Background to South Africa and the Renewable Energy Procurement Programme

FACULTY OF EDUCATION AND BUSINESS STUDIES Department of Business and Economics Studies

COMPETITIVE PRODUCTIVITY IN THE SOUTH AFRICAN RENEWABLE ENERGY PROCUREMENT PROGRAMME

Paul Frick

2019 / 2020

Student Thesis, Master Degree (One Year),15 Credits Business Administration Master Programme in Business Administration (MBA): Business Management 60 Credits Master Thesis in Business Administration 15 Credits

Supervisor: Dr. Daniella Fjellström Examiner: Akmal Hyder

Abstract

Title: Competitive Productivity in The South African Renewable Energy Procurement Programme Level: Final assignment for the Master Programme in Business Administration Author: Paul Frick Supervisor: Dr. Daniella Fjellström Date: 2020 – 01 Aim: The aim of the study is to examine the concept of Competitive Productivity (“CP”) in the context of the renewable energy independent power producer procurement (“REIPPP”) programme in South Africa, as the case study, which consists of private public partnerships and to understand how the actions of government have an influence on the competitiveness of the procurement programme. Method: The research follows an epistemological perspective using a mixed method. The position of ‘interpretivism’ is used by conducting structured and semi- structured interviews with industry experts to understand the interplay between the private sector (Firm CP) and government (National CP). The interviewee responses were thematised according to the CP framework in order to identify which factors of the CP framework were most relevant in a FCP – NCP relationship. The research further uses the position of ‘positivism’ by performing quantitative analysis on renewable energy procurement programme data to understand the competitive environment. Result & Conclusions: The empirical research findings indicated that non-financial factors such as trust through consistent and transparent government policy as well as a pragmatic attitude on the part of government, increased competition and ultimately resulted in a productive procurement process. The three constructs of Culture, Benchmarking and Performance were found to have the strongest influence out of the six constructs of the CP model. The research therefore adds to the development of the concept of CP. Suggestions for future research: Future research suggestions include an extension of the current research to compare South Africa against similar renewable energy programmes in neighbouring countries in Africa. Contribution of the thesis: The research directly contributes to a “Call for papers” in the relatively new area of strategic management, CP, and adds to the underrepresented field of International Business research in Africa. Additionally, the research contributes to future policy development in Africa where many other African governments are following the REIPPP model in order to develop their underdeveloped energy grids. Key words: Competitive Productivity, Trust, Pragmatism, Renewable Energy Procurement Programme.

Table of Contents

Technical Abbreviations ...... 5 Chapter 1. Introduction ...... 6 1.1 Background ...... 6 1.2 Perceptions of Africa ...... 7 1.3 Renewable Energy Independent Power Producers Procurement (REIPPP) programme in South Africa...... 8 1.4 Aim and Research Question...... 10 1.5 Limitations of research ...... 11 Chapter 2. Theory ...... 12 2.1 Productivity ...... 12 2.2 Competitiveness ...... 13 2.3 Limitations of current measurements of competitiveness ...... 15 2.4 Competitive Productivity ...... 16 2.5 South African Related research ...... 23 Chapter 3. Methodology ...... 24 3.1 Research Perspective ...... 24 3.2 Research Approach ...... 25 3.3 Research Method ...... 25 3.4 Primary Data ...... 26 3.5 Secondary Data ...... 27 3.6 Linking Primary and Secondary Data ...... 29 3.6 Collection of Empirical Data ...... 29 3.7 Interview Details ...... 29 3.8 Thematic analysis...... 31 3.9 Ethical principles ...... 33 3.10 Quality criteria ...... 33 Chapter 4. Empirical Findings ...... 34 4.1. Summary of Interviews (Primary Data) ...... 34 4.2 Number of bids submitted ...... 38 4.3 Bid tariff pricing data ...... 40 4.4 Summary of Empirical Findings ...... 43 Chapter 5. Analysis of Empirical Findings ...... 44 5.1. Linking secondary and primary data to triangulate empirical findings .... 44 5.2 Thematic analysis...... 45

5.3 Suitability of the CP model and NCP framework and suggestions for further development of the concept ...... 47 Chapter 6. Conclusion ...... 50 6.1 Research Question and Answer ...... 50 6.2 Contribution to Theory ...... 50 6.3 Contributions to society ...... 51 6.4 Implications for further research ...... 52 References ...... 54 Appendix A: Background to South Africa and the Renewable Energy Procurement Programme...... 59 Appendix B: Letter sent to request an interview ...... 61 Appendix C: Mathematical formulas used in Table 8 and Table 9...... 65

List of Figures

Figure 1. – Renewable Energy Industry Structure in South Africa...... 9 Figure 2. Model of theoretical background………………………....……………12 Figure 3. Competitive Productivity Model…………………………..…………..17 Figure 4a. The NCP Model…………………………..…………………………..20 Figure 4b. The NFP Model……………………………..………………………..20 Figure 5. Research design………………………………………………………..26 Figure 6. Suggested CP model for the interplay between NCP and FCP………....48

List of Tables

Table 1. Summary of Bid Windows in the REIPPP programme…………………..8 Table 2: WEF Twelve Pillars of Competitiveness……………………………….14 Table 3. Macro Overview of Southern African countries………………………..16 Table 4. Battery of statements NCP...... 21 Table 5. Interview Details………...... 30 Table 6. Thematic analysis………………………………………………………32 Table 7. Ranking of the level of importance of the CP framework………………38 Table 8. Solar PV bid price decrease over BW 1 – 4b…………………………..42 Table 9. Wind bid price decrease over BW 1 – 4b………………………………42

Technical Abbreviations

Bid tariff The price submitted by the private sector participant (measured in USD cents per kWh) BEE Black Economic Empowerment BW Bid Window CAGR Constant annual growth rate CP Competitive Productivity CSP Concentrated solar power DOE Department of Energy (South African Government) FCP Firm Competitive Productivity GCI World Economic Forum Global Competitiveness Index ICP Individual Competitive Productivity IPP Independent Power Producer kWh Kilowatt Hour – a unit measure of electricity MIRA Managing Infrastructure Investment Reform and Regulation in Africa MW Megawatt -a unit measure of electricity NCP National Competitive Productivity PPP Public Private Partnership REIPPP Renewable Energy Independent Power Producer Procurement, Programme RFP Request for proposal Solar PV Solar photovoltaic cell technology USD United States Dollar Wind Onshore wind energy

Chapter 1. Introduction

1.1 Background

The concepts of two separately researched areas, competitiveness and productivity, are combined in a recent study by Baumann, Cherry, & Chu (2019), to form competitive productivity (CP) as a way of thinking,

The conceptual idea of combining these two separate areas is that competitiveness as a singular concept can be measured on a relative basis, for example company A might have more resources than company B (greater level of funding, more employees, even better technology etc.), but company B is able to outperform company A due to a collection of intangible factors, such as the attitude of the employees, the willingness to work hard due to a long term focus or cultural heritage which can influence a focus on quality or drive to achieve. As examples one can think of the rise of Samsung and Huawei mobile brands relative to Apple or Kia and Hyundai relative to VW and Toyota. In other words, company B is more productive while being less competitive. The same concept can be applied at a macro level where country A has better infrastructure, higher levels of education and greater political stability than country B; may still manage to outperform country A by having a higher growth in GDP or by attracting a higher level of foreign direct investment by creating a more investor friendly environment with government policies that are attractive to investors. CP is the study of this concept at whatever level it exists.

In a recent call for research by the authors Baumann, Cherry, Chu, Winzar, & Viengkam (2019) it is emphasised that the subject of competitiveness is constantly evolving and as such the topic needs to be constantly researched and developed. The authors argue that current measures such as the World Economic Forum pillars of competitiveness (Schwab & Sala-i-Martin, 2014; Schwab, 2019) do not fully capture the nuances of what influences competition such as cultural differences among other factors. With evident shifts in performance between East and West as one example, there is a need to revisit this topic by empirically investigating its ascendants, consequences and interplay across multiple levels (Baumann, Cherry, Chu, et al., 2019)

The research gap therefore can be summarised as further developing the subject of competitiveness, with a focus on the new topic of CP. Additionally, the research gap can also said to be a focus on the study on competitiveness outside of a Western context.

Competitive Productivity is defined as an attitude and behaviour directed at outperforming the competition and past performance through pragmatism (Baumann, Cherry, & Chu, 2019). Furthermore, a trilogy architecture is adopted to put structure to the concept at a national competitive productivity (NCP), organizational or firm competitive productivity (FCP) and individual competitive productivity (ICP) level (Baumann, Cherry, & Chu, 2019). The topic of CP falls within the area of International Business regarding strategy and competition and this paper will further examine this concept under the area of public private partnerships within the renewable energy industry in South Africa.

According to Porter (1990a) one of the leading authors on strategy and International Business, companies and not countries create competitive advantage for nations as it is companies that are on the front line of international competition and the determinant of success lies in the ability of a country to facilitate an environment in which enterprises can generate sustainable value (Porter, 1990b), or as (Baumann, Cherry, & Chu, 2019) refer to it, the interplay between FCP and NCP. The subject in this case is the renewable energy procurement programme in South Africa and the phenomenon explored is how improved government run tender processes can increase the level of competition, i.e. the level of interest from private companies attracted to submit bids in each tender process and the price on which they are willing to render goods and services. For the remainder of the paper, the terms tender, bidding, reverse-auction and procurement process will be used interchangeably.

1.2 Perceptions of Africa

In May 2000 The Economist’s featured article “Hopeless Africa”, (2000) of the edition “The Hopeless Continent” painted a dire picture of the state of the continent plagued with political conflicts, famine, floods and diseases. Just over 10 years later in December 2011, The Economist had an article titled “The hopeful continent: Africa Rising” (“Africa rising”, 2011) where the continent was described as the next Asia, the last frontier market where investors could achieve sustainable long term real growth rates driven by a rising middle class population. While the article still highlighted the problems that continue to plague Africa, a clear shift in the perceptions is noted. 8 years on, March 2019, The Economist published “The new scramble for Africa,” (2019) with the sub text “This time the winners could be the Africans themselves.” The article explained that 320 new embassies opened between 2010 and 2016 around the Continent in a push by many countries (Turkey 26, India 18) to strengthen diplomatic ties and international airlines such as Turkish Airways flies to 50 different African cities. The continent appears to be more and more ‘open for business’.

Despite the improving perception of Africa, there are still many problems to address. November 2019, The Economist published “More than half of sub-Saharan Africans lack access to electricity”, (2019). This highlighted the slow development in Sub Saharan Africa with the number of people without access to electricity, only decreasing from 610m in 2013 to 595m in 2018, a clear lack in development. Access to electricity is one of the sub constructs of the infrastructure pillar in the GCI (Schwab, 2019), important to increasing competitiveness at a national and firm level.

By focusing the research on Africa, the paper seeks to firstly contribute to an under researched part of the global economy and secondly seeks to contribute to lessons learned from the topic of NCP and FCP as many democracies in Africa are young, with government policies still to be formed or refined. This can have a direct impact on the productivity of the nation by facilitating an environment in which enterprises can generate sustainable value (Porter, 1990b). NCP research and the interplay with FCP could therefore be used to assist government and policy makers (Baumann, Cherry, & Chu, 2019).

1.3 Renewable Energy Independent Power Producers Procurement (REIPPP) programme in South Africa.

In 2003 the South African government adopted a ‘White Paper’ on renewable energy. A policy document that laid the foundation for the promotion of renewable energy technologies such as solar, small hydro, biomass and wind (Department of Energy South Africa, 2019). Through this policy document, a ten-year renewable energy target was set, outlining how to diversify the country’s energy mix and secure cleaner energy. The objectives of the White Paper on Renewable Energy of 2003 were to, ensure that an equitable level of national resources were invested in renewable technologies, direct public resources to the implementation of renewable energy technologies, introduce suitable fiscal incentives for renewable energy, and create an investment climate for the development of the renewable energy sector (Department of Energy South Africa, 2019).

Renewable energy, unlike the existing sources of energy on the national grid, are structured in a series of Public Private Partnerships (PPP’s) where the private sector bids to supply the national grid with power at a pre-determined price. In order to meet these targets, the private sector, which is referred to in the industry as Independent Power Producers (IPP’s) took part in the Renewable Energy Independent Power Producer procurement (REIPPP) programme which has consisted of five bid windows (BW) to date (Department of Energy South Africa, 2019) – refer to table 1 below. There was a 6th BW called the expedited bid window (BW Exp), in which the evaluation was delayed due to a change in policy by Eskom in reconsidering the prior bids awarded and eventually cancelled. For the majority of the research the focus will be on the 5 completed BWs i.e. BW 1 – 4b.

Table 1. Summary of Bid Windows in the REIPPP programme, Source: DOE, University of Cape Town.

Megawatts Number of Number of Bid Submission Announcement (MW) submitted Preferred Window Date Date Allocated bids (1) Bidders BW 1 04-Nov-11 05-Nov-12 1 425 53 28 BW 2 05-Mar-12 09-May-13 1 040 79 19 BW 3 19-Aug-13 01-Dec-14 1 457 93 17 BW 4a 18-Aug-14 16-Apr-15 1 121 77 13 BW 4b 18-Aug-14 07-Jun-15 1 084 77 13 Evaluation BW Exp 11-Nov-15 delayed and then 1 800 106 n/a cancelled

It should also be noted that there was an additional round BW3a that was part of the REIPPP programme. However, as it related to a relatively small allocation (300MW) of concentrated solar power (CSP) and the majority of the energy in the REIPPP relates to Solar PV and Wind, the data has been excluded from the analysis in this research.

Additionally, the smaller renewable energy programme running concurrently with smaller MW allocations, has been excluded from the scope of the research.

