This is a great post. I had sort of circled around this point in my mind but without appreciating it as a key constraint. It feels very relevant to some of the Mission 300 discussion on connecting households v connecting companies: I imagine the export elasticity of connecting firms to the grid is much higher than to putting solar panels on roofs in rural areas…
It isn't just renewables though surely, but any situation where large, prolonged investments are needed and are dependent on imports, but have (at best) an indirect and distant impact on forex? (I had been thinking about something similar in the case of natural disasters, which could have a big hit on productive capital that then needs to be replaced, probably with imports. But obviously that would just get export capacity back to where it was rather than increasing it, so there must be a forex hit)
Does it also make you think differently about some ‘mutual benefit’ investments from Europe/China, with explicit focus securing access to commodities? I suppose these could plausibly generate their own export revenue directly. E.g. I’m extremely sceptical about some of the green hydrogen stuff the EU is doing given the economics of it. But if, say, you invest in a ton of solar capacity in Namibia and can use excess generation at non-peak times to power electrolysers to make ammonia, perhaps the BOP dimension makes it slightly more favourable..
Thanks for comments Euan. I 100% agree on relevance to Mission 300.
I also agree that the argument I make does not apply only to renewables (other articles making similar arguments in other sectors might be forthcoming….).
I find the renewables case interesting because there is a lot being written at the moment by renewables community invoking potential benefits of import savings (which are a real and genuine draw for a country like Ethiopia). But often an assumption that the main barrier to get there is the cost of capital.
There are some great articles on balance of payments constraints that I don’t think get nearly enough attention (links below). I allude to some of this in a previous article I posted here (in case not seen)
Do fossil fuel - exporting countries that subsidize domestic oil, gas, and coal consumption have a nice feedback loop awaiting them where they can sell fossils to buy EVs, PVs, wind, batteries etc, replace subsidized fuels and export the fuels they would have burned domestically to pay off loans for cleantech capital costs? Should we expect South Africa, Libya, Nigeria to be cleantech leaders?
Will GLP1s lower junk food imports a lot? Will they make fuels made from corn and sugar cheaper?
Thwre are some aspects of this in the path that certain Gulf economies have been taking. UAE and Saudi sovereign wealth funds have backed national champions like Masdar, TAQA and ACWA to build out renewable energy industry. Theae Gulf firms are investing in e.g. the industrial scale solar installations used by Moroccan firms that export to Europe and beyond.
This is a great post. I had sort of circled around this point in my mind but without appreciating it as a key constraint. It feels very relevant to some of the Mission 300 discussion on connecting households v connecting companies: I imagine the export elasticity of connecting firms to the grid is much higher than to putting solar panels on roofs in rural areas…
It isn't just renewables though surely, but any situation where large, prolonged investments are needed and are dependent on imports, but have (at best) an indirect and distant impact on forex? (I had been thinking about something similar in the case of natural disasters, which could have a big hit on productive capital that then needs to be replaced, probably with imports. But obviously that would just get export capacity back to where it was rather than increasing it, so there must be a forex hit)
Does it also make you think differently about some ‘mutual benefit’ investments from Europe/China, with explicit focus securing access to commodities? I suppose these could plausibly generate their own export revenue directly. E.g. I’m extremely sceptical about some of the green hydrogen stuff the EU is doing given the economics of it. But if, say, you invest in a ton of solar capacity in Namibia and can use excess generation at non-peak times to power electrolysers to make ammonia, perhaps the BOP dimension makes it slightly more favourable..
Thanks for comments Euan. I 100% agree on relevance to Mission 300.
I also agree that the argument I make does not apply only to renewables (other articles making similar arguments in other sectors might be forthcoming….).
I find the renewables case interesting because there is a lot being written at the moment by renewables community invoking potential benefits of import savings (which are a real and genuine draw for a country like Ethiopia). But often an assumption that the main barrier to get there is the cost of capital.
There are some great articles on balance of payments constraints that I don’t think get nearly enough attention (links below). I allude to some of this in a previous article I posted here (in case not seen)
https://www.theexternalaccount.com/p/hostage-to-fortune
https://www.kent.ac.uk/economics/repec/1111.pdf
https://drive.google.com/file/d/12T2D5Hi9McFHZKMRelgphnlnK-JtoLiR/view
https://repositorio.fgv.br/items/e57ad976-78d2-4840-b2b4-5cbf6dfbfcfc
(or for the middle paragraph: I guess this is Chenery-Strout stuff!)
Do fossil fuel - exporting countries that subsidize domestic oil, gas, and coal consumption have a nice feedback loop awaiting them where they can sell fossils to buy EVs, PVs, wind, batteries etc, replace subsidized fuels and export the fuels they would have burned domestically to pay off loans for cleantech capital costs? Should we expect South Africa, Libya, Nigeria to be cleantech leaders?
Will GLP1s lower junk food imports a lot? Will they make fuels made from corn and sugar cheaper?
Thwre are some aspects of this in the path that certain Gulf economies have been taking. UAE and Saudi sovereign wealth funds have backed national champions like Masdar, TAQA and ACWA to build out renewable energy industry. Theae Gulf firms are investing in e.g. the industrial scale solar installations used by Moroccan firms that export to Europe and beyond.