The economywide impact of bioethanol production in South Africa

Abstract

Bioethanol production as a substitute for petroleum in road transport fuels has been identified as a potential partial solution to environmental and socioeconomic challenges facing developing countries, including South Africa. Biofuels in motor vehicles emit fewer GHGs relative to conventional fuels, and their production can lead to economic growth and associated socioeconomic outcomes, including increased labour employment and improved household welfare. The objective of this paper was to quantify the socioeconomic impact of bioethanol production in South Africa using sugarcane as a feedstock and to assess the effects of increasing the size of the bioethanol plant. The study is based on the 2018 KwaZulu-Natal and South African Social Accounting Matrices (SAM), and two assumed scenarios are considered, namely a scenario where only export destined sugarcane is used to produce bioethanol (scenario I) and a scenario when all sugarcane is used to produce bioethanol (Scenario II). The SAMs modified from the SAMs initially compiled by Conningarth Economists were used to develop an input–output multipliers economic impact model. The production of bioethanol from sugarcane was anticipated to have positive socioeconomic impacts namely, an increase in the country’s GDP, employment growth, gross-capital formation, positive contribution to fiscus, improvement in household welfare and positive contribution to the balance of payment (BOP). Expanding the size of the bioethanol plant is expected to magnify the impacts. The study, therefore, recommends a removal of bottlenecks in bioethanol expansion, including high feedstock cost, limited investment, and absence of mandatory blending policy, amongst others.