A background to the process can be summarised as follows as informally explained by Interviewees who are considered industry experts (refer Chapter 4): The South African Department of Energy (DOE), a governmental organisation, releases a request for proposal (RFP) which is made publicly available. Private enterprises, known as independent power producers (IPP) are then able to submit a tender subject to meeting various requirements stipulated in the RFP. Each tender is evaluated based on various criteria which include the inclusion of BEE shareholding, use of local suppliers, employment from and financial commitment to the economic development of surrounding communities, in which the projects operate but also the ultimate price per kWh to be supplied back to the national grid (80% on price and 20% on social and economic development objectives). Once bids are received, the DOE then selects and announces the preferred bidders. The preferred bidders then need to secure financing before the project is considered to have reached ‘financial close’ and by this stage the construction of the project can be commissioned. Once commissioned, construction typically lasts between 1 – 3 years and then will typically be operational for 20 years under the power purchase agreement (the plant will likely be operational for longer, but the contract needs to be renegotiated). The long-term nature of these projects therefore increases the complexity of the BW to ensure all requirements are met from the point of view of the government and the private partner.

Up until BW 4 the programme resulted in USD20.5bn in investment with 390 tender submissions and 92 selected for procurement , referred to as ‘preferred bidders’ (Eberhard & Naude, 2017) (Department of Energy South Africa, 2019). The programme has been considered to be extremely competitive which has resulted in a decrease in the prices charged (bid tariff) per kWh and considered some of the lowest priced grid-connected RE projects in the world (Eberhard & Naude, 2017)

The following figure (Figure 1) represents the renewable energy industry structure (Department of Energy South Africa, 2019)

Figure 1. – Renewable Energy Industry Structure in South Africa, Source: DOE

Private enterprises supply (sell) electricity to the national electricity grid which is owned and operated by a singular state-owned enterprise (SOE) – therefore a typical PPP relationship exists or using CP terminology, a FCP – NCP relationship (Baumann, Cherry, & Chu, 2019). Initial research by the authors Baumann, Cherry, & Chu (2019) has been conducted in a Western and Asian context and to the best of the author’s knowledge, no such research has been carried out in an African context.

1.4 Aim and Research Question

The authors Baumann, Cherry, Chu, et al. (2019) in a special issue “Call for papers” invite researchers to further explore the topic of competitiveness under the topic of the combined concept of competitive productivity and suggest five possible topics for further research which would contribute to research on CP, one of them being “Competitive Productivity interplay among NCP, FCP and ICP.”

The research aim is to develop the concept of CP and contribute to the topic through empirical research that focuses on the interplay between NCP and FCP to gain a deeper understanding and add to the development of this relatively new concept.

RQ: How does the competitive productivity framework explain the influence that government has on public to private procurement programmes?

The interactions between FCP and NCP are examined through an in-depth case study on the South African REIPPP which consists of various public private partnerships (PPP’s) that collectively make up the industry. By examining an in-depth case study, the research will examine whether the factors identified in the CP framework have an influence on the overall competitiveness of the procurement programme. By ‘influence’ the research seeks to understand what drives CP and how does the case study allow for a deeper understanding of CP as a concept by, for example, validating the constructs of the CP model put forward by Baumann & Pintado (2013) and CP framework put forward by Baumann, Cherry, & Chu (2019)

Specific to the case study, productivity can be interpreted as a productive outcome of the BW, in other words a low bid tariff (price) by the private sector which ultimately results in more affordable energy for the nation as a whole (including all its corporates and citizens who consume electricity on a daily basis) and competition can be interpreted as the number of bids received in each BW. The existence of a ‘pragmatic attitude’ as put forward by Baumann & Pintado (2013) will be tested through the research on the bidding process run by the government which if run efficiently, can encourage more competition in each BW of the procurement programme (Eberhard & Naude, 2017)

The perspective of CP examined is the interplay between government and the private sector, where a change in government policy can influence the strategic decision- making process of the private sector. A well-run tender process should ultimately increase competition, which will therefore put downward pressure on the price of the bid tariffs submitted. With the given understanding that the primary aim of the private sector is to deliver a profit from the investment in the project to its shareholders, the research question explores the moderating factors that influence the decision making.

Moderating factors in this case are non-financial factors such as trust, transparency, a culture of willingness to work together and pragmatism in reducing the administrative burden. In other words, if increased competition will result in a more productive outcome (lower price), how is the competition influenced? The research question seeks to address how both the bidders (i.e. the private sector or FCP level) and the government deciding on the awards (i.e. public sector or NCP level) think and how they are influenced by government policy.

Considering that the theoretical topic is a relatively new concept and comprehensive research was required to understand the context of the case study, one research question was considered to be sufficient.

1.5 Limitations of research

Where limitations existed, these were mentioned (refer 4.2 and 4.3). The research approach was exploratory in nature and so it is expected that limitations will exist. The 7 interviewees all provided valuable insight into the REIPPP as industry professionals which helped to better understand the non-financial moderating factors. The sample size, limited to 7, reduces the certainty one can place on the findings. Similarly, although the secondary data contributed to the topic and triangulated the findings, further consultation with industry professionals, including more representatives from government is needed to fully understand the data with regards to the moderating factors on competition. Lastly, the concept of CP is new and limited literature exists at present. As the topic develops, the theories can be combined to gain a better understanding of the concept and more rigorously test the constructs of the model.

Chapter 2. Theory

The theoretical background to this study can be summarised in the following model. There are many contributing authors to these topics, however, the model below only mentions contributing authors focused on in this paper:

Figure 2. Model of theoretical background, Source: Own

International Business

• Porter, 1985, Strategic 1990a, 1990b, 1996 • Schwab, 2019 Management • Cho & Moon, 2013

• Baumann (various) Competitive refer below. • Li, Park & Selover, Productivity 2017

In order to better understand the combined concept of competitive productivity, the individual components of productivity and competition are examined separately, followed by a literature review of competitive productivity. As the concept is relatively new and one of the main aims of the research is to respond to a “Call for papers” (Baumann, Cherry, Chu, Winzar, & Viengkam, 2019), the majority of the literature review will focus on Baumann and supporting authors, who have developed the topic over several years. As a new concept, still in the process of being tested and validated, the literature review may not be well cited.

2.1 Productivity

The traditional understanding of productivity is that it is: “A measure of the efﬁciency of a person, machine, factory, system, etc, in converting inputs into useful outputs. Productivity is computed by dividing average output per period by the total costs incurred or resources (capital, energy, material, personnel) consumed in that period. Productivity is a critical determinant of cost efficiency” (Business Dictionary, 2019a; Baumann & Pintado, 2013) More simply put, productivity is commonly defined as the measurement of unit per output for every unit of input. However, current literature on the subject does not identify a unique purpose or a single unit of measurement (Baumann, Cherry, & Chu, 2019).

In analysis by Schwab (2018) they found that lacking good measurements of productivity, economists revert to using productivity growth, such as growth in GDP

of a nation or GDP per capita, where the GCI report is trying to measure productivity levels as opposed to growth. To measure this, one would have to not only measure GDP stock but also the quantity and quality of human capital stock, which is an almost impossible task.

The study therefore relies on economic growth literature (Schwab, 2018) the level of productivity determines the rate of return of an economy, and hence its growth rate. The study found that annual growth rate between 1998 and 2018 was highly correlated to the GCI. This confirms therefore that the two concepts are intertwined but does not necessarily explain why the two concepts are intertwined. Furthermore, Baumann, Hamin, Tung, & Hoadley (2016) found that global rankings of competitiveness, performance and productivity at the macro level generally indicate that Western countries are more competitive and productive than Asian countries, despite the study finding that an anomaly exists with high performance countries in Asia still having a lower ranking on the competitiveness index. The authors suggest that perhaps the GCI index is developed from a “Western” perspective and does not explain factors from an “Asian” perspective that were found to drive performance in Asian countries and not in Western countries. By way of example the study found that a competitive attitude, willingness to serve and speed to market explained performance in an Asian context but not in a Western context (Baumann et al., 2016). Following the same logic, without available research to test the suitability of the constructs from an African perspective, one could assume, that there are most likely different attitudes and culture values to take into account when comparing one country in Africa against another, or against any other country in the world.

2.2 Competitiveness

Competitiveness is defined as the set of institutions, policies, and factors that determine the level of productivity of a country (Schwab, 2019; Schwab & Sala-i-Martin, 2014; Baumann, Cherry, & Chu, 2019) and is typically referred to by economists at a macro level (Baumann, Hamin, Tung, & Hoadley, 2016). The World Economic Forum publishes an annual report, the Global Competitiveness Index (GCI) which is commonly referred to as one of the leading measurements of competitiveness (Baumann, Cherry, & Chu, 2019), where competitiveness at a macro level is measured across the nations of the world. Twelve pillars (Schwab & Sala-i-Martin, 2014) are split into four subsections, refer to Table 2 below:

Table 2: WEF Twelve Pillars of Competitiveness, Source: (Schwab, 2019; Schwab & Sala-i-Martin, 2014)

Subsection Pillar Description Quality of institutions: which measure factors such as 1 shareholder rights, property rights, budget transparency to name a few. Infrastructure: which measure road and other transport Enabling 2 Environment: connectivity as well as access to electricity. Information and communication technology (ICT) 3 adoption: which measures mobile and internet connectivity. 4 Macro Stability 5 Health: which uses life expectancy as an indicator. Human Skills: Which measures mean years of schooling as an Capital: 6 example Product Market: which measures the competitiveness of the 7 markets through average tariff rates on customs and the extent of perceived market dominance. Labour market: which measures the ability to increase and 8 decrease labour as well as the ease of hiring foreign labour. Markets: Financial System: which measures the ease of access to 9 credit and other forms of financing as well as the soundness of the banking sector. Market Size: which measures the gross domestic product 10 (GDP) of a country as well as the extent of imports. Business Dynamism: which measures the cost and time to 11 start a business Innovation Ecosystem: Innovation Capability: which measures the level of focus 12 on research and development and the extent to which the country creates a collaborative environment.

The GCI evaluates the factors that collectively determine the level of a country’s productivity—the most important driver of long-term improvements in living standards. The methodology is refined year on year with the 2018 report seeing a move to include what they call the 4IR or the fourth industrial revolution which is human capital (Schwab, 2018). Based on own analysis of the constructs used to measure each pillar, the index uses a balance of collected data but also relies extensively on opinion surveys to capture the qualitative data relating to competitiveness, which the author suggests are subjective in nature.

In addition to the GCI there is a similar survey done annually by the International Institute for Management Development (IMD). However, IMD only covers 63 countries in its 2019 survey and the only African country covered is South Africa, which was ranked 56th out of 63 countries. Cho & Moon (2013) found that both IMD and WEF use almost the same variables but apply different methodologies arriving at

discrepancies in the results. In their criticism of the indices the authors Cho & Moon, (2013) also disagreed on the determinants of competitiveness at a macro level and found that to seek to explain competitiveness at a national level was answering the wrong question and rather to understand productivity one should focus on specific industry and industry segments.

By focusing on their competitive advantage, entrepreneurial firms can establish themselves in the global market (Porter & Millar, 1985). Focusing on a cost differentiation strategy may prove successful in the short term, but to remain competitive on a global scale, the best strategy for a company would be to outperform rivals only if it can establish a difference that it can preserve. Companies must focus on competing to be unique, instead of competing to be the best (Porter, 1996). Similarly, nations too compete on a global stage to attract investment. Porter (1990a) concludes that a country’s competitive advantage lies in its ability to innovate, however it is companies and not countries that are on the front line of international competition. Porter concludes that it is the home base that shapes the company’s ability to innovate. In the “Competitive Advantage of Nations”, Porter (1990b) the author puts forward the idea that the determinant of success lies in the ability of a country to facilitate an environment in which enterprises can generate sustainable value. Porter (1990b) also states that national prosperity is created, not inherited. It does not grow out of a country’s national endowments, its labour pool, its interest rates, or its currency’s value, as classical economics insist. A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade (Porter,1990b).

2.3 Limitations of current measurements of competitiveness

The concept of competitiveness is well established and from a macro point of view, there is comprehensive research in the form the competitiveness of nations such as the WEF Global Competitiveness Index (GCI) (Schwab, 2019; Schwab & Sala-i-Martin, 2014). However, the research does not necessarily explain how a particular country can be more productive than another country while being less competitive, or as Baumann, Cherry, & Chu (2019) explain the phenomenon, “a nation could be very productive, but not necessarily competitive (i.e. productive in relation to the competition)” Furthermore the GCI was found to be constructed from a predominantly Western perspective and not suitable from an Asian perspective (Cho & Moon, 2013) with no research yet done to assess the suitability in an African context, to the best of the authors knowledge. GCI will however be referred to several times in this paper as one of the most common global measures of competitiveness and arguably one of the most comprehensive ranking systems for Africa, as unlike other competitive indices, there is significant coverage of African countries. The GCI also will be used to help explain CP where there is a disconnect between the productivity of one country against another, relative to their respective GCI rankings.

Although the subject of competitiveness is well researched and annual reports such as the GCI, have defined and refined the pillars and measurement thereof on an annual basis (Schwab, 2019), the research can overlook the nature of competitiveness, i.e. outperforming the competition, or at least bettering one’s own performance (Baumann, Cherry, & Chu, 2019). Refer table 3, by way of example, although South Africa ranks 60th with a score of 62 globally on the GCI, South Africa has had virtually no growth on a measured GDP per person employed over a ten year constant annual growth rate

measured period. As there is no single unit of measurement for productivity, GDP per person employed is used as one of many possible units of measurement. In a related study Li, Park, & Selover (2017) used GDP per labour hour as a unit of measure for productivity. In the absence of available data for the selected countries, GDP per person employed is considered a related unit of measurement. Refer Table 3, all other countries in Southern Africa had higher growth in GDP per person employed basis relative to South Africa (the most competitive country in the peer group) while ranking lower on the index.

Table 3. Macro Overview of Southern African countries.

Source (a) (a) (b) (c) (d) 2019 2019 GDP per person 10 year Electrification Country Ranking Score employed USD CAGR Rate

South Africa 60 62 43 369 0.01% 84% Botswana 91 55 40 667 0.12% 57% Namibia 94 54.5 32 660 0.65% 56% Zambia 120 46.5 9 746 0.50% 33%

(a) Schwab, (2019) (b) GDP per person employed (PPP basis constant to 2011) (World Bank Data, 2019) (c) Authors own calculations (d) Ren21, (2019)

While the GCI is a comprehensive and well accepted method to measure competitiveness, it does not necessarily correlate with performance. The NCP model, (Baumann, Cherry, & Chu, 2019) aims to explain the relationship between competitiveness and productivity and suggests that the relationship is influenced by moderating factors such as the geography, political, cultural and economic policy pillars determining NCP, discussed below (refer to Figure 4).

