Ismail Lagardien: Nuclear deals’ shadows

Ismail LagardienThe secrecy around South Africa’s proposed nuclear build has come to resemble the all-too-familiar and quite often dodgy dealings around the construction of nuclear power plants elsewhere in the world.

I should say, at the outset, that one should probably ignore the rumour that one of the first things new Finance Minister Malusi Gigaba did on assuming office at the weekend was to sign off on the construction of nuclear power plants in South Africa.

Given the unpopularity of the cabinet reshuffle that removed Pravin Gordhan and Mcebisi Jonas from the Treasury, rumour-mongering should come as no surprise. That discussion is for another day. It does, however, draw attention to South Africa’s plans to build nuclear power stations.

ANC secretary-general Gwede Mantashe is on the record as having said that nuclear power was part of a future energy mix, and that its technology and research opportunities would benefit future generations.

I am not making a case for or against nuclear power today.

I do want to make two points, nonetheless.

First, when we consider building nuclear power stations, it is worth bearing in mind that the up-front costs (the money, time and labour that go into planning and building a nuclear plant even before it goes on stream and produces electricity) will escalate. On the simple basis, alone, that it can take up to 10 years to build a nuclear power plant, we can accept that costs of construction will increase over time.

This has happened in almost every nuclear build in the world.

The cost of nuclear-generated electricity may also not be cheaper – or at least not more competitively priced than other sources.

There have been studies which showed that up to 70% of the eventual levelled-out cost of electricity, sometime in the future, could go toward recouping the up-front costs.

Of course, for every argument against nuclear power (shirt-sleeve or scientific) one can expect a response from the “nuclear village” – that group of scientists, economists, business people, engineers, journalists and public intellectuals who support nuclear power.

Some villages tend to adopt a “black box” approach – presenting only input and outputs with no explanation of what happens inbetween.

Other villagers, notably construction firms, resort to withholding information of nuclear cost estimates from the public on the basis of “trade secrets” protection.

It gets terribly murky once the project is agreed on.

Secrecy and the sloshing around of vast sums of money are defining features of the period between when the policy decision is made and when electricity eventually goes on stream.

This brings us to the second point.

There is every possibility that vast tranches of money, as well as opportunities and privileges (all part of the up-front costs) could slip into the country’s shadow economy, those illicit or questionable banking, financial and economic activities that run alongside the formal economy which is, typically, open to scrutiny.

We have come to accept that institutional and state capture – mainly by political elites – are part of the country’s political economy.

Alongside the expansion of this process of “capture” the country has lost tens of billions of rand to corruption.

Various sources of statistics on corruption (such as the Public Service Commission, parliament’s Special Investigation Unit, Institute of Accountability and Corruption Watch) suggest that as much as R675-billion has been lost to it since 1994.

It is always a good thing to use reliable data when one makes these claims.

What we do know is that a small elite, a type of comprador class, in South Africa have become enormously wealthy over the past two decades and there are way more questions than answers about how they acquired their wealth.

We are not sure how much of this wealth runs in a parallel shadow economy.

What we do know is that shadow economies exist, and that projects that thrive on secrecy and uncertainty, like nuclear builds, do rather well in the shadows.

Two or three years ago, Friedrich Schneider, of Johannes Kepler University in Austria, explained that the EU’s annual losses to the shadow economy was as much as ß454-billion (multiply that by about 14 to get a clearer picture) (R6.5-trillion).

He estimated that around 33% of the losses were from under-reporting by businesses that handle large amounts of cash. This would include legal and illegal operations.

Most economists tend to think of markets as open, legal and aboveground institutions, but we miss a lot by ignoring the shadow economies that exist all over the world.

We know that when EU countries added illegal activities to their national accounts, Italy and Spain recorded up to 1% increases in their gross domestic product.

Here, then, is the riddle of our own nuclear build – can it stay out of the shadows?

Dr Ismail Lagardien is executive dean of business and economics at NMMU.

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