.

• Adequate research and development programmes and plans to boost expertise. In Africa’s case, this will also likely require the import of foreign workers, particularly in the initial stages.

• For hydrogen trade to occur successfully, coherent regulations are necessary in both the clean hydrogen origin and destination countries, and policy areas need to be clear and consistent. Additional incentives will be needed to entice various stakeholders to commit to longerterm purchase agreements of green hydrogen.

• Because the molecules of hydrogen are identical, regardless of the method of production, a certification system, or guarantee of origin, is needed for end-users to know the sustainable nature of the hydrogen production process for each delivery. Several countries have already initiated certification schemes, such as the EU’s CertifHy and Australia’s Hydrogen Certification Scheme; however, for international trade it is vital to ensure that these standards are compatible with domestic processes.

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MINE WATER TREATMENT TECHNOLOGY Features: Upgrade of water to potable /drinkable standards Clarification & Disinfection Filtration Wastewater treatment Recovery of precious metals and minerals

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WHAT’S YOURS IS MINE Mine water recycling and reuse

With the current economic climate, mining is under severe pressure from a financial front and the existing and long-standing difficulties being faced with water shortages in the country.

BY SAGISA PROCESS ENGINEERING

W

astewater produced through mining can come from many sources, including precipitation, hydrometallurgical processes, or acid mine drainage (AMD). AMD is created when sulphide minerals are exposed to air and water, producing sulphuric acid. All these wastewaters typically contain heavy metals.

Mine wastewater is collected and left untreated. Regulation requires efficient treatment of these wastewaters to reduce the risk of harm to the environment. Sagisa has been working on processes to develop water reuse applications to alleviate the demand on natural water sources without adding additional chemical waste being created by the process.

ULTRAFILTRATION Ultrafiltration is a pressure-driven purification process that separates particulate matter from soluble compounds using ultrafine membrane media. Ultrafiltration is an excellent separation technology for wastewater reclamation.

Ultrafiltration modules feature an outside-in configuration for higher solids loading. The PVDF membrane material and very narrow pore size distribution makes the modules a perfect choice for wastewater treatment and offers high removal of suspended solids, bacteria, viruses and organics.

A typical example of such application can be found at a platinum mine. The client’s requirement was to reuse water from underground mining works to reduce intake from the local river. A process was develop using ultrafiltration membranes in combination with natural processes.

Mining water is returned to the surface and pumped into a natural pond to allow settling before flowing though several reedbed ponds for natural clarification. Water is then processed further with ultrafiltration membranes to remove all particles larger than 0.03um, including bacteria.

The water was treated to the point where it could be used on the plant as drinking water for the plant. Another big win with this process was the increased life of gland seals in the process by using ultrafiltration treated water, which is well below the required gland seal water requirement.

The total water intake at the platinum mine was greatly reduced resulting in operational cost savings and a lower impact to the environment.

By optimising the process and evaluating the application correctly, mines can achieve a close to zero effluent.

Sagisa Process Engineering is focused on advanced separation technologies for wastewater treatment, to maximize the world’s reusable water by recovering water, energy, nutrients, and other valuable components of wastewater streams.

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WATER

NOT ALL DROUGHTS ARE THE SAME Here’s what’s different about them There’s growing concern in South Africa about what’s being portrayed as “a national drought disaster”. There have been anxious suggestions that drought could see many cities and towns facing their “Day Zero”. This happened during the water crisis in Cape Town as fears mounted that the taps would run dry.

BY MIKE MULLER*

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WATER

T

here is limited recognition of the different types of droughts and how they affect different sectors of society. For example, dry periods can devastate agriculture without necessarily affecting water supplies to cities and industries. Plants in fields and livestock grazing on natural pasture depend on moisture in the top layers of the soil. Cities and towns either have large reserves of water in dams or tap it from aquifers, which are effectively underground reservoirs.

It would be wrong to suggest that there are no drought problems in the country at present. Parts of the country are officially in drought conditions.

This means that officials acknowledge that the prolonged dry conditions are now seriously threatening farming activities. And many farmers are battling to stay in business.

