South Africa imported a record R12 billion of lithium batteries in 2022, and the data suggests the number may be even higher in 2023. This will deteriorate the country’s balance of payments and weaken its currency.
This is according to senior economist at Trade and Industrial Policy Strategies Gaylor Montmasson-Clair, who spoke to eNCA about the increasing demand for lithium batteries in South Africa.
Demand for lithium batteries went through the roof in 2022, with imports tripling compared to 2021.
The main factor driving this demand is the elevated levels of load-shedding in South Africa which has forced businesses and households to look for alternative power sources and battery backups.
This is unique, as such high imports of lithium batteries are usually tied to the manufacturing of electric vehicles.
The use of lithium batteries as a backup source of electricity is a distant second globally to electric vehicle manufacturing.”
Montmasson-Clair expects the market for lithium batteries in South Africa to increase for backup usage and electric vehicles in the foreseeable future.
Deteriorating balance of payments
Continued high demand for lithium batteries, sourced predominantly from China, will harm South Africa’s balance of payments, said Xhanti Payi, PwC South Africa senior economist.
South Africa’s current account balance has deteriorated significantly as of late, with a deficit declared for the first time in three years in the last quarter of 2022.
This is predominantly due to the increased import of alternative power sources, such as solar panels, inverters, batteries, and generators.
The import of such goods is expected to increase throughout 2023, further deteriorating the balance of payments and weakening the rand.
The deteriorating balance of payments is compounded by capital outflows to developed economies due to a decrease in global investors’ risk appetite from growing uncertainty in the global economy.
However, the more significant impact may be on the country’s exports, with its automotive manufacturing sector being slow to transition to manufacturing electric vehicles.
For Montmasson-Clair, this may result in one of the few successes of South African industrial policy being obsolete in the next decade.
This will significantly reduce South Africa’s value-added exports and thus further deteriorate the country’s balance of payments and weaken the currency.
South Africa must get into the supply chain
The solution is for South Africa to integrate itself into the local, regional, and global supply chains, according to Montmasson-Clair.
The country can do this in two ways:
- Mining and processing minerals used in lithium batteries, such as manganese, which South Africa has large deposits of. Importantly, South Africa must not only mine the minerals but also process and refine them to increase the value of the exported product.
- Manufacturing batteries. South African companies import battery cells from China and merely combine them with other components to create a finished product. Instead, South Africa should integrate the manufacturing process within the country.
This will not only limit South Africa’s imports of lithium batteries but will also ensure that it is a significant player in supplying lithium batteries globally.
More importantly, this will enable the local automotive industry to be competitive in producing electric vehicles for export.