2.4 Competitive Productivity

The concept of competitive productivity (CP) was introduced by Baumann & Pintado (2013). Although existing literature offers a few combined perspectives (Baumann, Cherry, & Chu, 2019) and the GCI (Schwab, 2018) devotes an entire section of the paper to prove a statistical significance between productivity and the nations competitiveness, no literature to date has conceptualised the two areas as one combined topic. The authors Baumann, Cherry, & Chu (2019) suggest that productivity is measured as an attitude that focuses on competition and beating the competition through pragmatism, a behaviour that enables both efficiency and effectiveness. Porter (1990a) suggests that the imperatives of a competitive advantage constitute a mindset. This can be likened to the attitude of CP put forward by Baumann, Cherry, & Chu (2019)

As the concept has been uniquely developed by Chris Baumann and contributing authors, a chronological literature review is detailed below to understand the development of the topic to date.

Baumann, Elliott, & Hamin (2011) established an association between culture, competitiveness and performance. The research suggested that through welfare benefits and a lack of pressure for the general population to find a job (as a result of a supportive social welfare system) a nation’s culture may permit, if not support, non-performance.

Baumann & Pintado (2013) introduce the concept for the first time in this paper and suggests the shortcoming of the traditional understanding of productivity is that it overlooks the nature of competitiveness. In any environment, a factor that leads to productivity should also make the subject more competitive, in other words, more productive relative to the competition. The concept of beating the competition is explained as a culture, or an attitude or behaviour. The constructs influencing this concept are put forward in the following model – Figure 3.

Comparing and contrasting the constructs of the authors model relative to the twelve pillars of the GCI, already discussed in this research, there are some similar influencing factors. Education/development and environment/infrastructure are clearly similar constructs and factors such as values have some weighting in the twelve pillars of the GCI. In contrast to the GCI, Baumann & Pintado (2013) include benchmarking and performance as constructs to capture the relative competitive attitude and behaviours of nations which is also suggested to be influenced by cultural heritage.

Figure 3: Competitive Productivity Model, Source: (Baumann & Pintado, 2013)

Benchmarking

Values Culture

Competitive Productivity

Performance Education / (outcome) Development

Environment / Infrastructure

In a study by Baumann et al. (2016) authors address the anomaly between economic growth and development experienced by Asian countries despite their low rankings in competitiveness indices, such as the GCI, by studying the link between workforce performance and overall country performance. The study used three common factors from behavioural theory, competitive attitude, willingness to serve and speed, which is

linked to the Confucian heritage of certain Eastern countries, as drivers of performance. Several countries in an Eastern context were compared against several countries in a Western context. The findings indicated that there is a weak relationship between these three factors and the performance of certain Western countries (20-29%) compared to certain Eastern countries (81-93%). Therefore similar to Cho & Moon, (2013) the authors are indicating how just as one can not look at competitiveness through the ‘Western’ lens, one can also not look at what drives performance or productivity through the same ‘Western’ lens.

In a study by Baumann & Winzar (2016) the authors focus again on competitiveness and in particular how education, which is considered as one of the main drivers of economic performance, but with the extent of education which is associated with the countries competitiveness was not tested. The research found that there was a strong correlation with reading (53%), science (53%) and mathematics (50%) and overall educational achievement explains 54% of competitiveness. The research finds that differences occur between country clusters with Western Anglo-Saxon countries scoring below East Asian countries in these education areas, with the same Anglo- Saxon countries ranking higher than the East Asian countries in terms of competitiveness. Despite education being established as a driver of competitiveness in the study, the authors also found that cultural values (long term orientation, indulgence restraint and uncertainty avoidance), as well as industrial development, are moderating factors to be taken into account.

Baumann, Hoadley, Hamin, & Nugraha (2017) explored the concept of competitiveness in the context of customer loyalty for bank customers. The study found that there is a need to move away from customer satisfaction with service quality to explain customer loyalty, towards focusing efforts on achieving relative superiority in competitiveness, namely competitive productivity and products. In addition, the authors suggested that by profiling customers based on their perceptions of a bank's competitiveness, the findings could provide additional explanatory power beyond traditional satisfaction- based loyalty models. When considering the concept of competition, the authors suggested that competition is a market condition, whereas competitiveness is about the ability to create competitive advantage, the ability to outperform competitors by providing better value through a combination of price and service quality. In other words, the literature is developing the concept of not only looking at competitiveness as a singular measurable construct (i.e. a better price) but as a combination of price and factors not as easily measured, such as perception of quality or value.

Li, Park, & Selover (2017) examine the role culture plays in productivity gains. The paper focuses on testing various culture measures from an Asian context and test correlation with economic development, interpreted as a measure of national productivity in this study. Li et al. (2017) found that economic attitudes, political attitudes, and attitudes towards the family, affect economic productivity growth. Li et al. (2017) further focus on implications for government policies, which often have significant, intended or unintended, long-run effects on culture, which in turn affect productivity gains. The authors concluded that governments should institute economic policies that encourage risk-taking entrepreneurial behaviour and implement policies that can nurture a ‘productivity gain friendly’ culture.

In research by Baumann, Winzar, & Fang (2018) the authors introduce the concept of the ReVaMB model (Relative Values and Moderating Behaviours). In the research the authors examine Schwartz values from the World Value Survey (WVS) and argue that countries are not made up of their averages and that inter-ocular testing (looking at the data critically) should be adopted when examining data. The study was conducted in the context of East Asian countries where moderating factors to cultural heritage were used to explain certain behaviours. The authors found that culture in the short term “drives” attitudes and behaviour, but is dependent on circumstances, the environment and the overall broader context. The model derived by Baumann et al., (2018) assumes that personal values and culture drive behaviour, at least in the very short term. Different components of values and culture become activated or take dominance in different circumstances (Baumann et al., 2018). That is context moderates the relationship between culture and behaviour (Baumann et al., 2018). Absolute measures of values or culture are not meaningful and it is the relative value of these constructs that affect decision-making and behaviour (Baumann et al., 2018).

In the most recent literature on competitive productivity (CP) the authors Baumann, Cherry, & Chu (2019) build on the previously developed concepts and advance the understanding of this new concept through the introduction of a trilogy architecture at a macro, messo and micro level, referred to as the national level (NCP), the firm level (FCP) and individual level (ICP). The authors suggest that one of the areas of future research should be the interplay between these levels, which has been the subject of focus for this paper, i.e. the interplay between NCP and FCP levels with a particular focus on how government policies can encourage or discourage the attitudes of the firm.

In Figure 4. Below the authors Baumann, Cherry, & Chu (2019) explain the theoretical background to the combined concept of NCP which is broken into four pillars, geography, political stability, cultural institutions and economic policies. As an example, Switzerland is used as an example of a country with high NCP as it is centrally located in Europe (geography), has a high level of political stability (as evidenced by a strong currency), a cultural ethic of hard work and focus on quality (e.g. “Swiss made”). It has strong educational institutes and a very efficient government with low/no corruption.

Figure 4a. The NCP Model, Source: (Baumann, Cherry, & Chu, 2019)

Figure 4b. The FCP Model, Source: (Baumann, Cherry, & Chu, 2019)

The authors further propose a framework to be used to test the constructs of NCP, built up on earlier literature. The framework focuses on the pillars of benchmarking, culture, education/development, infrastructure and values – with illustrative examples below.

The area of research is focused on the interplay between the NCP and FCP, to which no current framework specifically exists. As the research question relates to how government influences the procurement programme, or in other words, how government attitudes and policies influence the actions of the private sector, the NCP framework will be the focus of this study as the constructs are more relevant to the interplay between NCP and FCP in a typical procurement programme.

The NCP and FCP Framework (Baumann, Cherry, & Chu, 2019)

Construct measurements of National Competitive Productivity (NCP) model (macro level) and Firm Competitive Productivity (FCP). Below is a battery of statements to measure NCP and FCP, adapted from Baumann et al. (2017) – refer table 4.

Table 4: Battery of statements NCP and FCP

Subsection "Battery of statements" for NCP (FCP indicated in brackets) The policies of my nation (firm) are directed at beating the competing nations. Benchmarking My nation (firm) benchmarks its economic performance against global leaders in order to aspire to the same or higher position.

The work culture of my nation (firm) focuses on performance and Culture competitiveness. My nation (firm) is oriented towards a positive service ethic. My nation (firm) develops their people (employees) through education Education/ and training. Development My nation’s people (firm’s employees) are knowledgeable and up to date with global developments My nation (firm) is all about creating their infrastructure. Infrastructure My nation (firm) is all about upgrading their infrastructure. The speed to market with new products and services of my nation (firm) is more competitive than other nations. Performance The level of innovation of my nation (firm) is higher than other nations.

The attitude of my nation (firm) is directed at beating the competition.

(My firm offers a service experience that drives customer loyalty.) Values My nation (firm) has a “can do” spirit. My nation (firm) has positive values that drive excellent products and service quality.

My nation (firm)has positive values that minimise risks for its people.

In the context of the research the above components are tested with regard to the interplay between FCP and NCP (Baumann, Cherry, & Chu, 2019). Refer to Chapter 4 of this paper.

The authors Baumann, Cherry, Chu, et al. (2019) in a special issue “Call for papers” invite researchers to further explore the topic of competitiveness under the topic of the combined concept of competitive productivity. The authors phrase the problem philosophically as “what is the essence of competitiveness, and how can we capture it, and what determines it?” Formal measures of competitiveness such as (Porter, 1990a, 1990b) frameworks and World Economic Forum’s Pillars (Schwab, 2018, 2019; Schwab & Sala-i-Martin, 2014) are well established, however they may not fully capture the true level or multifaceted drivers of competitiveness in today’s era of

dynamic activities. In the call for further research, the authors argue that the tides of global activity are constantly changing, and the newly introduced CP paradigm combining competitiveness and productivity warrants empirical verification and theoretical probing. The authors suggest five possible topics for further research which would contribute to research on CP, one of them being “Competitive Productivity interplay among NCP, FCP and ICP.”

Interplay between NCP and FCP in the renewable energy sector

The online business dictionary (Business Dictionary, 2019b) defines a public private partnership (PPP) as “the involvement of a private enterprise (in the form of management expertise and/or monetary contributions) in the government projects aimed at public benefit”. PPP’s by definition are therefore made up of various interactions between the private and public sectors and are used in this study to examine FCP and NCP interaction. FCP and NCP can be viewed from two different perspectives: historical performance – in this case the relative competitiveness looking at BW2 vs BW1 and BW3 vs BW1&2 etc. and secondly, the development of NCP and FCP in South Africa relative to other neighbouring countries in Southern Africa (Baumann, Cherry, & Chu, 2019)

In research by Eberhard & Naude (2017) the authors found that effective government policy enabled a competitive tender process in the renewable energy industry. The tender process was able to be more successful, by government setting policies to reduce the administrative burden to bidders which reduced the transaction cost to prospective bidders. This ultimately stimulated competition, by reducing irrecoverable losses in the event of an unsuccessful bid. Transaction costs for bidders relate to the preparation of bids, project development costs, raising financing and conducting legal and technical due diligence to reach financial close. Transaction costs can be increased as a result of onerous or complex documentation, non-standard contracts, permits for grid connections, setting up of legal structures (such as joint ventures), land use consent permits and onerous environmental impact assessments. The outcome of having greater competition was that it resulted in lower tariffs for the offtake agreement to the national grid (owned Eskom, a state-owned enterprise) thereby lowering the ultimate cost for government and the people of the country as the final customers.

Eberhard & Naude (2017) suggested that an improved perception of the risk-return trade-off (same return estimated for a project but at a lower risk) would be particularly important for other African countries with less developed grids than South Africa and would therefore tender much smaller projects. In other words, the authors suggested that in order for smaller African countries to attract private enterprises and compete for projects against larger countries with larger national grids, they would need to establish more efficient tender policies in order to attract enough competition to drive the tariff prices, which would ultimately result in a successful procurement programme that would benefit the whole nation. This research in the field of renewable energy can therefore be compared to the field of CP (Baumann, Cherry, & Chu, 2019) in that a more efficient tender design on the part of government demonstrates a pragmatic attitude or behaviour with the intention of attracting more competition. This can be achieved by reducing the irrecoverable losses in the event of an unsuccessful bid, as well as ultimately reducing the bid tariffs.

The IPP programme which started in 2011 has been an international success (Eberhard & Naude, 2017) and has contributed significantly to foreign direct investment FDI. In the August 2016 article by Africa Energy (Africa Energy, 2016) , the research indicated that the programme was responsible for up to 85% of all FDI in South Africa. In addition to the direct investment by developers into the projects, there is an entire industry of partner companies, hardware suppliers (suppliers of wind turbines and other operational equipment), legal advisors, consultants, engineers and then finally operators, who all contribute to FDI of the country by setting up offices in the local country and training and employing local people. The interplay between NCP and FCP therefore appears to be significant with government policy playing an important role in influencing the decisions of the private sector.

2.5 South African Related research

In a relevant study, the authors Aghion, Braun, & Fedderke (2008) found that mark- ups are significantly higher in South African manufacturing industries than they are in corresponding industries worldwide and that high mark-ups have a negative impact on productivity growth in the South African manufacturing industry. In this context, the authors also found that a measure of competitive pressure can be provided by the size of the mark-up of price over the marginal cost of production. Applying the same logic to the renewable energy sector, one would have to take the converse directional movement, in other words, the greater the competition in the BW the lower the price of the bid tariff.

Aghion et al., (2008) conclude that enhancing competition is an important source of increased productivity growth and suggest that tariff reduction and the streamlining of current protection policies could represent change in government policy that could actively stimulate competition.

