SA’s recent decision to impose a 10% import tariff on solar panels has sparked discussion about its potential effect on the local manufacturing sector and the overall economy, and its alignment with broader economic, energy and environmental goals. While the tariff aims to boost domestic production, it raises important questions about the timing of such measures, the government’s commitment to attracting foreign investors, and the broader implications for SA’s energy transition. 

Introducing an import tariff to protect and stimulate local industries is a well-known strategy under the infant industry argument, which suggests temporary protectionist measures are necessary to shield nascent industries in developing countries from international competition until they achieve sufficient maturity and competitiveness. SA’s domestic solar panel manufacturing sector is small and still trailing in price competitiveness against available imports.

With only two local producers, it also has insufficient capacity to meet local demand. Implementing a tariff in this context risks increasing costs for consumers without a corresponding rise in local production, given that there is little scope for substitution between imported and domestically produced goods at this stage.

This translates into higher prices with limited immediate access to local alternatives. Government might see an increase in revenue from the import tariff, but it will be somewhat offset by a decrease in consumer spending and VAT revenue on general solar panel sales. 

In the short term, the primary effect of the tariff is likely to be an increase in government revenue and a decrease in consumer spending on solar panels. This will slow the adoption of solar energy, counteracting efforts to increase renewable energy use and reduce carbon emissions. However, the long-term benefits could be substantial if the tariff is accompanied by a set of interventions that can increase local production.

Late intervention

Over time, a robust local solar panel manufacturing industry could emerge, creating jobs, reducing dependency on imports and potentially lowering costs through economies of scale. This would align with the government’s broader economic and environmental goals. 

The policy implies that the timing is appropriate, but in reality intervention, though welcomed by many, is already late. The substantial rise in imports of solar panels in 2022 and 2023 suggests SA is probably five to 10 years behind in establishing competitive local production at scale. This delay underscores the need for a more strategic approach to policy implementation.

Regardless of the timing of the intervention, it is also critical to examine the packaging and execution of the policy. Effective policy packaging should include comprehensive support measures for local manufacturers, such as research & development (R&D) incentives, technological upgrade subsidies, and training programmes to develop a skilled workforce.

Creating a favourable regulatory environment that encourages investment and innovation in the local photovoltaic (PV) industry is essential. Addressing supply chain dependencies and ensuring compliance with international standards are also vital components. 

No tax, subsidy or tariff is collectively beneficial. In this case, the primary winners are likely to be potential local manufacturers and, by extension, government through increased revenue. At least in the short term, the losers will be consumers facing higher prices and, consequently, slower adoption of solar energy.

The future of supply chains and labour with technical expertise is a significant question mark. Insights into what a local PV panel production bundle looks like — think overall value chain — can offer hints about the general economic winners of such a policy.

Intricate nature

In SA, the PV manufacturing value chain involves a range of components and subcomponents, many of which are imported. For example, while SA has some local manufacturers, such as Seraphim and ARTSolar for PV modules, and a few firms for inverters and mounting structures, components such as DC combiner boxes and specialised cables are still largely imported. Local capabilities for manufacturing these components are often limited by factors such as noncompetitive pricing of local materials compared with imports, and a lack of compliance with international standards.

Moreover, the complexity of local PV panel production involves not just the panels’ manufacture but also logistical considerations, civil and electrical services and compliance with local content requirements. This highlights the intricate nature of developing a robust local solar PV industry, indicating that solutions must consider multiple factors beyond just the immediate economic effects on manufacturers and consumers.

The system’s complexity necessitates a comprehensive approach that addresses supply chain dependencies, local manufacturing capabilities and global market conditions to ensure sustainable development and adoption of solar energy.

The tariff also raises questions about its alignment with SA’s just energy transition. While the move aims to develop a local solar panel manufacturing industry, the immediate cost increase could slow the adoption of solar energy. This poses a challenge to the country’s goals of reducing carbon emissions and transitioning to a sustainable energy future.

Proper analysis needs to be conducted to estimate the rebate option for solar and how it may lessen any such effect on the trajectory of the country’s goals for environmental sustainability. A comprehensive strategy that includes consumer and producer support is crucial to ensure the transition is not only just but effective. 

Stimulate production

While specific microlevel interventions such as the solar panel tariff are important, they must be supported by a favourable macroeconomic environment. Restoring business and investor confidence is central and can be achieved through stable, transparent economic policies, political stability and efforts to combat corruption. 

A tariff must be part of a broader, well-communicated strategy to effectively stimulate domestic production. This includes supply chain development, incentives for local manufacturers, R&D, and skills development. Direct support in the form of subsidies, tax breaks and grants can help local producers establish and expand their functions. Funding R&D initiatives can drive innovation and efficiency in local production, making domestic products more competitive against imports.

Training programmes to build a skilled workforce capable of supporting the solar panel manufacturing industry are essential. For instance, key technical skills required include renewable technology installation, maintenance, operations, R&D and procurement. 

Soft skills such as project management, leadership and communication are crucial. Effective communication should outline in-demand skills such as electrical engineering and policy consulting, as well as setting realistic timelines and cost expectations. Key communication elements include clear timelines for ramping up domestic production, progress and adjustments updates, and detailed information on temporary price impacts.

Highlighting subsidies or rebates can address affordability concerns. Long-term benefits should be clearly communicated, including job creation, local expertise development and economic and environmental advantages. Case studies from successful implementations elsewhere can illustrate these benefits. Ongoing engagement with stakeholders, including industry, consumers and research institutions, is essential. 

Considering these factors, the policy can better support the growth of a sustainable and competitive local solar PV industry, benefiting the economy and contributing to renewable energy goals. This multifaceted approach is necessary to overcome the challenges and ensure long-term success in the sector. 

The government’s introduction of the solar panel import tariff is a step towards fostering domestic production. However, its success will depend heavily on the presence of a comprehensive support strategy with well-planned interventions that are communicated well in advance. This foresight is crucial as it underscores the missed opportunities of not implementing such policies earlier to capitalise on the recent surge in global demand.

Clear communication and a detailed road map of policy interventions are essential for stakeholders to understand the long-term vision and navigate interim challenges. By addressing both micro and macroeconomic factors and ensuring revenue from tariffs is reinvested into local PV producers, government can create an environment where the solar panel industry can thrive, benefiting both the economy and the environment.

Continuous monitoring and adaptability will be vital to seize opportunities in the growing global solar energy market. 

Professors Roula Inglesi-Lotz, Margaret Chitiga-Mabugu Heinrich Bohlmann and Jessika Bohlmann are researchers in the Faculty of Economic and Management Sciences at the University of Pretoria. 

This article was first published on BusinessLive on 16 July 2024. 

Disclaimer: The opinions expressed in this article are solely those of the author and do not necessarily reflect the views of the University of Pretoria.