But across South Africa’s 1.2-million sq kilometres, there are also areas where rainfall has been well below average for a year or more.

Drought research should no longer view water availability as a solely natural, climate-imposed phenomenon.

When a hydrological drought occurs, water managers responsible for supplying towns and cities need to implement previously prepared plans to restrict water use as storage levels decline, since this determines how much water can continue to be reliably be supplied.

GOING FORWARD

Human action has substantially changed the way that the water cycle works.

WEATHER PATTERNS The South African Weather Service produces rainfall maps, which show this variation. The map for the 2015–2016 season shows a mixture of very dry and very wet areas, sometimes quite close to each other.

The 2018-2019 season showed a different pattern with the western half of the country much drier than the eastern, and parts of the Northern Cape receiving less than 25% of their average rainfall.

Climate scientists, hydrologists and disaster management specialists have traditionally distinguished between three different kinds of droughts: • A meteorological drought occurs when rainfall is less than average over a significant period, often a month.

• An agricultural drought is taking place when a lack of rainfall leads to a decline in soil moisture affecting pastures and rain-fed crops. A good way to visualise an agricultural drought is to show rainfall records and vegetation conditions on maps.

• A hydrological drought occurs when a meteorological drought significantly reduces the availability of water resources in rivers, lakes and underground. Currently, except in a few places (Northern, Eastern and Western Cape and pockets of Limpopo) there is not yet a hydrological drought in South Africa.

So, the immediate drought problems that need to addressed are those affecting the country’s farmers. Domestic water supply is problematic, only a few of these are due to drought and most are due to mismanagement and poor planning.

A group of international academics think that we should change the way we think about droughts. They point out that human action has substantially changed the way that the water cycle works by damming and diverting rivers and pumping water from underground. They argue: We need to acknowledge that human influence is as integral to drought as natural climate variability. For the scientists this means that they must change the way they look at drought: Drought research should no longer view water availability as a solely natural, climate-imposed phenomenon and water use as a purely socio-economic phenomenon, and instead more carefully consider the multiple interactions between both.

From this perspective, Cape Town’s “Day Zero” would fall into a new category: a “human induced drought”. And, if the citizens of Gauteng don’t heed the warning to reduce water use to what can be provided by the Integrated Vaal River System over the next five or six years, they should not be surprised if they too suffer a human induced drought.

The World Water Council has put it succinctly: The crisis is not about having too little water to satisfy our needs. It is a crisis of managing water so badly that billions of people – and the environment – suffer.

(Source: Rand Water)

Courtesy: The Conversation

RESPONSES A meteorological drought is usually simply an alert to warn farmers and water managers that they need to be ready to act in case it continues.

Responses to an agricultural drought depend on the kind of farming that is undertaken. Livestock farmers are advised either to reduce their herds or buy additional feed, to compensate for lost grazing. Dry land crop farmers may delay planting or, if they are brave, space their crops more widely to give each plant a better chance of getting enough water. They may also take out insurance against crop failure due to drought.

In South Africa, water consumption has been recorded as: 235 litres or water per person per day. This is 60 litres per day more than what we should be consuming.

Day Zero is close. Water is a limited resource. Conserve it.

* Mike Muller has received funding from the Water Research Commission and the African Development Bank for research and advisory work related to the subject matter of this article. He also advises a variety of organisations on water related matters including national, provincial and local government, and business organisations including BUSA, AgriSA and SAICA.

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THA 29-2021

South African Industrial Energy Efficiency Project

AEE Energy Project of the Year 2020

Energy efficiency in practice works ENERGY SAVINGS Defy Appliances (Pty) Ltd 2% Defy Appliances Jacobs, Durban Plant was established in 1932. Currently, the

Defy Jacobs factory manufactures 2 500+- units per day, including free-standing stoves, built-in ovens etc.

Before joining the Industrial Energy Efficiency (IEE) Programme, Defy realised that a lot of energy was wasted through leaks in the compressed air system – a significant energy user – and that more compressors had to be run. The higher artificial demand also attributed to the lower pressure at point of use.