Also relevant to South Africa, the authors Edwards & Lawrence (2008)found that trade liberalization (relaxing of import tariffs) enhances export diversification and makes companies more competitive. By becoming globally competitive, they enjoy the unlimited potential of the world market and that counterintuitively firms that become globally competitive (ability to import) enjoy the unlimited potential of the world market. Trade liberalization was suggested to enable faster growth or increased employment, as well as diversifying and making the export sector more sustainable.

In conclusion, the above-mentioned literature therefore supports the notion that government policy can have an influence on firm competition in a South African context.

Chapter 3. Methodology

3.1 Research Perspective

The research takes an epistemological perspective. Epistemology is concerned with how we can know or understand something (Bell, Bryman, & Harley, 2018). The research relies on two main research positions: Interpretivism (i.e. humanistic qualitative methods via a case study on the renewable energy industry in South Africa) and positivism (i.e. quantitative methods using secondary data). According to Bell et al. (2018) positivism is an epistemological position that advocates the application of the methods of natural sciences to the study of social reality. Within the interpretivism position, the research collects primary data using semi-structured interviews, carried out with a purposive sample (industry professionals in the renewable energy industry in South Africa).

Eisenhardt (1989) states that the process of inducting theory using case-studies is especially appropriate in new topic areas. As the concept of CP is clearly a new topic area within the framework of International Business and Strategic Management, a case study approach using the renewable energy industry in South Africa is considered a suitable approach. Eisenhardt (1989) goes on to mention that a case study typically combines data collection methods such as archives, interviews, questionnaires, and observations and that the evidence may be qualitative (words) or quantitative (numbers) or both. In the research approach of this paper, the author has used a combination of interviews (telephonic or video conversations over skype), questionnaires (written responses to standard questions, also referred to as written interviews in this paper) archives (publicly available information from the DOE in South Africa on the renewable energy industry) and observations (analysis of secondary data received from archives). The approach therefore is considered to be comprehensive in gaining a deep understanding of the subject matter. Eisenhardt (1989) also notes in summarising existing research theory, a case study can be used to provide a description, test a theory or generate a theory. In this research the case study of examining the interplay between FCP and NCP in the South African REIPPP contributes towards both describing competitive productivity and testing the theories put forward by Baumann, Cherry, & Chu (2019)

In research by Mathison (1988) the author suggests that good research practice obligates the researcher to triangulate, i.e. using multiple methods, data sources, and research to enhance the validity of the research findings, regardless of the research perspectives from which the researcher is working (epistemological, ontological etc.) In this research, a mixed method has been used, being empirical research using primary data from interviews with industry professionals as well as own analysis on secondary data collected related to the bid tariffs (price per KWh) submitted and therefore understanding the competitive environment of the REIPPP. The results of the authors own analysis was discussed with various industry professionals interviewed in order to triangulate the research.

According to Doz (2011) there is a lack of international business research that is explicitly multidisciplinary which borrows and adapts theories from multiple fields. Furthermore, the authors suggest that qualitative case-base a research can contribute to the contextualization of general theories. By focusing on the REIPPP in South Africa,

this research contextualizes the theories put forward by Baumann, Cherry, & Chu (2019). Additionally, by focusing on the REIPPP, which is based on PPP’s, this contributes to bringing a multidisciplinary approach to research in International business. Doz (2011) suggests that a multidisciplinary, eclectic, but deep and insightful understanding of collective action is needed in order to contribute to quality in qualitative research. In this research, the author has spent a significant amount of time understanding how the REIPPP works in South Africa as well as analysing publicly available data, before conducting interviews with the industry professionals in order to develop a deep understanding of the subject.

3.2 Research Approach

The research follows an abductive approach using a case study. Dubois & Gadde (2002) stated that case studies provide a unique means of developing theory by utilising in- depth insights of empirical phenomena and their contexts. In this research, the case study is the REIPPP in South Africa, where the findings of the empirical research are used to validate the theories put forward by Baumann, Cherry, & Chu (2019) and Baumann, Cherry, Chu, et al. (2019). Dubois & Gadde (2002) describe an abductive approach as theory development rather than theory generation. By focusing on CP as a new topic and examining it through the lens of the REIPPP, this research is focused on further theory development rather than generation.

3.3 Research Method

The research makes use of mixed methods. Primary data was collected through structured and semi-structured interviews (discussed in section 3.4) and secondly, secondary data analysis of data collected through publicly available databases concerning the REIPPP as well as secondary data collected from the University of Cape Town, which was sourced from DOE (discussed in section 3.5). As CP is a relatively new construct, the research approach is experimental (Bell et al., 2018) relying on a combination of both primary and secondary data. By combining interviews conducted with industry professionals and comparing the findings against own analysis through secondary data, the research therefore triangulates the views to gain a deeper understanding of the topic. The following model, figure 5, is used to explain the context of the research design within the various renewable energy procurement programmes across Southern Africa.

Figure 5: Research design

The REIPPP is an ideal procurement programme through which to view the interactions of NCP and FCP as the renewable energy sector in South Africa is structured around PPP’s and the procurement processes are heavily reliant on government policies. These determine the manner in which the tender processes, referred to as bidding windows (BW) are conducted. The programmes are run with transparency in mind and the results of the BW are publicly available in South Africa.

3.4 Primary Data

With regards to the primary data collected, the approach taken was one of interpretivism, i.e. a qualitative approach, consisting of primary data in the form of interviews with industry professionals to allow for deeper understanding through interviews with managers (Baumann, Cherry, & Chu, 2019) with experience in the REIPPP in South Africa (“Industry Professionals” in Figure 5.). “Managers” in this case refers to industry professionals with significant years of experience that enable them to have insight into the procurement programme.

Structured and Semi-structured interviews

The questions distributed in Appendix B formed the basis of the interviews. According to Rowley (2012) if the interview questions were appropriately designed and the interviewees appropriately selected, this differentiates the questions from a survey (anyone can respond) and furthermore, if appropriately designed, interviews have the possibility to generate insights. An interview that is semi-structured (Rowley, 2012) takes on a variety of different forms, a variety of number of questions and adapted questions. Rowley (2012) suggests that for a novice researcher, six to 12 well phrased questions in a set order are recommended. Flexibility in the questions to allow for the probing of the topic is necessary. Refer Appendix B, this research relied on 10 questions relating to the subject, split into two sub-sections B and C. Section A consisted of 7 close-ended questions which were used to collect information specific to the interviewee.

Section B was specifically focused on observations about the South African REIPPP. As it is the longest running, largest (MW) and attracted the most competition, it is

natural that it will be the focus of attention for almost all companies in the region. In Section C of the interview - the focus shifted to the relative competitiveness of renewable energy procurement programmes around Southern Africa, with a focus on the moderating factors that influence the decisions and perceptions of the industry professionals.

Both Section B and Section C included open ended questions to probe the topic further. The format of the questions distributed in Appendix B was structured, in that all interviewees received the same question format. However in the follow up telephonic interviews, a semi-structured format was followed to allow for the interviewees to share their insight into the REIPPP.

Selection of Interviewees

Interviewees were selected on the basis of their experience of the development throughout the five BWs in South Africa as well as having an understanding of the competitive landscape in neighbouring countries outside of South Africa. The industry professionals targeted for the research are those who are either directly responsible for making decisions on where to invest and at what price level to submit a bid tariff or are involved in advising the decision makers on which renewable energy programmes to pursue. It is significant for the research that the professionals should have an international view of competition. Due to the monopolistic nature of the off taker (buyer) of the electricity, should the company only operate in one country, their decision-making ability is only to invest or not invest. Should they decide to invest, at what price? As the element of price is discussed in Chapter 4, to understand the moderating factors that influence the decision, the industry professional should therefore be in a position to compare and contrast the programme of one country with the competitive landscape of another country, i.e. a true reflection of a competitive landscape.

The interplay between NCP and FCP will be explored by examining industry professionals’ experience in the South African REIPPP as a competitive landscape. The industry professionals interviewed have either submitted bids or been awarded bids in more than one market. Therefore, they have a relative point of view of the running of the various tender processes, making the feedback relevant in drawing conclusions from the competitiveness of the various procurement processes.

3.5 Secondary Data

The approach taken was one of positivism, meaning that scientific evidence and in this case own analysis through mathematical formulas (refer Appendix C) was used to understand the competitive environment of the REIPPP. In other words, a quantitative approach was taken towards the secondary data collected. This approach is in line with what the authors Baumann, Cherry, & Chu, (2019) suggest, that secondary data sources should provide a platform to empirically establish what “drives” CP. The interplay between FCP and NCP will be explored in South Africa relative to its own historical performance, looking at the development of the bid windows 1 – 4b and how the price per kWh decreased over time and serves as a measure of productivity. While CP is designed to understand the current state of affairs as a foundation for a future outlook, it also includes an historic perspective (Baumann, Cherry, & Chu, 2019). As CP is a

relatively new concept, there is an absence of secondary data that has been empirically tested to establish the construct validity and reliability (Baumann, Cherry, & Chu, 2019)

The authors Baumann, Cherry, Chu, et al. (2019) call for empirical validation of CP research to be conducted in this area including focus on interplay among NCP, FCP and ICP, including novel concepts and methodologies that are in line with CP, but may also be interdisciplinary. Baumann, Cherry, & Chu (2019) suggest that to explore CP one should start with an ontological argument to confirm the existence of CP in the first place.

Publicly available data on the five BWs in South Africa running from 2011 – 2014 was collected through online sources published on governmental websites. In addition, research by industry experts (Eberhard & Naude, 2017) was examined and the findings from the industry specific research was applied in relation to the field of CP and validated further through own calculations. For a basic understanding of the procurement programme, discussions were held with industry professionals to better understand the context of the industry specific research. In particular, the phenomenon of increased competition, as evidenced through the decrease of the bid tariffs through the multiple BWs is examined.

Although the allocations of renewable energy included several renewable energy sources, the focus of the secondary data was on the two major, established renewable energy sources, namely solar photovoltaic cell technology (Solar PV) and onshore wind turbine generators (Wind), which respectively convert solar irradiance and mechanical energy into electrical energy. Wind and Solar PV accounted for 90-100% of the total MW allocated in BW 1,2,4a and 4b and 84% of BW 3. For the purpose of drawing conclusions from the various BW, the coverage of Wind and Solar PV provide sufficient coverage.

For the purpose of analysing the competitive factor only in the development of BW 1 - 4b, the approach taken in this research was to “strip out” the influence of technology improvements in both solar and wind renewable energy technologies. The International Renewable Energy Association (IRENA, 2018) tracks the weighted average cost of technologies in the renewable energy across the globe for each type of renewable energy. Therefore, by comparing the progression in the price of each BW relative to the progression of the global weighted price of the technology over the same time period, one can adjust for the impact of the technology enhancement on the price so that one is left with the competitive factor of improvement.

US dollars were used as a currency for the comparison of the tariff prices, instead of South African Rands to eliminate the impact of currency devaluation, where the South African Rand (ZAR) devalued by over 30% against the USD in the measurement period. (IRENA, 2018) tracks the weighted average currency in USD and therefore it is also the more appropriate currency to use when making the price adjustment (detailed below).

3.6 Linking Primary and Secondary Data

During interviews conducted, the secondary data was discussed with the interviewees, in written responses or via skype meetings or both. In particular, the phenomenon of decreasing bid tariff prices was discussed, as this is a widely known phenomenon of the procurement process and what can be considered one of the ultimate determinates of the success (productivity) of the procurement programme.

In discussing the secondary data, the general increase in competitiveness and decrease in bid tariffs was discussed as well as the specific analysis carried out on secondary data in this research and that of the findings. The reason for discussing the secondary data was firstly to triangulate the research as well as seeking for potential explanations to the phenomenon identified.

3.6 Collection of Empirical Data

Using one primary contact in the renewable energy industry, the interview questions were then sent to 32 separate industry professionals operating in some form in the renewable energy industry. All of the recipients of the interview questions were industry professionals fulfilling different roles in the renewable energy industry, such as Independent Power Producers (IPPs), Engineering procurement construction contractors (EPC), Developers, Financial Investors, Plant Operators, Services Consultants and other related professionals. Importantly, included in the distribution list was the inclusion of industry professionals working for the government so as to get the point of view from ‘the other side of the desk’ and to look at both ‘P’s’ in the PPP. Included in the recipients were researchers from the University of Cape Town, Graduate School of Business who had previously focused research specifically on the REIPPP.

Out of the recipients of the interview questions, 7 responses were received where the participants were willing to respond to the interview questions in writing, over video meetings conducted using skype or both.

The only recipients of the interview questions were people considered to have a high degree of industry knowledge and could even be considered experts on the basis of having more than 10 years of experience in the industry. Even though only 7 interviews were conducted, the quality of the input from the interviews is considered to be significant, as each interviewee has already a deep understanding of the renewable energy industry and therefore a deep understanding of the competitive forces at play.

3.7 Interview Details

Importantly the spread of responses received was considered balanced as 5 interviewees were from the private sector, 1 representing the government sector and 1 in the capacity of an academic specifically on renewable energy from the University of Cape Town’s Graduate School of Business.

From the private sector, all 5 interviewees had experience in submitting a bid in the various BWs and being awarded a bid (i.e. announced preferred bidder). Therefore all

5 could be said to understand the procurement process. Out of the 5 interviewees from the private sector, 2 also had experience in developing (constructing) renewable energy projects, thus giving them insight into the full process.

To gain a better understanding of this phenomenon, interviews were conducted with industry professionals, who have a deeper understanding of the industry and the competitive phenomenon being explored in this research. The following is a summary of conducted interviews – refer to table 5.

Table 5: Interview Details

Company Number of Years’ Size Of projects Interviewee Position Type Experience Awarded Managing I 1 Developer >10 years > 50 MW Director Engineering procurement Business I 2 construction >10 years <10 MW Development contractor (EPC) Independent I 3 Power CEO >10 years 10 - 20 MW Producer (IPP) Independent Business I 4 Power Development 5-10 years All sizes Producer (IPP) Manager Independent I 5 Power Director 5-10 years All sizes Producer (IPP) Bulk Alternative I 6 Government 5-10 years <10 MW Electricity Procurement PHD University candidate in I 7 Not specified Research only Researcher Renewable Energy

Interviewees 1-5 can be grouped in the category as industry professional who have participated in the BW tender processes and are able to comment on their insights into the processes.

