“There is huge potential in the biofuels market in terms of what it can deliver to the South African economy, particularly in the next two to three years,” says ABSA’s Andrew Makenete.

“In May, the government revealed that there were more than three million hectares of under-used land that could be used for growing biofuels, and we think that a significant portion of this could be used for the market development of bioethanol. Although it depends on which route the government takes, the industry could easily contribute another half a percentage point to GDP. In terms of jobs, if you were to put another million or two million hectares of land into production, and you worked on an estimate of 0.20 jobs per hectare, another 100,000 jobs could be created.”

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Although a few hurdles still need to be overcome and the government has yet to finalise its biofuels policy – something which is expected at the end of June 2007 – a number of initiatives and incentives are already in place.

“Any production under 300,000 litres is not subject to tax,” says Mr Makenete. “Then, there’s a 30% tax rebate for biodiesel and a 25% rebate for bioethanol. The aim is to build the biofuels business to contribute 2% to South Africa’s diesel supply and up to 5% of South Africa’s petrol by 2010. But we think South Africa could easily get to 10% for bioethanol and in excess of 5% for biodiesel blending.”

ABSA’s major role

ABSA is playing a major role in the development of the country’s biofuels output. Mr Makenete says: “We’ve spent quite a lot of money on research into the potential and opportunities, particularly in areas such as the financing of plants and larger regional agriculture output, as well as refinancing, pre-financing and extra financing. There’s really quite a significant set of opportunities around financing the sector.”

But there are challenges, too: “Financing something where you’re not quite sure of the policies does present very significant challenges. And with a young industry, like we have in South Africa, you need to examine what the levels of debt versus equity are. Is there sufficient equity? Are there sufficient technical skills? Are they sure of their supply and uptake? So there are quite a number of issues that need to be tackled.”

To take advantage of the opportunities in the biofuels industry, Mr Makenete believes that a consolidated southern Africa strategy is required rather than for South Africa to go it alone. He says: “There are a number of reasons for this: South Africa offers a market, whereas other southern African countries have the agri-climate potential but they don’t have the market or the infrastructure. What South Africa should do is act as the conduit for attracting investment both to South Africa and to southern Africa. We need to have a more consolidated structure and plan with regard to developing biofuels, and this is something which is being pushed through the Southern African Biofuels Association (SABA). SADC has also been tasked with looking at the biofuels industry, and we encourage more developments in that area.”

The region’s biofuels potential is even greater than that of Brazil. “We could eventually be a leading biofuels supplier to Europe and the rest of the world,” says Mr Makenete.