Ahybrid resource- and knowledge-based economy has recently evolved as nations rich in natural resources attempt to increase the value of their exports by developing new high-tech industries and products locally, known as in country. This hybrid economy depends both on natural resources and on knowledge resources—namely ideas, information, and expertise. The shift away from exporting raw natural resources toward high-tech products is driven by government strategies that can take many forms. For example, different countries have enacted research funding, taxation, investment incentives, and trade regulations. The success of these hybrid economies depends heavily on the methods of implementation, the balance of government and industrial leadership and support received, and the strength of the targeted market. China and South Africa provide interesting examples of two governments that have employed different strategies to promote a transition to this hybrid economy.
China has dominated rare-earth production for nearly two decades and although other sources are beginning to develop, China supplied over 85% of the world’s rare earths in 2012. The Chinese government has begun to consolidate its rare-earth industry and has implemented regulations aimed at eliminating illegal mining operations and protecting the environment. Rare earths—named as critical materials in many countries because of their use in various high-tech and clean-energy technologies—provide a significant opportunity for China to utilize its natural resources to promote a transition toward a hybrid economy. While China does not have an official economic transition policy, their strategy of decreasing rare-earth export quotas will ensure more of these critical materials stay in country for development into more valuable products.
In addition to tightening rare-earth export quotas, the Chinese government has provided significant funding and tax breaks for local and international businesses that wish to set up high-tech manufacturing or research facilities in China. In 2012, China was the world’s top clean-energy investor and Bloomberg New Energy Finance predicts that in 2013, China will become the world’s largest market for renewable energy. Ready access to such a large market provides further incentive for business ventures. The wind energy market is one example of China’s shift from raw resource export to knowledge-based creation of products in country—specifically wind turbines equipped with neodymium magnets. The investment incentives and relatively easy access to neodymium have fostered rapid growth of the domestic wind market and Chinese companies Goldwind, Sinovel, Guodian United Power, and Sewind were among the top 10 wind suppliers in 2012. While homegrown Chinese companies dominate the domestic market, international wind powerhouses Vestas, General Electric, and Siemens have also entered the Chinese market over the last several years.
South Africa is similarly situated with with the US Geological Survey estimating they hold over 95% of the world’s known platinum group metals (PGM) reserves—key catalyst elements used in catalytic converters and fuel cells. To add value to South Africa’s PGM resource and generate local industrial opportunities, the government has provided subsidies to the automotive industry under the Motor Industry Development Program (MIDP) and its 2013 successor, the Automotive Production and Development Program (APDP). These programs established an import/export arrangement where credits earned for exporting locally produced components or vehicles can be used to rebate import duties on components and vehicles. These programs resulted in the establishment of in-country manufacturing for catalytic converters as well as other automotive components and light motor vehicles.
Catalytic converters are South Africa’s largest and most revenue-generating automotive component export. South Africa boasts approximately 50 catalytic converter manufacturers and controls about 14% of the global catalytic converter industry. Over the last 15 years the industry has invested more than R$5 billion (approximately USD$500 million) to develop catalytic converter production in South Africa. In addition to investments in equipment and plants, significant funds have been spent providing high-tech training and education for South Africans who are employed by the industry—a key part of the transition to a hybrid economy. The development of the catalytic converter industry in South Africa has widely been hailed as a significant success; however, over the course of the MIDP and recent transition to the APDP, the amount of credit earned for catalytic converter exports has dropped. This drop has precipitated an industry shift away from South Africa, and the South African government may have to consider further changes to the catalytic converter incentive scheme under the APDP to ensure a continued market share in the industry.
The South African government has also established a 15-year program that seeks to further utilize its PGM resource and develop a hydrogen and fuel-cell industry in country. The first five years of the Hydrogen South Africa (HySA) Program have been focused on attracting international experts from academia and industry to form centers of expertise. This strategy has allowed South Africa to quickly establish competency in current fuel-cell technologies and jump-start a research and development program to innovate new hydrogen and fuel-cell technologies. The second phase of the HySA program began in 2013 and focuses on establishing collaborations with industrial partners. This phase will require significant government incentives for industrial partners to establish PGM- and non-PGM-based manufacturing in South Africa. While it is too early in the scope of the HySA program to gauge the industry response and effectiveness of the program, it is nonetheless a good example of a conscious government effort to transition toward a hybrid economy.
As more resource-rich nations make the transition toward a hybrid economy, the global manufacturing and trade landscapes will likely undergo significant changes. One area of international concern stems from the possibility of the development of a monopoly on a specific material and any products that incorporate that material. Alan Hurd, a Franklin Fellow in the Office of the Science and Technology Adviser to the US Secretary of State, said, “Critical materials are so-named by a country because their utilization is essential to economic or national security, and regional tensions can be exacerbated by a trade imbalance.” Hurd said that the transition to a combined resource- and knowledge-based economy “may help the resource-rich countries in the short term, but regional balance must be considered in the long term.”