Interviewee 6 was a representative from Government, who sits in the capacity of procurement of alternative energy (renewable energy). It was significant to include the responses from the governments perspective to understand both sides of the transaction and to better understand the interplay between NCP and FCP.

Interviewee 7 was a Ph.D (doctoral) candidate at the University of Cape Town, Graduate School of Business with a particular focus on the department called MIRA which stands for Managing Infrastructure Investment Reform and Regulation In Africa. Interviewee 6 has no experience in being awarded or developing renewable energy

projects but is a specialist in studying the procurement programme in South Africa and other similar programmes around Africa.

Based on the respective positions in their companies and based on the stated number of years’ experience, all interviewees are considered to be highly knowledgeable in the renewable energy industry for the purpose of this research.

Limitations of sample size

Due to the relatively short time frame of the research and the ability to find contact details for industry professionals in the REIPPP, it is noted that the sample size has its limitations for a comprehensive in-depth analysis of the REIPPP. Furthermore, the balance between respondent from the private and government sector is also noted as only one interviewee was viewing the REIPPP from the point of view of the government.

Limitations of methods used

The methods used in this research are also limited in the design, as only South Africa was the focus of the study. When drawing conclusions on the CP framework and the interplay between NCP and FCP, the findings are limited to one case study and one country. Further research should therefore be conducted in other countries in Africa as well as other regions in the world to test the CP framework more thoroughly. Studying the framework in the context of other countries will contribute to a better understanding of how culture, values and attitudes influence the framework as moderating factors.

Additionally, there are many different types of public to private procurement processes and this research only focuses on renewable energy in South Africa and so is very specific in industry and country relative to the broad context of PPP’s that exist in Africa and the rest of the world.

3.8 Thematic analysis

Thematic analysis should be seen as a foundational method for qualitative analysis (Braun & Clarke, 2006; Holloway & Todres, 2003). In order to analyse the primary data collected from the interviews, the six phases of thematic analysis (Braun & Clarke, 2006) were followed. Six out of the seven interviews were conducted in written form. Interviewee 7 is indirectly involved with the industry as a Ph.D candidate and is also considered to be an industry professional for the purpose of this research. Consequently, the focus of the interview with interviewee 7 was on the secondary data.

All written data was collected through the same online form and data was uniformly stored. Where industry professionals were available, further telephonic discussions took place. In these cases, written notes were kept of the meetings. In order to generate initial codes (Braun & Clarke, 2006) the CP model developed by (Baumann & Pintado, 2013), refer Figure 2, was used as the underlying theoretical framework being further validated and developed in this research and is represented in the “Main Themes” in table 6 below. The ‘Sub Themes’ were developed with reference to table 4 above, the CP framework split into NCP, FCP and ICP put forward by Baumann, Cherry, & Chu

(2019). Finally, during the empirical part of the research, the ‘Codes’ where key words identified in the interviews were linked to the Sub Themes – refer to Chapter 4.

Table 6: Thematic analysis. Structure: (Braun & Clarke, 2006), Codes: Own analysis

Main Themes (CP Codes Sub Themes (NCP Framework) Model) Consistent Government Policies aimed at being more Policy competitive Pragmatism Pragmatism Policy Clarity Compare against global standards Benchmarking Well defined Certainty Trust Positive cooperation ethic Transparency Work culture focusing on Honesty Culture performance Openness Assistance Human Resources Skill levels Up to date with global Training Education developments Experience Connection to the grid Creating infrastructure Renewable energy Upgrading infrastructure Infrastructure sources Investment Technology Innovation Clear timelines Maintaining timelines Performance No delays Quality Quality Confidence "Can-do" attitude Values Predictability Minimize risk Delivery on promises Beating the competition

In the analysis of the interviews, the structure in Table 6 was used as a reference to group themes. The frequency and importance of the themes varied and will be discussed further in Chapter 5. The interviewees were also asked to rank the CP model constructs in order of importance.

Although there are various financial and technical themes that were discussed in the interviews, the interviews were structured so as to focus on CP as moderating factors to competition i.e. mainly non-financial (moderating) factors. Refer to Chapter 4 for the findings and Chapter 5 for the analysis.

3.9 Ethical principles

In the study of ethical research practices in qualitative research, consent, confidentiality and a reflexive stance were among the recommendations for ethical research (Richards & Schwartz, 2002)

In conducting the research presented in this paper, all interviewees were given the option to remain anonymous in the written fields, contact information, names of individuals and the companies they work for. Consent was implicit as it was optional to take part in the interview and general information fields were not mandatory.

The purpose of the research was explained in a covering letter (refer Appendix B) and a commitment to anonymity was described in the letter, as well as a commitment, that the views expressed are those of the individual as an industry professional, as opposed to the official views of the organisation they work for. The aim of making this distinction, as well as including the right to anonymity or confidentiality was to ensure that respondents were not ‘harmed’ as a result of their participation in the interviews (Bell et al., 2018)

As all the interviewees were industry professionals with expert knowledge of an unrelated discipline to the study, it was important to explain the context or line of questioning of the interviews before the interview took place so that the interviewee could understand the ‘reflexive stance’ (Richards & Schwartz, 2002).

3.10 Quality criteria

In defining the credibility criteria for evaluating research findings Noble & Smith (2015) describe validity as the precision in which the findings accurately reflect the data and reliability as the consistency of the analytical procedures, including accounting for personal and research method biases that may have influenced the findings and generalisability as the transferability of the findings to other settings and applicability in other contexts.

The findings of the primary data were analysed through thematic analysis (refer section 3.8 above) through the lens of the CP model (Baumann & Pintado, 2013) and framework (Baumann, Cherry, & Chu, 2019) in order to attempt to validate elements of the CP framework. Using thematic analysis therefore helps to increase the precision of the findings.

As mentioned above, the research uses data triangulation, described by (Noble & Smith, 2015) as the use of different methods and perspectives to help produce more comprehensive findings and to help ensure the overall reliability of the findings, by examining the competitive phenomenon using both primary data as well as own analysis on secondary data.

Lastly, by focusing on the REIPPP the research aims to transfer the findings of Eberhard & Naude (2017) specifically related to research on the competitive phenomenon in the REIPPP and transfer the findings to CP research through further own analysis of secondary data and through collecting primary data through interviews with industry professionals.

Chapter 4. Empirical Findings

The chapter summarises the findings from the interviews conducted (primary data) which are presented in four main themes, being benchmarking, culture, values and performance. Additionally, the CP model (Baumann & Pintado, 2013) was specifically tested, with the interviewees being asked to rank the constructs of the model.

Secondary data was further analysed in two sections; the number of bids submitted in each BW and bid tariff pricing data over each BW, with own analysis performed as well as asking the opinions of industry professionals.

Interviewees 1-6 participated in the questionnaire as professionals with hands on experience of the procurement processes. Interviewee 7 from the University of Cape Town was focused on a discussion of secondary data.

4.1. Summary of Interviews (Primary Data)

4.1.1. Culture

When the interviewees were asked about their level of trust in government during the procurement programme (REIPPP), in general, all participants indicated that there was a high level of trust.

“very high trust” – I2

“strong trust that bid rounds opened up and awarded will be delivered due to the track record of projects being delivered. To date not a single project has lost its bid bond and every awarded project has managed to close despite delays in some projects” – I4

“IPP Office has been very helpful to projects post tender award” – I6

The interviewees also highlighted that trust can easily be damaged. Several interviewees referred to the bid submissions (Expedited BW) in November 2015, when the BW was delayed and then eventually cancelled, resulting in financial loss to many bidders who submitted a bid proposal. All the interviewees, including the government interviewee, acknowledged that this uncertainty had a negative impact on the trust of the private sector.

“bidding window uncertainty is an issue” – I 1 “severely reduced trust in the government’s commitment” – I 3

“destroyed credibility” – I 5

“prevented further development and investment in the industry and resulted in retrenchments” – I 6

“inherent confidence exists despite Eskom delaying the signing of the Round 4 project PPA's and the long delay in the program which led to the expedited bid round being cancelled.” – I 4

The response of I4 indicates that although the cancelled BW caused significant damage, as Eskom is still implementing on the earlier committed BWs, this restores some confidence that private sector is still working with government in what was ultimately a successful procurement process. The findings indicate that trust is something which must be maintained and can be damaged.

“Industry has not recovered. Future investment post round 4 limited. Companies have not hired further South African staff. Company downscaled to skeleton staff. Company has slowed down on new project development. company has sought opportunities outside of South Africa.” – I 6

Two of the interviewees from the private sector indicated that the lack of policy certainty pushed focus away from South Africa to other Southern African markets with similar procurement processes. One of the interviewees describes the situation as follows:

“we shifted focus from SA to other countries” – I 3

“… was able to turn to regional markets to focus on during this period but many local developers have either consolidated to survive or exited the market. This 4-year hiatus in the industry had a devastating impact on downstream fledgling manufacturing sectors which were developing including two wind tower factories and two solar PV module semi assembly plants which have all closed during the hiatus. These factories were established to take advantage of preferential local procurement regulations but have not been able to be competitive on the international market and rely on a local market to survive. Local developers have not yet recovered as the hiatus is still ongoing until a new procurement round is announced and confirmed, and projects are awarded. There will be no new cash flows to allow local developers to recover overheads from the previous 4 years” – I 4

These comments are related to both the themes of trust (damage to trust) as well as the theme of benchmarking, as the reaction of the private sector according to I-3, I-4 and I- 6 was to shift competitive focus to other markets in Africa.

4.1.2. Benchmarking

When directly asked, whether the interviewees considered the South African REIPPP to have been a competitive programme, all interviewees considered the process to be competitive, with the government interviewee commenting that the process only started becoming competitive in the later BWs. The question was intended to ‘open up’ the interviewee to considering the REIPPP in the context of competition.

The interviewees were asked whether the level of pragmatism on the part of the government had encouraged competition. All interviewees 1-4 answered this question. Interviewee 5 as an industry professional working for the government did not answer as the question is aimed at the perceptions of the private sector. The responses all indicated that in general there was an increase in pragmatism, with one interviewee responding:

“more pragmatic, has made the bidding process less expensive” – Interviewee 1

“the difficulty is not really the bidding process as we got used to it. It is more the timeline of when it will come that became a challenge”- I 2

“Bid submission process similar over rounds” – Interviewee 3, indicating consistency over the various BWs.

When asked what factors are considered to be the most important when considering whether to submit a bid, the responses typically included financial factors such as “credit worthiness of the off-taker” I-2, I-4 ;“risk allocation of financing” – I-2, I-4, I- 6; “competitiveness of pricing”- I4, I6 as well as industry specific technical details “size of the MW allocation” – I-4. However, the most frequent non-financial (moderating) factors mentioned related to benchmarking:

“predictability of outcome” – I 3

“pragmatism of the program administrator to expect realistic timelines” – I 4

“Visibility into future developments/government decisions” –I 5

As the question was open ended, the interviewees were not directed into considering moderating factors that influence their decision process and so the responses indicate that the sub-themes of consistency, policy clarity and a pragmatic attitude on the part of the government rank highly on the decision-making process, even when considering all other factors, technical and financial. The response from interviewee 5 (from the government’s point of view) also indicated that transparency was the most significant factor to encourage bid submissions.

When asked what lessons other African governments (as administrators of the programmes) should take forward to improve the competitiveness of procurement programmes, interviewee 5 responded that transparency and having a pragmatic attitude were the most significant factors

“ensuring a high level of transparency to the private sector as well as reducing the levels of bureaucracy/red tape and costs required to submit a bid, within reason.” – Interviewee 5.

When asked for details about what factors are considered to reduce administrative burden, interviewee 7 (researcher) and interviewee 4 referred to “pre-negotiated and standardised contracts” where the format had been developed in consultation with banks who would then be the financial partners in the next step of the programme and interviewee 6 referred to “assistance with currency conversion or repatriation of funds.” For the purpose of this research these are referred to as pragmatism.

When the interviewees were asked about the competitiveness of the REIPPP on a relative basis to similar programmes in other Southern African countries, 5 of the 7 interviewees responded to this question. I-5 did not respond as a representative to South Africa only and I-7 as a researcher, with indirect experience.

Two responded that South Africa was more competitive, two indicated pros and cons and one indicated that other programmes were more competitive. The responses were therefore not conclusive other than to indicate that a competitive landscape exists for the private sector to choose between South Africa against other Southern African countries, which reinforces the concept of benchmarking.

4.1.3. Performance

The sub-theme of government maintaining timelines came up four times in the interviews, in response to various questions. When the interviewees were asked about lessons learned:

“Keep the programme timelines and procurement scope clear and predictable” – I 3

“Adhere to tender timelines” – I 6

Regarding how the procurement process developed over the various BWs:

“the difficulty is not really the bidding process as we got used to it. It is more the timeline of when it will come that became a challenge”

The sub-theme of innovation was not mentioned by any of the interviewees and reliance on or development of technology did not come up as an important theme. This was also confirmed where the interviewees were asked to rank the importance of the CP model constructs. Innovation was the lowest ranking factor.

Considering the sub-theme of maintaining timelines came up as a strong theme, even though innovation did not feature, the findings indicate that overall, the main theme of Performance still emerges as a strong one.

4.1.4. Values

The sub-themes of a focus on quality and an attitude of beating the competition or a “can-do” attitude did not emerge as strong themes in the interviews. This was confirmed in the ranking exercise, where these values were ranked 4th out of the 6 CP model themes.

4.1.5. Education

The sub-themes of availability of local skilled human resources, skilled suppliers and maintaining a global standard did not emerge as strong themes. The importance of availability of skilled suppliers to implement the projects, was rated the least important factor in the decision-making process indicating that interviewees 1-6 did not in general consider this to be a moderating factor. Similarly, in the ranking exercise, this was ranked 5th out of the 6 CP model themes.

A possible explanation to this finding was explained as follows: “human capital is often considered to be mobile with skilled human resources obtainable from other markets.” – I4

4.1.6. Infrastructure

The themes of infrastructure did not emerge as strong themes in the interviews and ranked 4th out of the 6 CP model themes.

