Trump delivers new blow to South Africa with loan cancellations

The United States has decided to cut funding for the Just Energy Transition Partnership, or JETP, an initiative in which several countries are providing billions of dollars in funding to help South Africa invest in alternatives to its highly polluting coal-fired power stations.

The cuts – which also affect similar programmes with Indonesia and Vietnam – will deprive South Africa of around $1bn in loans for its renewable energy programmes.

Trump suspended other aid programmes in the country shortly after taking office, alleging that the country’s measures to allow expropriation of land without compensation in certain limited circumstances amounted to “shocking disregard of its citizens’ rights”. He has also invited white South African farmers to resettle in the United States.

The reaction of South Africa to the JETP cuts has so far been muted. In a terse statement, the Department of International Relations and Cooperation stated that the government “notes the decision and remains committed to the implementation of international agreements, including decisions taken at the historic Paris Climate Change Conference.”

Victor Perez, senior consultant at advisory firm Africa Practice, says that “US funds may be framed as irrelevant by government figures linked to the JETP management unit.”

But he points out that the loss of $1bn in JETP funding adds up to more than the government will raise from its plans to hike VAT by 0.5%, a measure that has been generating considerable political controversy in recent weeks.

JETP on the ropes

South Africa originally agreed its JETP programme with a group of donor countries at the COP26 climate conference in 2021. South Africa was seen as a model country to trial the JETP approach, since it has an extremely carbon-intensive power system – with coal dominating the energy mix – and is in desperate need of investment to replace ageing power stations.

The need for new sources of electricity generation was illustrated by widespread power cuts over the weekend. The renewed ‘load-shedding’ was prompted by a shutdown of one of the reactors at the country’s only nuclear power station, combined with maintenance problems at several coal-fired plans.

The loss of US funding will not necessarily derail the JETP programme. US funding – delivered almost entirely through loans, rather than grants – amounted to less than 10% of the $13.8bn pledged for JETP in South Africa.

Several other donors could increase their contributions in response, suggests Perez.

“Europe, Japan, and the UK could fill the gap,” he says, noting that the European Union and institutions such as the European Investment Bank continue to support energy transition programmes in South Africa.

“Meanwhile, innovative financing mechanisms – green bonds, local infrastructure bonds, and debt-for-climate swaps – offer further opportunities.”

But JETP has never been universally popular even within the South African government. Gwede Mantashe, the minister of mineral and petroleum resources, who also oversaw energy policy until last year’s election, has openly rebelled against President Ramaphosa’s efforts to invest in renewables at the expense of coal. Many of the country’s powerful trade unions are also vehemently opposed to measures that will lead to job losses in the coal industry.

Perez suggests that the loss of US funding could play into the hands of Mantashe and his allies.

“Definitely, the withdrawal may embolden sceptics,” he says. “The ANC…faces a near-impossible balancing act: preserving jobs in a struggling industry while transitioning to lower-carbon production.”