The Factors Influencing Energy Intensity in the South African Manufacturing Industry

Abstract

The study investigates the determinants of energy intensity in the manufacturing industry. The objectives are to analyse trends, to determine the drivers of manufacturing energy intensity and make policy recommendations. The study investigates the effects of manufacturing value added, foreign direct investments, energy prices and trade openness on manufacturing energy intensity. The study employs the Vector Error Correction Model on time series data for the period of 1980 to 2017. The findings of the study depict that manufacturing value added, foreign direct investment and energy prices are the most important determinants in explaining manufacturing energy intensity over the reviewed period. Manufacturing value added is found to be statistically significant both in the short and long run. Foreign direct investment is found to be statistically significant in the long run whereas, energy price is significant in the short run. In light of this, the study makes policy recommendations. With regards to total manufacturing value added, the study recommends that the industry be closely monitored. Government should subsidize energy efficient machinery and equipment and the use of old outdated technology should be banned. With regards to foreign direct investment, the study recommends that the FDI policy be reviewed such that it attracts foreign investors. The recommendation regarding energy prices is that government should encourage energy price reform and use subsidies to encourage energy saving enterprises.