A possible explanation to this finding was explained as follows:

“projects build their own roads etc. as it is a small cost compared to the scale of the investment. We are generally always near existing powerlines as we have to export the power” - I4

Table 7. Ranking of the level of importance of the CP framework:

Average rank of Confirmed in NCP Framework (Baumann, importance by Interview Responses? Cherry, & Chu, 2019) interviewees (I1-I6) Benchmarking: Pragmatic policies 3rd Confirmed, emerged as aimed at being more competitive than a strong theme other countries/programmes; Culture: A culture of focusing on 1st Confirmed, emerged as performance and a positive service a strong theme ethic; Education: Education and development 5th Confirmed, emerged as – skill level in the country in which a weak theme you are investing in; Infrastructure: the level of 4th Confirmed, emerged as infrastructure in place (connection to a weak theme the grid as well as general infrastructure (roads etc); 6th Partly confirmed, Performance: level of innovation, timelines emerged as a speed to market of new products or strong sub-theme but services or technology not ‘innovation’ 2nd Partly confirmed, Values: having a ‘can do attitude’, a emerged as a theme but focus on quality and of minimising not to the same extent risk in the process as ‘Benchmarking’

The average ranked scores were calculated, and the results are represented in the table above. Due to the limited sample size, it was considered necessary to cross-reference the ranking to the interview responses, with more weight emphasised on the interview responses.

Benchmarking and Culture emerged as the two major themes from both the ranking exercise and the interview responses, followed by the theme of Values.

4.2 Number of bids submitted

Sections 4.2 and 4.3 focus on the author’s own analysis and observations on publicly available data relating to the BWs. The secondary data was further discussed directly

38 with the interviewees or emerged from the written responses. The combined findings arising from both primary and secondary data are discussed in section 4.4.

Table: 1 Summary of Bid Windows in the REIPPP (repeated from Chapter 1)

Megawatts Number of Bid Submission Announcement Number of (MW) submitted Window Date Date Preferred Bidders Allocated bids (1) BW 1 04-Nov-11 05-Nov-12 1 425 53 28 BW 2 05-Mar-12 09-May-13 1 040 79 19 BW 3 19-Aug-13 01-Dec-14 1 457 93 17 BW 4a 18-Aug-14 16-Apr-15 1 121 77 (2) 13 BW 4b 18-Aug-14 07-Jun-15 1 084 77 (2) 13 Evaluation BW Exp 11-Nov-15 delayed and then 1 800 106 n/a cancelled

(1) The number of submitted bids was sourced from The University of Cape Town, Graduate School of Business. This information was requested from the Department of Energy by the University of Cape Town and is not otherwise available to the best of the author’s knowledge. Accordingly, this information has been presented, with permission from the University of Cape Town. (2) These are the same 77 submitted bids, as no new bids were solicited. 1084 MW awarded in BW4b to the next 13 preferred bidders after the first 13 in 4a.

Referring to Table 1 above, own observations can be drawn that in general, the number of submitted bids gives an indication of the growing level of competition. From BW1 to BW2 to BW3 there is a consistent increase in the level of competition. For an expert opinion the data was discussed in detail with Interviewee 7 from the University of Cape Town and the answers are paraphrased below:

“In general, there was an increase in the level of trust in the process as well as an increase in the understanding of the process as a result of the process remaining unchanged.” – I 7 (paraphrased)

Again, the themes of trust and consistency come through (supporting the main theme of Culture) as well as pragmatism (Benchmarking) as the administrative side of the bid process remained unchanged and so became easier for the bidders to understand. Due to the success of BW4, with an extra award to 13 preferred bidders in BW4b, there was a dramatic increase in interest in the process which is evident from the 106 bids submitted.

“Other factors such as time, where BW1 there was a new process introduced and BW2 was in a very short time frame, meaning that most of the submitted bids from BW2 were as a result of limited time, therefore benefiting those from BW1 who could submit again. From BW 3 onwards, there was the introduction of multinational companies as a result of the trust in the processes which therefore increased the interest and competition significantly. The reason for the slight decrease in the number of participants from BW3 to BW4 was not fully explained.” – I 7 (paraphrased)

Culture arises as the main theme from this comment where in general, trust was found to increase competition.

Regarding the decrease in number of participants from BW3 to BW, this could be explained from the lower allocation in BW4a relative to BW3 i.e. 1121 vs 1457. This however, is not considered to have an impact on the findings of the general trend of the competitive environment.

Limitations of observations:

The full findings from the research done by the University of Cape Town should be read for a more detailed explanation, but which are not yet published at the time of writing. Any observations expressed here are arising from the comments from the University of Cape Town and the ongoing research they are doing on the renewable energy industry. Further research is required in collaboration with industry professionals from both the private sector and government sector to better understand the data and suggested reasons for movements in the number of bidders.

4.3 Bid tariff pricing data

The ultimate outcome of the REIPPP is the eventual price paid per kilowatt hour (kWh). The lower the price per kWh, the more productive the programme. The phenomenon of decreasing bid tariff prices is well known to the industry professionals and is attributed to increase in competition (as also confirmed in 4.2 above). With reference to the REIPPP as a competitive programme I-6 commented that the reverse-auction was more effective than an alternative system known as a feed-in tariff programme which resulted in a decrease in bid tariffs:

“yes - decrease in tariffs would not have occurred with a feed in tariff programme” – I 6.

When performing own analysis on secondary data, data relating to the final tariff price per BW was examined. In particular the phenomenon of decreasing prices was analysed, relative to the global weighted average prices as measured by the International Renewable Energy Association (IRENA, 2018). This was to determine whether the price decreases could be explained by technology improvements and increase in global supply, with the remaining price movement proposed to be attributable to competitive advantage or disadvantage due to efficiencies and investor confidence in the tender processes. In this case, a productive outcome of a particular BW is a low bid tariff, so the lower the price achieved the better. However, due to rates of improvement in technology and increasing global supply of the equipment needed to develop both Solar PV and Wind power stations, the global phenomenon is also a decreasing weighted average energy price.

In a comparable study by Aghion et al. (2008) the research of the authors in a South African context can also be argued to support the adjusted price. They cconsidered the domestic economy to take as a given that the rate of innovation in the rest of the world (world technology frontier) is also moving at a constant rate.

Knowing that the global weighted average price of electricity being produced (measured in USD cents / kWh) is decreasing and also knowing that the bid tariff price from BW1 to BW4b has come down significantly over the BW1 to BW4b, how much

40 of the decrease in price in the South African context is attributable to technology advancements and increase in global supply and how much is attributable to an increase in competition in the local context. By way of example, assuming the price decreased from BW1 to BW2 by 60% during the period 2011-2012 and during the same period, the global weighted average energy price decreased by 20% over the same period, then we can assume that the additional 40% decrease in the bid tariff must be attributable to other factors, suggested in this research to be due to moderating factors presented in the CP model in Figure 3. (Baumann & Pintado, 2013). Refer to Appendix C for a full explanation of the calculations applied. A result of the findings is summarised in the tables 8 and 9 below. One relating to solar PV and one to wind.

In the REIPPP, solar PV and wind made up the majority of the MW allocation of the programme, ranging between 84% and 100% of the energy sources. Therefore, it is considered sufficient to focus the empirical research on these two sources only.

The results of the quantitative analysis from Table 8 and 9 indicate that the rate of decrease in the price awarded for each BW was more significant than the rate of decrease of the adjusted price. The difference between the price and the adjusted price results in a measurable benefit calculated both in kWh per USD cents and then as a percentage relative to the adjusted price. As the impacts of technological advances and global supply impact on prices has been effectively stripped out by comparing the price to the price index, the resulting difference is therefore calculated to be due to other competition factors, called the CP benefit.

Significantly, the CP benefit is positive in each BW indicating a consistent existence of the phenomenon. In other words, the relationship is completely correlated without running a regression analysis.

When considering the results of Table 6, the results are consistent with those of Table 5, where not only is a positive CP benefit calculated, but the CP benefit is consistently positive as calculated in each BW.

Limitations of own analysis:

It should be noted, that own analysis performed is of an exploratory nature and further research is needed to corroborate and support the method of analysis. Additionally further research and corroboration with industry experts is needed to stress test the findings and eliminate any other moderating factors unrelated to the CP model in figure 3 (Baumann & Pintado, 2013).

Table 8. Solar PV bid price decrease over BW 1 – 4b

Average % of Total Adjusted Price (USD) CP Benefit Date (1) Tender (1) MW Allocated (1) winning price Price Index (2) CP Benefit % (3) Allocation (1) (3) USD (3) USDc/kWh (1) Nov-11 BW 1 627 44% 35 3 891 n/a n/a n/a Mar-12 BW 2 417 40% 21 2 933 26.4 5.4 20% Aug-13 BW 3 435 30% 10 2 569 18.4 8.4 46% Aug-14 BW 4 (b) 398 37% 7 2 323 9.0 2.0 23% Aug-14 BW 4 (a) 415 37% 7 2 323 9.0 2.0 23%

Table 9. Wind bid price decrease over BW 1 – 4b

Average % of Total Adjusted Price CP Benefit USD Date (1) Tender (1) MW Allocated (1) winning price Price Index (2) CP Benefit % (3) Allocation (1) (USD) (3) (3) USDc/kWh (1) Nov-11 BW 1 649 46% 14 1 883 n/a n/a n/a Mar-12 BW 2 559 54% 11 1 936 14.4 3.4 24% Aug-13 BW 3 787 54% 8 1 798 10.2 2.2 22% Aug-14 BW 4 (b) 686 63% 6 1 751 7.8 1.8 23% Aug-14 BW 4 (a) 676 60% 5 1 751 7.8 2.8 36%

(1) DOE SA, Eberhard & Naude, (2017) (2) IRENA, (2018) (3) Own analysis

Note: Both BW4a and 4b bids were submitted at the same time (August 2014), the 13 most attractive bids were awarded in BW4 and an extra allocation was awarded by the government in BW4b to the next most competitive 13 bids. Therefore, in analysing the data, BW4b is placed above BW4. This approach and method of analysis is consistent with Eberhard & Naude, (2017).

4.4 Summary of Empirical Findings

By combining the findings from the interviews (primary data) as well as the quantitative findings (secondary data) from both the number of bids received per BW analysed as well as the decrease in pricing from BW1 to BW4b in both Solar PV and Wind energy, the research triangulates its point of view, by looking at the competitive phenomenon from various angles.

The observations on the number of bids submitted (4.2) and the own analysis performed on bid tariff pricing data (4.3) support the notion that there was an increase in the level of competition during the procurement programme (other than that of global movements in supply and technological advances) that is suggested in this research to be due mainly to moderating factors suggested in the CP model in figure 3 (Baumann & Pintado, 2013). The analysis of secondary data does not explain by itself why there was an increase in competition, other than to suggest there were some other ‘non- financial’ or ‘moderating factors’ that were behind the increased competition.

Interviewee 7 (who is also researching the same data), suggested trust (Culture main theme) and pragmatism (Benchmarking main theme) to be the moderating factors. However, for a deeper understanding of the reasons behind these ‘moderating factors’, more reliance should be placed on the findings arising from the interviews in 4.1.

The quantitative research is exploratory in nature and has its limitations, as the calculations only support the existence of an additional CP benefit from a theoretical or ‘on the face of it’ point of view. For deeper understanding of the relationship and full reasons for the price decreases, further research is needed.

It is concluded that the findings from the empirical research on primary data is further supported by the observations on the number of bidders in 4.2 and a decrease in bid tariff prices due to moderating factors described in figure 3 of the CP model (Baumann & Pintado, 2013).

Chapter 5. Analysis of Empirical Findings

In this chapter the empirical findings are analysed further with reference to the theoretical background discussed in Chapter 2.

5.1. Linking secondary and primary data to triangulate empirical findings

With regards to the data received from the University of Cape Town regarding the number of submitted bids, the results indicate that there was clearly an increase in competition which can be measured purely by the number of submitted bids. That combined with the decreasing price phenomenon explored below supports the assumption that there was in fact an increase in competition.

By simply looking at the development of the price per kWh measured in USD cents, one can see that the price per kWh decreased significantly over the bid window period between 2011 and 2014. Through research focusing on the programme and discussing the phenomenon with industry professionals, the reasons for this phenomenon can be grouped into two main categories, (1) technological advancements and increase in global supply; and (2) increase in competition through investor confidence and increased trust in government policy.

This is consistent with the findings of Eberhard & Naude (2017) who attributed the decrease in prices over the BWs to lower capacity allocations per round and investor confidence. Other factors such as a reduction in renewable energy technology costs, which means that lower bid prices may be offered while still achieving an acceptable rate of return on the project, have a part to play. The authors found that the decrease in technology prices was as a result of technology improvements, but also an increase in supply of technology influenced by the global economic downturn in 2010. Renewable energy markets were suppressed in Europe and the US which prompted investors to look to emerging markets such as South Africa. For the purpose of this research, we have more simplistically grouped the explanations into the two main categories mentioned above.

By comparing the IRENA global weighted average price index against the price movements in South Africa, this research aims to “strip out” the factors causing downward pressure on the bid tariff prices (category 1 factors), so that the data is left with the decrease in price attributable to factors relating to an increase in competition (due to category 2 factors).

The findings from the analysis on the final price awarded to preferred bidders in each bid window support the existence of an additional competition benefit, as the rate of decrease in the price of both Solar PV and Wind from BW to BW exceeded the rate of decrease of the global weighted average price index. By removing the decrease in price attributed to technological advancements and increase in global supply, the remaining benefit is attributed to competition. This was based on the findings of Eberhard & Naude (2017) and further confirmed by the author’s own primary research conducted through interviews with industry professionals from both the private sector, government and academic research in the industry. This research describes the

increased competition through the framework of competitive productivity where non- financial factors were found to have a significant influence as moderating factors of competition.