After attending the energy management system (EnMS) expert-level course, an EnMS plan was tailored to the plant’s requirements.

Through the IEE Project Defy implemented interventions that included replacing

Overall electricity bill saved

758 663 kWh Energy saved

ZAR 811 769 Money saved

790.91 tCO2e GHG mitigated

the compressor, installing metering for compressors and shut-off valves in

ZAR 2 292 700

production areas, repairing leaks, and upgrading vacuum generators.

Investment made

Future plans for the company included ISO 50 001 certification. To ensure sustained energy savings Defy implemented awareness raising programmes, which will form a big part of achieving its goal of reducing energy by 4% per annum.

3 Years Payback period

To participate in the IEE Project or access some of the free online tools, contact ncpc@csir.co.za Download the full case study, and others, at www.ncpc.co.za / www.ieeproject.co.za.

CIRCULARITY

Making the

circular economy

a reality

On average, South Africans dispose of enough municipal solid waste to fill an entire football field 10 metres deep each day, which equates to 54.2-million tons of waste per year.

BY NCPC-SA Implementors of Mpumalanga Industrial Symbiosis Programme, Sandile Khumalo (NCPC-SA) and Nomusa Madonsela (DEDT).

T

he National Cleaner Production South Africa (NCPC-SA) and the Mpumalanga Department of Economic Development and Tourism (DEDT) have partnered to tackle this challenge with the establishment of the Industrial Symbiosis Programme (ISP), an innovative reuse and recycling solution.

Since the launch of the programme in Mpumalanga (2018), 92 128 tons of waste from landfill has been diverted. This translates to a reduction of almost 837 946 tons of greenhouse gas emissions to date.

To achieve this, the Mpumalanga ISP (MISP) hosts matchmaking workshops for companies and SMMEs teaching them how waste can be turned into a reusable resource by entering into mutually-beneficial collaborative agreements.

“So far, MISP has trained about 46 facilitators on implementing industrial symbiosis and identifying symbiosis opportunities,” says Sandile Khumalo, who is responsible for MISP, from NCPC-SA. “Four business opportunity workshops have been delivered in the province to identify company matches for business opportunities from waste generated by companies and from the workshops there has been attendance from a total of 245 attendees who found it important to attend and to declare their waste needs. The programme has been able

to divert the 92 128 tons after having completed 33 synergies to date.

This from having completed 33 synergies to date.”

According to Khumalo, these figures prove that industrial symbiosis contributes directly to the province’s efforts to minimise its environmental footprint and mitigate the effects of climate change.

MISP together with DEDT and its stakeholders have agreed to prioritise the promotion and creation of green enterprises with the aim of beneficiating and creating markets for waste in Mpumalanga for its people, thus ensuring growth in the province’s waste economy.

The programme has been able to divert approximately 92 128 tons of waste from the landfill.

For interested companies and SMMEs who would like to know more about the Mpumalanga ISP and how they can take part, please visit the NCPC-SA website or email SKhumalo@csir.co.za for more information.

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FOOD SERVICE FILTRATION DEPENDABLE & EFFICIENT WATER FILTRATION Cleaner, better tasting water by reducing common contaminants Improve beverage security and quality via protection of Carbonation CO₂ Reduced scale build-up, providing an efficient operation whilst providing great tasting and looking beverages

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WATER

THE WORTH OF WATER

Water is the most important commodity in the foodservice industry, which relies on the provision of clean and fresh water for its daily business. Water filtration and treatment systems used in restaurant applications have become a necessity.

BY SAGISA PROCESS ENGINEERING

T

he main benefits of implementing water filtration systems for restaurants are equipment protection, improved quality, taste, and safety for prepared food products.

Additionally, use of water filtration systems also help in reducing the hazardous impacts of using plastic bottled water, aiding in the reduction of the carbon footprint and pollution.

Controlling water quality is vital to a store’s brand identity and customer loyalty. One may consider incoming water to be fixed, stable and unchanging, but quality varies widely from region to region and even street to street.

