GEMMES South Africa: Evaluating the macroeconomic impacts and policy options for the low-carbon transition

South Africa requires significant investment to transition to a low-carbon economy and resilient infrastructure, especially in energy and water sectors. Heavily reliant on coal and facing increasing water scarcity due to climate change, South Africa’s shift towards sustainability is crucial for long-term environmental and economic stability.

With the support of AFD, the University of Cape Town (UCT), Development Bank of Southern Africa (DBSA), Presidential Climate Commission (PCC), National Treasury, and the Centre for Sustainability Transitions of Stellenbosch University are developing a model that evaluates the macroeconomic impacts and various policy options and financing mechanisms for transitioning South Africa's water, energy, and food (WEF) systems in response to climate challenges. This project falls under the “South Africa – Towards Inclusive Economic Development” (SA-TIED) initiative, a research and policy programme aimed at fostering inclusive economic growth in South Africa.

The GEMMES programme is developing a general theoretical model on the one hand, and national models applied to concrete cases and adapted to the characteristics of each country on the other, including the GEMMES South Africa model. 

About GEMMES: AFD and Macroeconomic Modelling Tools for the Ecological Transition

The GEMMES South Africa project aims to:

• Analyze the macro-financial impacts of transitioning to renewable energy, ensuring water security, and maintaining food sustainability;
• Provide policymakers with insights and forecasts to inform decision-making and long-term planning for economic growth, employment, and climate resilience and more specifically provide insights into the macroeconomic effects of climate-resilient investments up to 2050;
• Enhance understanding of the vulnerabilities and opportunities in South Africa’s transition by integrating macro-financial feedback loops into structural change analysis;
• Foster sustainable development and mitigate environmental risks, contributing to long-term economic stability and improved quality of life;
• Promoting public policy dialogue on South Africa's low carbon transition.

In addition to its specific transdisciplinary approach, which makes this project one of the few to integrate the notion of strong sustainability, the originality of GEMMES lies in its consideration of macro-financial imbalances and the impact of the low-carbon transition on all elements of the balance of payments.

GEMMES South Africa builds on UCT’s SATIM-GE energy transition model incorporating macro-financial feedback loops, which provide critical insights into the country's economic vulnerabilities and investment opportunities during this transition.

GEMMES South Africa is built in partnership with local authorities and research institutes to guarantee that the tool is coherent with the country's needs and to assure that the partners are capable of using and improving independently. It will account for:

• the dynamics of interest and exchange rates and their impact on private investment and employment;
• the fiscal and macro-financial constraints;
• different dynamics between banks and non-bank financial institutions;
• the capacity of public investments in green infrastructure to drive a new ecological transformation plan;
• and, the impacts of climate changes. 

The GEMMES South Africa project anticipates several key publications, including:

• A presentation of the specificities of GEMMES-South Africa and its baseline simulations;
• The macro-financial implications of infrastructures investments;
• The macro-financial implications of climate change impacts.

These papers will provide valuable insights into the project's findings and contribute to ongoing discussions in the field.

At this stage, while the project is still in its early phases, it is expected that integrating macro-financial feedback loops will play a significant role in shaping effective policies and investment strategies. As the project progresses, ongoing stakeholder dialogue will be crucial in refining these concepts and addressing future challenges in the transition process.

Download the publications related to other South Africa modelling projects:

• Socio-economic and spatially-explicit assessment nature-related risks: The case of South Africa (December 2023)
• Demand-induced transition risks in South Africa (December 2023)

Contacts: 

• Paul Hadji-Lazaro, Macroeconomist of Climate and Biodiversity, AFD
• Antoine Godin, Economist, Head of the Macroeconomic Modelling Unit, AFD