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SA SMMEs explore opportunities in European Green Deal

Research into the resilience of SMMEs has highlighted global opportunities for South African businesses which take advantage of the European Green Deal.

After an EU funded project to support green SMME resilience during the early stages of the COVID-19 pandemic, GreenCape partnered with Wesgro, TIPS, Tralac, Trade Advisory and the International Cleantech Network to support local green SMMEs so they could continue building international relationships to secure trade opportunities despite travel restrictions, supply chain disruptions and a hard lockdown.

A set of interventions were developed, including an in-depth look at the opportunities presented by the European Green Deal for local green SMMEs who have been able to adapt their business models to trade without travel.

A series of documents have been published, detailing information on accessing global cleantech opportunities in a virtual world; piloting resilience in trade promotion; an explanation of the context, challenges and opportunities for SA SMMEs operating in the green economy through the EU Green Deal; a circular economy action plan, and an explanation of the Carbon Border Adjustment Mechanism.

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Trudi Makhaya, a special economic advisor to President Cyril Ramaphosa, said: “As the world tackles climate change, preserves biodiversity and adopts more sustainable forms of production, the green economy is poised to become an important engine of growth. With COP26 on the horizon, South Africa continues to advocate for a just transition that benefits all, including communities that risk being left behind

“It is also important that we support green industrialisation in key sectors such as renewable energy, green mobility and green hydrogen, and ensure that MSMEs are included in these new value chains. The EU Green Deal opens an important market for MSMEs in the green economy.”

Impact of European Green Deal on SADC

The report into the European Green Deal points out that South African exports will have to adapt if they want to assure their long term competitiveness. The Carbon Border Adjustment Mechanism is specifically unpacked in the study and potential opportunities to expand trade in the EU are also highlighted.

The European Green Deal (EGD) is a set of policy initiatives by the European Commission (EC) with the overarching aim of making Europe climate neutral by 2050 touches on various sectors including energy, land, biodiversity, clean air, sustainable foods and buildings.

The Carbon Border Adjustment Mechanism (CBAM) is one of the headline initiatives under the EGD. It aims to mitigate carbon leakage and will mirror the EU Emissions Trading System (ETS) by applying an equivalent regime on imports. It will come into effect in January 2023 and will initially apply to direct emissions from the iron and steel, cement, fertiliser, aluminium and electricity generation sectors.

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“The EGD and its specific policies, regulations and measures will have an impact on the EU’s trading relationship with third-country partners. The Southern African Development Community (SADC) EPA group is no exception and impact will vary according to country and specific products. The EU SADC-EU EPA is an important agreement that determines how the EU and SADC EPA countries (Botswana, Lesotho, Mozambique, Namibia, South Africa, and Swaziland) trade.

“Given that South Africa is the largest trading partner with the EU, it will therefore be affected the most if there are any changes to the trading requirements or regulations. Agricultural products, motor vehicles, critical resource material inputs, carbon-intense primary resources and packaging, among others, will be impacted,” reads the European Green Deal Report.

Change in end-use demand conditions

“The EGD aims to scale commercial applications of breakthrough green technology innovations and create corresponding markets to secure advantage over competitors in the United States and China. African countries will struggle to adopt these emerging green technologies, some of which are still costly.”

Tightening control standards for chemicals and pesticides will require investments by chemicals and agricultural exporters, while weak domestic organic certification structures may limit market opportunities among more environmentally conscious consumers.

Heavy industry will be impacted by changing end-use demand conditions for a range of mined goods, while restrictions on the export of metal scrap may worsen pre-existing shortages for steel producers.

Both the leather and wine industry may be impacted by carbon-intensive aspects of their supply chain, with pressure on the wine industry concentrated on efforts to increase bulk shipments, eroding earnings for small producers.

The automotive value chain remains at high risk until a clear pathway is mapped out to transition to the manufacture of electric vehicles (EVs), with mid-sized auto component suppliers, particularly at risk.

Lagging investment is going to have a decided effect

Technology risks include instances of incompatibility between the green approaches adopted in the EU and South Africa, and more fundamental shifts in the structure of certain value chains. Lagging investments in green production techniques may pose risks for sectors such as steel and glass, with the latter also impacting beverage exporters.

The lack of control and classifications systems for biowaste may impact upstream suppliers such as agriculture and downstream adopters in the chemicals sector, while the pulp and paper sector may need to adapt to the changing expectations of pulp mills acting as multi-output biorefineries.

 Electrotechnical firms will continue to be constrained by the stasis of South Africa’s renewable energy procurement programme, while producers of traditional automotive components may face a decline in supply opportunities as the value chain contracts around primary production of electronics at the original equipment manufacturers (OEMs).

You can find all the reports on the GreenCape website and read more about what can be done to mitigate the risks and turn the constraints into opportunities.

Theresa Smith
Theresa Smith is a Content Specialist for ESI Africa.

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