Similarly, in an article by Eberhard & Kåberger (2016), the authors found that falling prices of renewable energy in the South African REIPPP are attributable to various factors such as technology, financing, national institutional development and increased competition. These developments would not have been possible without generous supporting policies (Eberhard & Kåberger, 2016) by government. Therefore, supporting the link between competition which reduces prices and effective government policies.

In the next step of the analysis, the primary data received from interviews is used to explore the moderating factors in further detail and identifying sub-themes and main themes to link the non-financial factors to the CP model (Baumann & Pintado, 2013) and framework (Baumann, Cherry, & Chu, 2019). Additionally, by discussing the findings arising from the secondary data in interviews, this confirms the assumption of moderating factors influencing the competitiveness, as well as getting a more in-depth perspective from industry experts.

5.2 Thematic analysis

Of the six constructs put forward in the CP model by Baumann & Pintado (2013) and further developed into a framework (Baumann, Cherry, & Chu, 2019), three of the six constructs are supported by the empirical findings. The themes of Culture and Benchmarking emerge as strong themes, followed by Performance and Values to a lesser extent. The constructs of Education and Infrastructure were not considered to be supported by the empirical findings. When considering these constructs against the backdrop of literature on competition, coincidentally, the literature review in Chapter 2 found that these two constructs were the most closely related to the 12 pillars of competition (Schwab, 2019; Schwab & Sala-i-Martin, 2014). In the researcher’s own opinion, these two constructs appear to be the most tangible or quantifiable constructs of the CP model in figure 3 (Baumann & Pintado, 2013) whereas the remaining four constructs of performance, value, culture and benchmarking appear to be more influenced by an “attitude or a behaviour of beating the competition through pragmatism” (Baumann, Cherry, & Chu, 2019; Baumann, Cherry, Chu, et al., 2019) The interviews were focused on understanding the attitudes and behaviours of government in the REIPPP and this could therefore provide an explanation for why these themes did not emerge as strongly. For the remainder of the chapter, we will discuss the four themes that did emerge strongly.

5.2.1. Culture

Under this main theme, the sub-themes of trust, being transparent and open to create policy certainty emerged as the strongest theme in the empirical findings from both the primary and secondary data. This can also be likened to a willingness to work together and having a positive work ethic (Baumann, Cherry, & Chu, 2019).

This theme was also supported by the responses relating to the cancelled expedited bid window, where conversely, in the situation where government policy changed unexpectedly, this had a significant impact on the trust and willingness to work together from the private sector towards government.

The empirical findings arising from the secondary data also supported the theme of culture, as according to interviewees, the level of trust increased as the procurement programme developed from BW to BW and can be said to have created “a positive cooperation ethic” (Baumann, Cherry, & Chu, 2019) and a willingness to work together. The data received from the University of Cape Town regarding the number of submitted bids (4.2), indicates that there was clearly an increase in competition which can be measured purely by the number of submitted bids. That, combined with the decreasing price phenomenon analysed in 4.3, resulted in increased competition, which is largely explained by an increase in trust.

When comparing this finding with the literature reviewed in Chapter 2, the sub-theme of trust and the main theme of Culture do not emerge as key areas of focus on the subject of competition. The 12 pillars of (Schwab & Sala-i-Martin, 2014) do not mention these themes in their framework for measuring competitiveness, but do use selected values from the World Value Survey Index. Also when it comes to the literature of (Porter, 1979, 1990a, 1990b) examined in Chapter 2, the same can be said. A possible explanation is that it is difficult to measure trust and culture in a uniform way, i.e. one can not say that the level of trust in government A is higher than government B from a scientific point of view. The framework put forward by Baumann, Cherry, & Chu, (2019) therefore adds an interesting perspective to the topic of competition and strategic management.

5.2.2. Benchmarking

The second most common theme arising from the interviews was the concept of pragmatism with well defined, clear and consistent government policies. As the interviewee from government reflected in lessons learned to increase competition:

“By reducing the levels of bureaucracy/red tape, ensuring a high level of transparency to the private sector and reducing costs required to submit a bid, within reason, the government can increase the competitiveness of the REIPPP” - I5

In this case, it was interesting to note that this view was shared by both the private sector and the government sector. This finding was also one of the major conclusion of (Eberhard & Naude, 2017b) that by reducing the administrative burden, the level of competition will increase. The lesson learned of having pre-negotiated, agreements also ties in with the theme of pragmatism where standardised requirements were to the benefit of all participants and even reduced the cost of administration by reducing the reliance on lawyers and other service providers. This finding was also supported by the ranking exercise performed by the interviewees.

Keeping in mind that CP is summarised as an “attitude or a behaviour of beating the competition through pragmatism” (Baumann, Cherry, & Chu, 2019; Baumann, Cherry, Chu, et al., 2019) the fact that this theme emerged strongly is arguably the most positive indication that CP was influencing the South African REIPPP and in particular the

46 relationship between the private sector and government which can be bureaucratic in nature. This theme can therefore be considered to be particularly strong in supporting the interplay between FCP and NCP (Baumann, Cherry, & Chu, 2019)

5.2.3. Performance

When it comes to examples of what practical factors reduce the administrative burden, the most common example of timelines was given, meaning that the policy should be communicated well in advance and the deadlines communicated should be achievable and adhered to by the government.

According to the NCP framework (Baumann, Cherry, & Chu, 2019), “The speed to market with new products and services of my nation is more competitive than other nations and the level of innovation of my nation is higher than other nations.”

An emphasis of delivery and maintaining timelines can clearly be linked to performance. The concept of innovation did not emerge as a theme, which is surprising, as the renewable energy sector in general is innovative by nature. A possible explanation is that innovation occurs through manufacturing globally and even though more advanced technology is being deployed, this technology is equally available to all players in the industry, i.e. no technological advantage in this type of procurement programme.

5.2.4. Values

When the interviewees were asked directly about the importance of the themes of a ‘can-do’ attitude, having a focus on quality and an emphasis of minimising risk, the interviewees responded positively. However, in the more open questions, these themes did not emerge strongly. A possible explanation is that some of these sub- themes could be argued to influence other main-themes. A ‘can-do’ attitude could also be linked to performance or pragmatism (Benchmarking) emphasis of minimizing risk and a focus on quality could also be linked to the concepts of trust and Culture (which did emerge as strong themes).

With regards to developing the CP model (Baumann & Pintado, 2013) and framework (Baumann, Cherry, & Chu, 2019) it could be argued that Values could be more clearly distinguished from the other constructs and could be included under Culture.

5.3 Suitability of the CP model and NCP framework and suggestions for further development of the concept

While applying the NCP framework (Baumann, Cherry, & Chu, 2019) to the thematic analysis and empirical research using primary data, it became clear that neither the current frameworks for NCP or FCP are adequate in using statements or constructs that are relevant in the interplay between FCP and NCP. Further considerations to adjusting the model could be considered to focus on government policy and government departments in describing how CP impacts the interactions in a typical PPP arrangement.

While analysing the results of the interviewees, it became clear that many other factors are relevant for explaining the competitive environment. As already discussed, factors such as financial considerations (credit worthiness of off-taker, securing financing, price competitiveness etc.) and technical factors (quality of renewable energy sources, size (MW) of projects etc.) arose as major themes but did not fit the CP model (Baumann & Pintado, 2013). In this research the constructs of the CP model have been referred to as “non-financial” or “moderating factors” in relation to the competitive environment in general. For better clarity and understanding of the CP model, further explanation or classification of these constructs in relation to “financial” and “technical or industry specific” constructs is suggested in order to further develop the CP model.

Figure 6. Suggested CP model for the interplay between NCP and FCP in public procurement programmes.

Government (NCP)

Quantitative Qualitative Factors Moderating Factors

Infrastructure Trust (Culture) Values

Education Pragmatic Attitude (Benchmarking) Technical Timelines (Performance) Fianncial

Private Sector (FCP)

Source: Own, adapted from (Baumann & Pintado, 2013) and (Baumann, Cherry, & Chu, 2019)

The model in Figure 6 rearranges the constructs of CP (Baumann & Pintado, 2013) and includes Technical and Financial factors as other considerations in understanding the competitiveness of public to private procurement programmes.

The suggested model is not intended to replace Figure 4a and 4b but should rather be placed between the two levels to describe the interplay between to the two levels and specifically the interaction in public to private procurement programmes. By way of example factors such as economic stability mentioned in the NCP model in figure 4a will still influence NCP as it will impact both the financial factors (credit ratings) as we

48 as non-financial moderating factors such as trust (Culture) and therefore are still relevant. It is obvious that quantitative factors have an influence on competitiveness, and this is consistent with the WEF Twelve Pillars of Competitiveness (Schwab, 2019; Schwab & Sala-i-Martin, 2014). The constructs of Infrastructure and Education have therefore been included in these quantitative factors category as there is overlap with the Schwab & Sala-i-Martin’s, (2014) model.

What became clear from the empirical findings is that qualitative factors arguably had higher importance than quantitative (financial and technical) factors in the decision- making process of the industry professionals. The factors have been re-described as Trust (Culture), Pragmatic Attitude (Benchmarking) and maintaining Timelines (Performance) do more clearly describe the main themes arising from the interviews. Additionally, Values which was found to overlap with Culture and Benchmarking, has been excluded as a separate construct.

Chapter 6. Conclusion

6.1 Research Question and Answer

RQ: How do government policies in procurement programmes influence competitive productivity?

The study addresses the research question in various ways. The results of the empirical research found that as an increase in competition occurred, there was an increase in productivity in the form of decreasing bid tariff prices from BW to BW. Through interviews with industry professionals, the research established that various sub-themes of consistent government policy, transparency, clear timelines and having a pragmatic attitude, were all moderating factors that influenced the competitiveness of the procurement process. These themes are further summarised into the main themes of benchmarking, culture and performance, 3 of the 6 factors in the CP model (Baumann & Pintado, 2013). The findings arising from the case study on the REIPPP therefore support the notion that competitive productivity is both an attitude and a behaviour of beating the competition through pragmatism and partially support the authors Baumann & Pintado (2013) model and CP framework (Baumann, Cherry, & Chu, 2019). The current framework trilogy of NCP, FCP and ICP (Baumann, Cherry, & Chu, 2019) was found to be relevant when explaining the interplay between NCP and FCP, however, the recommendation is for further development to better explain the interplay between levels. Figure 5 was developed as a suggested model to explain this interaction in the context of public to private procurement programmes.

6.2 Contribution to Theory

This research addresses the research gap identified in Chapter 1, as the study further develops the topic of CP as well as the study of competitiveness outside of a Western context. Additionally, the research directly responds to the recently published “Call for Papers” by (Baumann, Cherry, Chu, Winzar, & Viengkam, 2019) on the topic of CP. The research has addressed the request of the authors to further explore CP using “novel” approaches where necessary. In this research both an approach of positivism, i.e. using quantitative analysis on secondary data to test the CP and an approach of interpretivism, i.e. gaining a deeper understanding of CP through interviews and case studies were used.

The results of this research are able to link a competitive phenomenon occurring in the REIPPP in South Africa, which is decreasing bid tariff prices, to non-financial moderating factors. The non-financial moderating factors in this instance were linked to the CP framework proposed by Baumann, Cherry, & Chu, (2019) and therefore the empirical research conducted in this paper can be found to support the CP framework. In Chapter 5, various limitations of the CP model (Baumann & Pintado, 2013) and framework (Baumann, Cherry, & Chu, 2019) are discussed, with suggestions for further development of a framework to support the interplay between CP levels as well as where the constructs of Culture, Benchmarking and Performance in the CP model in figure 3 (Baumann & Pintado, 2013) emerged stronger than Values, Education and Infrastructure.

The research therefore further contributes to the understanding of the constructs of the CP framework, as well as further exploring the interplay between the FCP level and the NCP level, both of which are identified areas of research in the “Call for Papers” by Baumann, Cherry, Chu, Winzar, & Viengkam (2019)

The research further supports the authors Baumann, Cherry, & Chu's (2019) view that the topic of competition is an evolving concept and there should be an inclusion of moderating factors such as cultural heritage and relative values. This was evidenced by the themes coming out of the interviews conducted in this research, where ultimately, financial factors were not necessarily the primary factors driving competition.

Lastly, as the “novel” approach taken in this research relies on interdisciplinary research linking the research of renewable energy procurement programmes (Eberhard & Naude, 2017) and research in progress by Interviewee 7 from the University of Cape Town to research on competition and strategic management. It also further contributes to general research on Africa and brings it into the context of international business and strategic management theory.

6.3 Contributions to society

At the time of writing this research, South Africa is experiencing ‘load shedding’. This means there is insufficient electricity in the national grid to allow for 24 hours access to electricity across the country. As the country grows, there is a need for a diversity of energy sources that can contribute and add capacity to the national grid. This notion is supported by the recent approval of the South African Government of the updated Integrated Resource Plan (2019 Integrated Resource Plan, 2019; South African Government, 2019), announced during the time of conducting this research, which recommends that further procurement of 13,770 MW between 2022 and 2030 (approximately 2600MW per year from 2022) (South African Government, 2019b). This represents a similar size of procurement, comparable to BW1-4b and further highlights the importance of understanding the lessons learned.

Additionally, there is still a significant percentage of the African population that does not have access to electricity (refer Table 3). In both the conventional competitiveness indices such as the GCI (Schwab, 2019; Schwab & Sala-i-Martin, 2014) as well as the newly proposed CP framework (Baumann, Cherry, & Chu, 2019) infrastructure is included in the framework. It therefore leaves little doubt that improving infrastructure such as access to electricity in rural areas and a greater percentage of access to electricity for the population in general, will increase the competitiveness of the nation (NCP), firm (FCP) and individual (ICP) as it helps companies to operate with more stability and individuals to read and study. Mobile and internet penetration will also improve.

The renewable energy industry, by virtue of its name, is also an industry that helps to mitigate against climate change and global warming by relying on energy from green sources such as solar PV and wind. In the case of South Africa, 77% of power still comes from coal, a fossil fuel power source and contributor to carbon emissions. A

change of energy mix to a larger penetration of renewable energy is therefore extremely beneficial to the country and the global climate.

