Fall 13 Master’s Thesis Establishing Internationally Competitive Wind Turbine Component Production in South Africa: A Feasibility Study MSc in Business, Language and Culture (Cand. merc. Int.) – Business and Development Studies Peter Korning Andersen [email protected] Thomas Hebo Larsen [email protected] Supervisor: Peter Wad STU Count: 263,043 Copenhagen Business School Abstract This paper aims to assess the possibility of South Africa establishing internationally competitive local production of key components to the global wind power industry. This is done by applying theory on industrial policy, global value chains and the international competitiveness of national industries. The findings indicate that it is unlikely that South Africa will become internationally competitive within key wind turbine component supply. As such, the paper puts into perspective the difficulties of developing countries in establishing themselves within mature and technology-intensive global industries. ii iii List of Abbreviations ANC African National Congress CSP Concentrated Solar Power DTI Department of Trade and Industry FDI Foreign Direct Investment GATS General Agreement on Trade in Services GEAR Growth, Employment and Redistribution strategy GVC Global Value Chain IEP Integrated Energy Plan IPAP Industrial Policy Action Plan IPP Independent Power Producer ISI Import-substituting Industrialization IRP Integrated Resource Plan for Electricity LCR Local content requirements MNC Multinational Corporation MERSITA Manufacturing, Engineering and Related Services Sector Education and Training Authority MRTP Medium Term Risk Project NERSA National Energy Regulator of South Africa NIPF National Industrial Policy Framework NGP New Growth Path OEM Original Equipment Manufacturer R&D Research and Development RBS Revised Balance Scenario RDP Reconstruction and Development Programme REIPPPP Renewable Energy Independent Power Producer Procurement Programme SARETC The South African Renewable Energy Technology Centre SAWEA South African Wind Energy Association SIP Strategic Industrial Policy TRIMS The Agreement on Trade-related Investment Measures TRIPS The Agreement on Trade-related Aspects of Intellectual Property Rights WTO World Trade Organization List of Tables and Figures Figure 1 Methodological layers of research Figure 2 Schmitz’ Active Industrial Policy Framework Figure 3 Theoretical framework Figure 4 Overview of policy documents Figure 5 Wind energy value chain Figure 6 Electricity prices in South Africa Table 1 Interview overview Table 2 Gereffi’s Governance Structures Table 3 Overview of policy instruments Table 4 Local content requirements Table 5 Emerging market projected demand 2013-2017 Table 6 Governance structures in the wind power industry iv v 1 Table of Contents 1 Introduction ......................................................................................................................... 1 1.1 The Development of Industrial Policy ........................................................................................................................ 1 1.2 The Effects of Globalization ............................................................................................................................................ 3 1.3 Industrial Policy in the 21st Century ........................................................................................................................... 4 1.3.1 Selection Criteria ................................................................................................................................................................. 6 1.3.2 Delimitation ........................................................................................................................................................................... 7 2 Methodology ........................................................................................................................ 9 2.1 Research Philosophy ...................................................................................................................................................... 10 2.2 Approach ............................................................................................................................................................................. 11 2.3 Design ................................................................................................................................................................................... 12 2.3.1 Purpose .................................................................................................................................................................................. 12 2.4 Data Collection Methods ............................................................................................................................................... 13 2.4.1 Qualitative Data ................................................................................................................................................................ 14 2.4.2 Quantitative Data ............................................................................................................................................................. 14 2.4.3 Primary Data ...................................................................................................................................................................... 14 2.4.4 Secondary Data ................................................................................................................................................................. 16 2.5 Validity, Reliability and Generalizability ................................................................................................................ 16 3 Theory ................................................................................................................................ 18 3.1 Industrial Policy ............................................................................................................................................................... 18 3.2 International Competitiveness of National Industries ..................................................................................... 21 3.3 Global Value Chains ........................................................................................................................................................ 23 3.3.1 Global Value Chain Governance ................................................................................................................................. 24 3.3.2 Upgrading and Entry Barriers in Global Value Chains ................................................................................... 26 3.4 Theoretical Framework ................................................................................................................................................ 28 4 Analysis .............................................................................................................................. 30 4.1 Introducing South Africa .............................................................................................................................................. 30 4.1.1 The Political Context ....................................................................................................................................................... 30 4.1.2 The Economy ....................................................................................................................................................................... 31 4.1.3 The Social Context ............................................................................................................................................................ 33 4.2 Government Strategy ..................................................................................................................................................... 34 4.2.1 Industrial Policy of South Africa ................................................................................................................................ 35 4.2.2 Renewable Energy Policy of South Africa.............................................................................................................. 40 4.2.3 Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) .............. 46 4.3 The Global Wind Power Industry .............................................................................................................................. 48 4.3.1 The Development of the Wind Power Industry ................................................................................................... 49 4.3.2 Present State and Future of the Global Wind Power Industry .................................................................... 53 4.3.3 The Structure of the Global Wind Power Industry ............................................................................................ 57 4.4 Porter’s Diamond ............................................................................................................................................................. 65 4.4.1 Factor Conditions ............................................................................................................................................................. 65 4.4.2 Demand Conditions .......................................................................................................................................................... 70 4.4.3