High levels of dissolved minerals, the use of disinfectants and the presence of tiny solid particles – or even residual bacteria – may result in unpleasant taste. And, untreated water may cause scaling on internal parts, corrosion on metal surfaces, and degrade rubber components within foodservice machinery. Therefore, having consistent good water quality is essential in the maintenance of restaurant equipment.

The 3M range of foodservice filtration equipment not only removes these harmful contaminants, but also by design, realises higher energy efficiencies from pumps and temperature management systems.

These systems are designed to meet the volume, water clarity and maintenance expectations of restaurant owners.

Customer experience is of utmost importance in the restaurant business. Unhappy customers and unreliable machinery can only lead in one direction: a negative effect on business. Here are a few examples of how poor water quality can directly affect business: • Machines break down more frequently, or work sporadically and may not be available when they should be generating income and lead to an overall higher cost of ownership • Brand reputation may become tarnished. Customers will either leave or complain if they are unsatisfied with beverage, and even steamed food, quality • Unreliable working conditions, regular disruption from service engineers and handling customer complaints may affect the morale of staff.

Ultimately this all links back to an increase in running costs for the business and therefore reduced profits.

Plastic is everywhere. Most of us correlate plastic contamination to the destruction of our environment. Only a small percentage of plastic is recycled, but the problem continues to expand into the realm of human health. Studies confirm the presence of microplastics in bottled water. The use of plastic bottled water is not just a hazard to public health due to

release of harmful chemicals such as BPA (Bisphenol A) present in plastics but also an environmental hazard posing severe threat to the ocean and marine life.

3M™ Water Filtration Products are simple, effective, and easy-to-install solutions for commercial foodservice applications. These systems are designed to meet the volume, water clarity and maintenance expectations of restaurant owners, fast food chains and convenience store operators, supermarkets, cafeterias and institutions.

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At Sagisa, in partnership with 3M, we are committed to providing your business with water filters that are as dependable as they are efficient and flexible. Most of our solutions are also zero water wastage.

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41

VALUE CHAINS

BUILDING RESILIENCE

IN MANUFACTURING AND SUPPLY CHAINS

Covid-19 is severely disrupting manufacturing value chains, with grave consequences for the global economy. The pandemic has surfaced significant questions about near- to medium-term supply chain resilience.

BY KEARNEY CONSULTING

W

hile traditionally global value chains have been designed around optimising for cost-competitiveness, Covid-19 further underlines the need for companies to orient the design toward “risk-competitiveness”. Certainly, global supply chains have been knocked – and recovered – before, for example from the disruptions associated with past crises such as the 2003 outbreak of SARS, the 2008 financial crisis, or the 2011 Fukushima nuclear disaster.

But this time, as it became apparent very quickly, is different.

42

First, the emergency is a global one. Unlike SARS, Covid-19 spread to all continents and more than 180 countries in the space of only a few months, too quickly for effective mitigating or remedial action. As such, it created a global demand shock.

Secondly, previous crises have typically been concentrated in particular geographies or targeted specific sectors, but Covid-19 affected all major economies. Six of the top 10 world economies in terms of manufacturing value add are also among the hardest hit by the disease (Figure 1).

VALUE CHAINS

Figure 1. More than 75% of the world’s global manufacturing output has been directly impacted by the pandemic. The colour purple in the graph denotes Covid-19 hard-hit countries. (Sources: The World Bank, Kearney Analysis) Thirdly, the nature of trade between countries, in which the international flow of goods as a percentage of global GDP has steadily increased during the past 50 years, is now highly interdependent. The level of disruption has been amplified, and recovery will take longer. The scale, complexity, and urgency of the situation means that no single body can tackle it in isolation. If industries are to ensure business continuity, protect employees, and shore up supply systems for the future, they will need to find new approaches, share knowledge, and work together like never before.

Recognising this, in collaboration with the World Economic Forum Kearney surveyed more than 400 senior operations and supply chain C-suite executives to codify the current economic impact on value chains, share perspectives on the immediate response to the crisis, and identify the strategies that will be needed to prosper post-Covid-19.