The renewable energy industry due to its PPP structure in an African context is also helping to change the mindset from state owned energy companies having a monopolistic role in society, to partnering with the private sector. In the case of South Africa, the private sector was able to bring extremely attractive prices to government to add to the overall capacity of the national grid. By understanding what moderating factors influence the competitiveness of the REIPPP and other African procurement programmes, using CP as a framework, research in this area can contribute to bettering future government policy and procurement programmes to the benefit of Africa.

6.4 Implications for further research

As mentioned in Chapter 3, there are inherent limitations in the research methods used. One of the mentioned limitations includes drawing conclusions on the CP framework from a case study limited to one country, South Africa, only. Additionally, the research only focuses on one particular procurement programme from which to draw conclusions. As a result, the following further areas of research are suggested:

Possible Areas for further research: Exploring the relative competitiveness of the South African REIPPP against other countries in Africa with similar renewable energy programmes.

Refer Figure 4. Many of the multinational companies operating in the renewable energy industry in Africa have a relative view of the procurement processes. They are able to therefore compare and contrast the processes and understand what makes them more or less attractive. This is consistent with the findings from the interviewee responses in Chapter 4, where a delayed and ultimately cancelled expedited bid window resulted in many companies being pushed away and focusing on renewable energy programmes in other countries in Africa.

There are special research centres such as MIRA at the University of Cape Town (“MIRA, UCT,” 2019) who dedicate the majority of their time to researching renewable energy across the African continent. This could be an angle to view the various renewable energy programmes from a competitive point of view.

Possible Areas for further research: Confirming the existence of CP in an African context at an NCP level.

Although the subject of competitiveness is well researched and annual reports such as the WEF Global Competitiveness Report, have defined and refined the pillars and measurement thereof on an annual basis (Schwab, 2019), the research can overlook the nature of competitiveness, i.e. outperforming the competition, or at least bettering one’s own performance (Baumann, Cherry, & Chu, 2019)

By way of example, although South Africa scores 60th globally on the GCI, South Africa has had virtually no growth on a measured GDP per capita basis (refer Table 3) relative to Namibia, Zambia and Botswana, which all showed higher growth while

being ranked lower on the index. The analysis could be extended to examine foreign direct investment (FDI), GDP per capita and GNI per capita on PPP basis with a focus on the moderating forces at a NCP level. In other words, further explore comparisons at a national level, where being more competitive (according to the GCI) does not necessarily lead to being a more productive nation.

The relationship between growth (productivity) and other moderating factors could be researched further. Consider Rwanda as an example, ranking 100th on the GCI (Schwab, 2019) vs South Africa (60th) however with higher levels of growth in GDP per person employed (World Bank Data, 2019) and FDI (UNCTAD, 2019)

If welfare is the measure of a nations CP (Baumann, Cherry, & Chu, 2019) a comparison between productivity and welfare could be examined at a national level. (Chemouni, 2018) found that Rwanda has the highest enrolment in health insurance in Sub Saharan Africa with between 82% and 87% including other insurances, while ranking 100th on the GCI (Schwab, 2019). South Africa, on the other hand has only 16% (Chemouni, 2018)

When considering the attitude of the country towards investors, the Doing Business Index (“Doing Business 2019, The World Bank”) gives an indication of nations competing through pragmatism (Baumann, Cherry, & Chu, 2019). Using Rwanda as an example again, the country ranks at an impressive 29th, whereas South Africa ranks 82nd.

Advanced NCP, FCP and ICP models require empirical testing (Baumann, Cherry, & Chu, 2019) Future research in this area could include a comparative study between South Africa and Rwanda as an example to explore and to confirm the existence of the constructs at a NCP level and to further add to research in an African context.

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Appendix A: Background to South Africa and the Renewable Energy Procurement Programme

Background to South Africa

South Africa is a nation of approximately 58 million people (Schwab, 2019) and is the second largest economy in Africa (following Nigeria) and has a GDP per capita of USD 6 377, making it the 7th highest ranked economy in Africa on this basis (World Bank Data, 2019) Traditionally a mining economy, the economy is now more diversified with the largest sector being the finance sector (20%) followed by the governmental sector (18%) of which the largest company is the national energy supplier, Eskom, mentioned in this study, which has just under 47 000 employees (Eskom, 2019)

The country became a republic on 31 May 1961 following 27 years of British rule. A policy of racial segregation known as ‘Apartheid’ began in 1948 (South African Government, 2019a) and became law in 1950 which contained a series of laws prohibiting inter racial marriage, a reservation of 80% of the national land for the “white minority” as well as the creation of restricted areas for “non-whites” who were required to carry passports. Following international pressure and a turbulent local political environment, between 1989 and 1993 Apartheid came to an end with a series of concessions. In 1994 South Africa had its first democratic election (South African Government, 2019a), where the African National Congress and the new president Nelson Mandela, who had spent 27 years imprisoned as a political prisoner, was elected into power.

Since 1994 the country predominantly experienced GDP per capita growth ranging between 1% - 4% up until 2011, excluding down turns in the world economy in 2008. However, since 2011 the country has experienced a constant decline with negative growth per capita since 2015. (World Bank Data, 2019)

Renewable Energy Independent Power Producer Procurement Programme

In 2003 the South African government adopted a ‘White Paper’ on renewable energy, a policy document that laid the foundation for the promotion of renewable energy technologies such as solar, hydro, biomass and wind (Department of Energy South Africa, 2019) Through this policy document, a ten year target of how renewable energy technologies could diversify the country’s energy mix and secure cleaner energy was set. The objectives of the White Paper on Renewable Energy of 2003 were to, ensure that an equitable level of national resources were invested in renewable technologies, direct public resources to the implementation of renewable energy technologies, introduce suitable fiscal incentives for renewable energy, and create an investment climate for the development of the renewable energy sector (Department of Energy South Africa, 2019).

A target of 17 800 MW of renewable energy was targeted to be achieved by 2030 in respect of the electricity generation mix. Within this 20-year planning horizon, about 5000 MW were planned to be operational by 2019, with a further 2000 MW expected to come online by 2020. According to the 2019 integrated resource plan, as at 2019

there has been 6 422 MW procured under the REIPPP with 3 876 MW operational and made available to the grid, slightly behind the initial target, from an operational point of view, but in line with the target in terms of projects awarded (2019 Integrated Resource Plan, 2019).

According to the 2019 IRP, renewable energy contributes approximately 9% (2019 Integrated Resource Plan, 2019) of the total installed capacity of the national grid of 48 824 MW (Eskom, 2019).The main energy source in South Africa is from coal powered stations, with 77% contributed by coal powered stations (Eskom, 2019) followed by other peak power sources such as diesel power (approximately 5%) and nuclear (approximately 4%), all owned and operated by the national energy and utility company, Eskom, a state owned enterprise.

Many other neighbouring countries in Southern Africa have put in place similar programmes, using the same PPP structure and setup as South Africa. Countries such as Zambia, Botswana and Namibia are examples of these. These countries also receive their energy supply from monopolistic national energy suppliers (state owned enterprise) but like in the case of South Africa, these countries engaged with the private sector for the procurement of renewable energy to the national grid, however using different procurement approaches and varying percentage allocation to the private sector of the total energy allocation allocated to renewable energy sources. These countries fall out of the scope of the research but are included in the discussion in Chapter 6.

Even though the size of economies in Southern Africa differ significantly from a GDP point of view, the extent of the renewable energy sectors differs. As an example according to a global renewable energy survey (Ren21, 2019, p. 21) South Africa (a much larger market) has a target of 9% renewable energy contribution to total energy mix by 2030 whereas Namibia (a much smaller market) has 70% by 2030. The question of the relative size of the economies is therefore not considered to impact the competitive nature of the markets and the focus is rather on the size of the individual projects, measured in megawatts (MW).

The interplay between FCP and NCP levels are explored on a relative basis focusing on multinational companies that compete in South Africa as well as other Southern African countries. Southern Africa for this paper will be defined by the United Nations subregion classification of Southern Africa which consists of five countries being Angola, Botswana, Lesotho, Mozambique, Namibia, South Africa, Swaziland (also referred to as Eswatini), Zambia and Zimbabwe. Countries such as Zambia, Botswana and Namibia have also implemented renewable energy procurement programmes involving the private sector, i.e. PPP’s similar to the REIPPP in South Africa. The focus of the research will focus however on South Africa only which has the most advanced and developed programme in the region (size of projects and number of BWs) and was the first to implement such a programme.

Appendix B: Letter sent to request an interview

Co-operation for Master Thesis

Dear Sir / Madam,

I am a Masters student at the University of Gävle, Sweden, in the Business Administration Programme. My thesis concerns a relatively new concept ‘Competitive Productivity’ in the field of Strategic Management. The Authors (Baumann, Cherry, & Chu, 2019) define the concept as an attitude and behaviour directed at outperforming the competition and past performance through pragmatism. In particular, the study focuses on the relationship between the government and private sector in the context of a public private partnership (PPP).

In the context of South Africa research conducted by the University of Cape Town (Eberhard & Naude, 2017a) found that effective government policy enabled a competitive tender process, which results in lower tariffs. The study intends to further understand this relationship from a competitive point of view given that there are several renewable energy programmes available for development around Southern Africa, the various countries can be seen to be competing to attract the best developers, financiers, consultants in the renewable energy sector as well as competing to attract the lowest tariff bids.

As a professional working in the renewable energy sector in Southern Africa, I would like to understand your experiences of what influences you and your company to be attracted to certain projects against others, or in other words what would encourage you to submit a bid and what would prevent you.

By way of example I would be interested in hearing your views on the South African REIPPP which has been hailed as a success by some but also was not without controversy according to an article featured in African Energy (August 2016) titled “Eskom muscles into SA policy void” where the author discussed the Eskom controversy of expressing doubts about the value of private renewables schemes. The study looks to understand how this change of policy affected the confidence of the private sector and trust in government and whether or not it impacted actual investment decisions or impacted foreign direct investment into downstream renewable energy businesses.

By way of another example, I would be interested to understand how one programme or bid window could be more competitive (higher number of bids) relative to another programme in Southern Africa, even if it is a smaller project with lower MW requirement.

I would appreciate if you could complete the interview questions via the link below.

Survey Link: https://forms.gle/W9pbdBgioLgXPD6c9 Feedback will be collected on the basis of anonymity and any responses received will be acknowledged to be personal views in your experience as a professional and will not be taken to be official views of the company you work for.

Best Regards, Paul Frick Phone: +46 (0) 703250620 E-mail: [email protected]

Daniella Fjellström Ph.D., Assistant Professor in Business Administration Department of Business and Economic Studies Faculty of Education and Business Studies Phone: +46 (0)26-64 82 14 E-mail: [email protected]

INTERVIEW QUESTIONS

Section A: Background Info: 1. Company Name / Description 2. Job title / Description 3. Contact details – email address etc. 4. Number of years of experience in the renewable energy industry: a. 1-3 years b. 3-5 years c. 5-10 years d. >10 years 5. In what capacity do you work with renewable energy projects? a. Independent Power Producer (IPP) b. Engineering procurement construction contractor (EPC) c. Developer d. Financial Investor e. Plant Operator f. Services Consultant g. Other (please specify) 6. What size of projects do you look to invest in? a. <10 MW b. 10 – 20 MW c. 20 – 50 MW d. > 50 MW e. All of the above 7. To what extent have you and/or your company been awarded and/or involved in the construction of renewable energy across Southern Africa (number of projects and collective size (MW) of projects)?

Section B: Competitiveness of South African renewable energy independent power producer procurement programme (REIPPP) 1. From your perspective, do you consider the South African REIPPP to have been a competitive programme? 2. Over the five bid windows, has the bidding process become easier/more burdensome (more pragmatic) from an administration point of view? Has this encouraged or discouraged you to participate in any of the available projects as a result? 3. How has your level of trust or otherwise willingness to participate in the REIPPP developed over the life of the programme as a result of the attitudes/behaviours of the Department of Energy, Eskom and any other organisations to be simply classified as ‘government’? 4. How did the attitude/actions of Eskom reported on during 2016 impact the credibility and trust in the REIPPP, from your perspective? (Delay and ultimate cancelation of the expedited bid window in November 2015?

5. Did the above mention actions influence any decisions your company made or impact any downstream companies involved in the RE sector? Has the industry now recovered from this period (if affected at all in the first place)?

Section C: Relative Analysis of renewable energy procurement programmes around Southern Africa 6. What factors do you determine to be the most important when considering to submit a bid for a particular programme in Southern Africa? 7. How competitive is the South African programme relative to neighbouring Southern African country programmes? If possible can you give examples of particularly good or particularly bad programmes and why? 8. Have you experienced any anomalies, such as a small project size (MW) receiving an unusually high level of bids or visa versa a large project receiving an unusually low level of bids – if so, what were the underlying reasons in your opion. 9. How much importance do you apply to the following constructs when analysing a potential project in a Southern Africa context (Rank in order of importance 1=most important) a. Pragmatic policies aimed at being more competitive than other countries/programmes; b. A culture of focusing on performance and a positive service ethic; c. Education and development – skill level in the country you are investing in; d. Infrastructure - the level of infrastructure in place (connection to the grid as well as general infrastructure (roads etc); e. Performance – level of innovation, speed to market of new products or services or technology. f. Values – having a ‘can do attitude’, a focus on quality and of minimising risk in the process. 10. What lessons should African governments (as administrators of the programmes) take forward to improve the competitiveness (and thereby lowering the tariff) of their respective renewable energy programmes?

Appendix C: Mathematical formulas used in Table 8 and Table 9.

Definitions:

P Price measured as USD cents / kilowatt (KW) Padj Adjusted Price Pindex IRENA weighted average energy price CPbenefit Calculated benefit from improved competitiveness BW Bid windows – denoted 1 – 4(b) refers to the period being measured.

The following formula was used to calculate the CP benefit % for BW2:

Padj(BW2) = Pindex(BW2) / Pindex(BW1) X P(BW1)

CPbenefit = P(BW2) – Padj(BW2)

CP%(BW2) = CPbenefit(BW2) / Padj(BW2) calculated as a percentage (%)

The same formula was then applied to calculate the CP benefit and CP % for BW3 to 4(b)