Aweh dearly beloved fellow ruminants & groupies
Today, I must revert to a nerdy topic related to energy after spending a week marking assignments regarding the extent to which local manufacture of solar photovoltaic (PV) panels should be considered in South Africa. So, for those of you seeking something more frivolous, like my view on the Barbie movie, I urge you to skip today’s blog. For what it’s worth, I was dragged to see Barbie and feared the worst. It exceeded my very low expectations, but it won’t make my top 10 movie list.
First, let’s take a lengthy digression. What should a country like South Africa manufacture? This is a question I always pose to my students. A common answer is “everything.” There’s a pervasive view, also reflected in several assignments, that exports are good, and imports are bad. Local manufacturing of everything will supposedly grow the economy, create jobs, improve skills, ensure supply security, and be the path to Nirvana. This view isn’t unique to South Africa; it’s part of populist thinking globally. Even America seeks to reindustrialise through state intervention and industrial policy, such as the curiously named Inflation Reduction Act (IRA) (IRA), requiring $437 billion in investments to reindustrialise America and reduce the deficit by $300 billion per year. If you’re a direct beneficiary, there’s much to like. This can also prevent America from being held hostage by China. However, let’s pause and think.
Consider the champion of free market capitalism, Milton Friedman. He emphasised that the balance between exports and imports isn’t as crucial as the freedom for individuals and businesses to engage in voluntary exchange without government interference. He criticised protectionist measures like tariffs and quotas for distorting markets and causing inefficiencies. Friedman believed that free trade and open markets could lead to greater prosperity for nations by enabling specialisation and benefiting from others’ innovations and efficiencies. This view is less popular now as globalisation wanes and localisation gains prominence.
Take, for instance, liquid crystal displays (LCD) and their successor, organic light-emitting diode displays (OLED). How many of these do you own? They’re in TVs, cars, phones, computers, tablets, and appliances. Offhand, I couldn’t tell you how many I own. Where are they made? It turns out South Korea, China, and Japan dominate manufacturing, with South Korea commanding a market share of about 40%. A North Korean attack could trigger a global crisis due to shortages.
Can America recreate this industry and technology? The proprietary technology, intellectual property, and know-how involved are formidable. Replicating this from scratch would be extremely hard and expensive. I, for one, wouldn’t pay more for an American TV when my reliable 60-inch Samsung QLED 4K TV serves me well and is a technological marvel.
If localisation leads to economic Nirvana, should America consider localising each of its 50 states? Texas shouldn’t import cars from Detroit but set up its own manufacturing industry. This is absurd, as all 50 states are part of the land of the brave and the home of the strong united under the leadership of future President Trump. That concludes the digression.
Due to daily power blackouts in South Africa, our household has 10 solar panels on the roof. Made in China, they’re expected to last 20 years and might outlive me. They were reasonably priced. China produces over 60% of the world’s solar panels, followed by Taiwan, Vietnam, and South Korea. The USA also manufactures solar panels but imports more from China. With the IRA, US solar panel production could rise. If I need more panels, I’ll prioritise price, quality, and technical specs. Their origin in the USA won’t weigh heavily.
So, how are these things made? The featured image shows PV panel components, and you can find a simple explanation of the process here. Most components are low-tech; items like aluminium frames and tempered glass could be manufactured in South Africa’s existing factories. The complex, high-tech component is the solar cells themselves. In principle, South Africa could import only cells and manufacture the rest. Whether local panels would be cheaper than Chinese ones is uncertain. Tariffs could support local industry but also drive-up costs for South Africans. This way one can ensure that South Africans pay more for PV panels which will never be able to compete in the global market and the Chinese will rest easy. Collaboration or licensing from China could eventually pave the way for fully South African PV panels.
Should South Africa manufacture solar panels? That’s best left to our competent government, experts in policy drafting. The solar panel manufacturing policy will tell all.
Thank you for all the ideas and comments. I really appreciate them and please keep them coming.
Regards
Bruce
Ruminant Pink Friday 