Investment, growth and development in South Africa

Executive summary

The energy transition sits at the centre of South Africa's development challenges and opportunities. South Africa is among the most emissions-intensive economies in the G20, with approximately 80% of electricity generated from an ageing coal fleet. Unstable electricity supply has constrained economic growth, in a country where real GDP per capita has stagnated over the past decade and the unemployment rate stands at 31%, the highest in the G20. To advance the energy transition, South Africa has put in place key elements of a legal, governance and financing framework: it adopted the landmark Climate Change Act in 2024, established the Presidential Climate Commission (PCC) as a statutory advisory body, by March 2026 secured international partner pledges of USD 13.2 billion through the Just Energy Transition Partnership (JETP) and in October 2025 submitted its second Nationally Determined Contribution (NDC2), targeting 320 to 380 Mt CO₂-eq by 2035. Delivering the NDC2’s mitigation and adaptation targets will require investment well above current levels, while considering growth, employment and energy security objectives. This policy paper examines whether an accelerated energy transition can be compatible with and support economic growth in South Africa. The study also explores selected institutional, policy and financing conditions relevant to the implementation of South Africa’s NDC2.

The economic consequences of an accelerated energy transition in South Africa

This policy paper employs an OECD integrated modelling framework to compare a Current Policies scenario with an Enhanced Policies scenario in which South Africa and the rest of the world pursue an accelerated energy transition. The comparison assesses an illustrative policy and investment package and focuses on its outcome on economic activity and growth. The modelling points to the following key findings:

• More ambitious policies can support growth through investment. Under the Enhanced Policies scenario, in the selected modelling framework, South Africa's GDP is projected to be about 1.5% higher by 2035 relative to Current Policies, mainly driven by scaled-up clean energy investment. The result is conditional on the assumed mobilisation of additional public and private financing, with public investment helping to attract private capital.

• Employment gains are projected to outweigh losses, but adjustment challenges remain. Job creation in renewable energy is projected to more than compensate for job losses in fossil fuel sectors by 2035. Workers taking up new jobs may need to relocate or undertake training. This highlights the need for targeted measures to support affected communities and regions.

• Policy action can strengthen energy security and deliver wider benefits. Reduced consumption of imported fossil fuels, through expanded renewable capacity and electrification, is projected to lower exposure to fossil fuel price volatility and can contribute to strengthening energy security. Avoided climate damages, improved air quality and better health outcomes provide additional benefits beyond those captured in the modelling scenarios.

Improving investment conditions and implementation capacity for NDC implementation

South Africa has established the legal and institutional foundations for co-ordinated policy action but capturing economic gains depends on scaling up investment and accelerating NDC implementation. Stronger institutional co-ordination, effective sequencing of reforms and management of the distributional and political impacts of the transition are all factors that can contribute to NDC implementation.

Strengthening institutional co-ordination and delivery

The Climate Change Act establishes a framework for setting a national emissions trajectory and allocating sectoral emissions targets, but operational co-ordination across energy, industrial and fiscal policy remains at early stages. Potential actions include:

• Strengthening accountability for NDC delivery, for example by linking the Presidential Climate Commission’s independent progress assessments to annual reporting on sectoral emissions targets, drawing on international experience with climate advisory bodies and delivery units.

• Improving the visibility of climate-relevant spending through budget tagging and costed departmental NDC implementation plans for consideration in the Medium-Term Expenditure Framework, alongside other national development priorities.

• Sustaining the delivery capacity built by dedicated vehicles such as Operation Vulindlela, the Independent Power Producer Office and the Just Energy Transition Project Management Unit and aligning it with sectoral planning under the Climate Change Act.

Sequencing reforms and investments for NDC implementation

Policy uncertainty can lead to delays in investment decisions, partly because reforms and investments are not yet aligned in their timing. Renewable generation can only be connected at scale if transmission capacity expands in parallel, while meeting the national electricity plan would require transmission build-out rates to increase roughly fivefold. At subnational level, municipalities often lack capacity to prepare investment-ready projects, so available funds remain uncommitted. Potential actions include:

• Prioritising transmission expansion in renewable-rich provinces where grid capacity is exhausted, while supporting small-scale embedded generation in regions with weaker utility-scale resources.

• Strengthening municipal and subnational project preparation capacity to develop a pipeline of investment-ready local energy and infrastructure projects.

Managing political-economy constraints and the social basis for the transition

While the projected economy-wide employment effects of enhanced policy action are positive, adjustment costs are likely to be concentrated in specific sectors, regions and income groups. Potential actions include:

• Supporting economic diversification in coal-dependent regions ahead of scheduled coal-fired power plant retirements, while aligning vocational training and workforce development programmes to identified skills gaps in renewable energy and other sectors.

• Exploring opportunities for the deployment of concessional finance and directing grants to the most effective areas, including support that carries small enterprises from pilot to commercial viability.

• Deepening community engagement to support the co-creation of local solutions from the problem-identification stage.