When crisis hits, follow the money

As a journalist in a pretty threadbare newsroom, I’m sometimes asked to weigh in on other matters that have a bearing on our economy.

Last week it was the renewable energy quagmire, a subject that fills me with great terror — not just because of the existential threat posed by the climate crisis, but because so much of of its discourse is wrapped in technical jargon that neatly tucks away the political and financial interests driving certain agendas. 

As an economic journalist I ought to be good at peeling away the layers, exposing the power dynamics at play. Politics and money tend to meet when the economy is being reshaped.

But in South Africa, there is an added layer to all the talk about renewables: the energy crisis, which is viewed as the greatest threat to the economy that is already on a knife’s edge. The urgency of the energy crisis, and the emotional reaction it elicits, means it becomes too easy to disregard agendas and to seek out the quick fix. Crises tend to have that effect and journalists are not immune to fear-induced head-burying.

All this to say that my most recent foray into covering the renewables dilemma reminded me of one of the basics of journalism: follow the money.

The climate disaster has prompted the mobilisation of huge amounts of capital, which will be used to build new infrastructure, future-proofing economies and — by extension — financial systems. Investors stand to make considerable returns on projects that, especially in developing countries, often have government guarantees attached to them, reducing investment risk.

By 2030, emerging markets, excluding China, will need $1 trillion a year in external finance to transition to green economies, according to a 2022 report by the Grantham Research Institute on Climate Change and the Environment. Failing to shift to cleaner electricity will leave these economies vulnerable to climate-related sanctions, sending them into deeper levels of distress than they already are in. Needless to say, when the stakes are that high, there is a lot of room for duplicity.

Adding to the climate finance quandary, governments, including South Africa’s, face fiscal constraints, with efforts to lower debt ratios hamstringing their ability to finance their transitions. 

Some investments — say, for example, repurposing a nation’s energy grid for the introduction of renewable energy — are inherently public in nature and private finance threatens to encroach on public interests, such as access to low-cost electricity.

Implicit in the choice between public and private finance is the toss-up between creating a more equitable energy system and one that reproduces existing inequalities. For this reason, it is important that we constantly question how climate investments are being financed, lest we find ourselves locked into the latter scenario.

A recent working paper out of London’s School of Oriental and African Studies points out that global climate justice has been neglected in climate-related financial initiatives. One way that climate finance exacerbates climate injustice, the paper notes, is through attempts by private banks in the global north using “their structural power to exploit profit opportunities in climate mitigation and adaptation projects in the global south [through] the so-called Wall Street Consensus”.

In 2021, economist Daniela Gabor described the Wall Street Consensus as a paradigm that reframes the Washington Consensus — said to be at death’s door in the wake of the 1997 Asian financial crisis — in the language of the sustainable development goals. The Wall Street Consensus, Gabor said, identifies global finance as the actor critical to achieving the goals.

This is not simply an agenda to privatise infrastructure, its strategy is to make development “investible”, Gabor noted in her analysis of the Wall Street Consensus. One element of this strategy is to enlist the state into derisking development asset classes to help attract investors, which I alluded to earlier. 

“Government capacity to design autonomous policies, in many poor countries severely eroded by structural adjustment, will be further eroded by pressures to allocate scarce resources to creating the conditions for private development finance,” Gabor said in her conclusion.

In South Africa, the majority of climate investment has happened through the Renewable Independent Power Producer Procurement Programme, a tender process in which winning bidders are awarded long-term power purchase agreements. These agreements have historically been guaranteed by the government, although the country’s Just Energy Transition Investment Plan for 2023 to 2027 flags the importance of reducing the need for government guarantees.

But doing so requires a well-capacitated state, ready and willing to step on the toes of investors to guard against their sometimes nefarious influence.

Recent statements by Electricity Minister Kgosientsho Ramokgopa suggest there will soon be a huge effort to mobilise private capital to upgrade the country’s grid, making it fit for purpose for the shift to cleaner energy. 

The minister has alluded to an upcoming report outlining how this will be done without encroaching on the country’s energy sovereignty — which would have probably required the awkward exercise of forcing necessarily dissonant values into a type of harmony, something the talk-left-walk-right ANC government is pretty good at. The minister has called for innovative solutions to the financing dilemma.

Ramokgopa has urgency on his side and if this report clears a path towards an expedited energy transition, it will probably be welcomed regardless.

Meanwhile, the government continues to deal with inadequate state capacity, ravaged, as it was, by state capture and other, more deep-rooted, deficiencies. With these skills gaps plugged by the private sector, closely aligned to financiers, their influence on reforms should not be ignored.

Ramokgopa is correct in pointing out the need for innovation. After all, there is opportunity in every crisis. But, with the balance of power so out of the public’s favour, we’ve got to guard against chancers.