The analysis confirms the level of disruption that has overwhelmed supply chain operations: more than 80% of respondents indicated that Covid has significantly disrupted their own setup, with small businesses the hardest hit (Figure 2).

Figure 2: Covid-19 has significantly disrupted supply chain operations. Purple denotes Covid-19 hard-hit countries. (Source: Kearney Covid-19 survey as of 10 April).

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VALUE CHAINS

Figure 3. Supply chains have only moderately adapted to the crisis, with automotive facing the biggest challenges. Larger companies’ supply chains adapted better, especially companies with revenues greater than US$50-billion.

When asked to score how much the virus was disrupting their sources of demand, for example changes in key markets or consumer behaviour, and then their supply network, including suppliers and manufacturing centres, respondents gave an average result of 7 out of 10 (Figure 3).

Three stages of activity will be needed to help supply chains back onto a more secure, durable footing.

Employee protection

Source: Kearney, COVID-19 survey (as of April 10)

Figure 4: Companies are actively taking measures to protect employee wellbeing.

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1. React: immediate actions to ensure business continuity Taking care of employees was the number one priority for respondents, and a few active measures to protect both physical wellbeing and mental health have been put in place, such as the use of personal protective equipment (PPE), restrictions on employee contact in the workplace, switching employees to working from home, and travel restrictions (Figure 4). None of the 300+ respondents said they hadn’t taken any steps to protect employees.

Companies are also supporting suppliers, customers, and society at large. Suppliers have been given a helping hand in various ways, from advances or premium payments to guaranteed purchase promises. Many firms have repurposed their production lines to produce masks, ventilators, and other much-needed goods; turned to new types of transportation; or prioritised orders for vulnerable customers.

VALUE CHAINS Customer support programs

Figure 5: Leading companies are taking action to mitigate impact on customers. Nine out of 369 surveyed companies had not taken any action to support customers.

One area that could improve significantly however is adapting delivery methods to ensure minimal human contact: only 40% of respondents had put these measures in place (Figures 5 and 6).

“We see many companies sharing intellectual property – for example, 3D/CAD design files – to allow other companies to also produce ‘their’ products to ensure sufficient supply of high-demand goods.” - Chief commercial officer, technology company

Figure 6: Companies supporting society to fight Covid-19.

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VALUE CHAINS 2. Recover: strategic longer-term initiatives to increase resilience Current supply chain configurations are seen as ineffective. Fortyseven percent of executives surveyed indicated a need to overhaul manufacturing and supply network to increase future resilience. Supply chains are too long, too complicated, and too often exposed to tier-2 and tier-3 supplier vulnerabilities in a single source supply. Each of these factors adds risk, especially in a crisis. Businesses are starting to shift their focus away from cost and toward being risk-competitive instead.

To make their supply chains more effective in the medium term, businesses are looking to reduce complexity, increase their use of local suppliers and manufacturing capacities, and diversify their supply base to protect supply (Figure 7).

Business leaders also noted the role that advanced technologies such as artificial intelligence, data analytics, 3D imaging, and additive manufacturing played as a crucial way of arming themselves to face the future and adapt to potential disruptions in supply and demand. This presents a huge opportunity, as the companies who are already making most use of high-tech tools are demonstrably able to adapt their supply chains in the face of Covid-19 better than those that don’t.

“Technology and digitalisation enable end-to-end visibility across the supply chain. Having this visibility – ideally in real time – is key to proactively run risk analyses and react fast when a crisis hits. We are currently accelerating multiple initiatives in this area.” - Head of procurement, healthcare company

Key changes to supply chain setup

Figure 7: Dual sourcing, reduced complexity and localising are the three key changes that executives are evaluating. The three levers are highly interdependent (for example, dual sourcing often implies increased complexity). Safety stocks and resources in supply chain departments will be rammed up.

Unsurprisingly, the ability to adapt to changing demand and manage risk better are two of the top priorities for businesses coming out of Covid19, especially in areas with highly complex supply chains, such as industrials, healthcare, and automotive (Figure 8). As for future operating models, remote working is here to stay, with an average of 20% of businesses across sectors considering permanent work-from-home solutions. A shift toward decentralisation is expected, enabling organisations to be more flexible and make decisions quickly.

Because we’re better together.

46

VALUE CHAINS Key consideration for future operating models

Figure 8: Upskilling people and having a consistent riskmanagement system in place are key to ensure higher resilience.

Changes to the operating model must cover all four dimensions to ensure smooth implementations. Covid has changed our ways of working, which makes changes to the operating model inevitable.

Relationships will also change. Many companies supported their suppliers throughout the pandemic, deepening the bonds between them.

These vital connections are perceived as an important way to secure supply during turbulent times. New collaboration models are also on the table. Within and across industries, organisations have come together to share practices, come up with new solutions, and keep elements of the economy moving. Not every business will survive, and like other periods of financial difficultly, consolidation may follow.

3. T hink global, act global. At the height of the crisis, some supply shortages were caused by lack of capacity. By coordinating logistics within and across global value chains and using new technologies to enable much better visibility across the entire ecosystem, similar headaches could be avoided. Connecting other applications such as blockchain and IoT sensors together could also speed things up, for example by reducing customs clearance time.

3. Reinvent: key imperatives to adapt to potential “forever” changes With widespread disruption already present due to emerging technologies, climate change, and geopolitical tensions, it’s clear that the pandemic is acting as an accelerator. Businesses will need to consider five key imperatives if they’re to succeed in the long term: 1. Be rapid response ready. The crisis has forced a change in consumer preferences by removing most in-person contact. Existing trends toward personalisation and sustainable shopping mean it’s likely that manufacturing and supply systems will need to be able to adapt to further changes in behaviour. Becoming more sensitive to demand through increased use of technology and data analytics will be crucial.

2. Adopt high-tech habits. Companies best placed to adapt during the crisis were those that were able to make use of advanced technologies. This will only take on more importance as further developments emerge. For example, additive manufacturing makes it possible for goods to be produced directly in the setting where they’re most needed, while automation and advanced robotics are increasing production flexibility and making it easier to switch products across manufacturing locations. All of this points to a shift toward distribution and manufacturing, rather than the other way around.

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VALUE CHAINS

Figure 9: New imperatives will emerge from Covid-19, posing significant challenges and opportunities for businesses.

Companies best placed to adapt during the crisis were those that were able to make use of advanced technologies.

READ REPORT

THOUGHT [ECO]NOMY

If the pandemic has taught us anything, it’s that when we are truly put to the test, we are capable of astonishing achievements. Hospitals can be built in a few days. Entire operating models can change. And collectively, we can do what matters most. By continuing to collaborate, a manufacturing and supply system can be built that’s more robust than ever. Because we’re better together.

HOW TO REBOUND STRONGER FROM COVID-19 | Resilience in manufacturing and supply systems | White paper produced by Kearney Consulting and the World Economic Forum [April 2020]

greeneconomy/report recycle

48

facilities set up to operate in record time. This experience could be used and adapted as we attempt to tackle other challenges such as climate change. While this has been a global crisis, it is not a crisis of globalisation. By working together, stakeholders can influence the changes and take the actions needed to bring about the bestpossible solution to navigate the new global scenario (Figure 9).

Article courtesy: kearney.com

4. Free tasks from day-to-day operations. Although home working has been adopted at breakneck speed out of necessity in many organisations, the shift needed to make it a success is as much psychological as it is physical. While executives reported a certain level of cultural resistance to remote working, becoming equipped to cope with potential future disruption, like successive waves of Covid-19 or outbreaks of other infectious disease, is of vital importance. Virtual and augmented reality could provide the means to enable key tasks or carry out employee training from outside the factory.

5. Take the united approach. Fighting Covid-19 has driven new levels of collaboration, for example speeding up the delivery of medical and essential supplies and getting temporary clinics and hospital

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