Navigant Research Blog

Why Emerging Economies Are Not Cleantech Cash Machines

Kerry-Ann Adamson — March 26, 2013

In our recent white paper, “Smart Energy: Five Metatrends To Watch in 2013 and Beyond,” Navigant Research forecast that, in terms of economic development, the area in the Southern Africa Power Pool (SAPP) will be the next high economic powerhouse, akin to Brazil, Russia, India, and China (BRIC).  A March article in The Economist seemed to agree with me.  With booming economic growth, an appetite for energy and new technologies, fast liberalizing markets, and encouraging overseas investment, many companies are lining up to export to Africa.

However, Africa is not going to be just a passive adopter of overseas technology.  The governments of South Africa and Kenya, among others, aim to turn their countries into high innovation and IP generating economies, with local value-added manufacturing.

Innovation can be measured by a number of metrics, including IP generation, the amount of government funding allocated to R&D, the number of PhD students, and the number of limited liability companies created.  As each of these grows, in theory, the dependence on imported products decreases.  A prime example of this is the transformation of the South Korean economy from heavy importer to leading exporter in under two decades.

As more and more developing economies seek to follow this path, moving away from being passive importers of new technology (especially in the cleantech space), companies will need to develop long term market entry strategies that involve local partners, local offices, and, increasingly, local manufacturing.

The economics of the United States, Germany, South Korea, and Japan are “old world” examples of this type of market.  The new generation ‑ Brazil, Chile, India, Indonesia, South Africa, Kenya, and of course China – has a high potential for rapid adoption of cleantech, including renewable energy, fuel cells, and advanced batteries.

Together these Tier 2 economies represent billions of dollars in potential revenue for cleantech companies, but they are not pots of gold.  The people of these countries are looking for partners to create local wealth , not multinationals that want to leverage the market and export the wealth.

Shifting from exporting to local production will require extra resources, a deep and realistic understanding of the markets, strong IP protection, and a high degree of flexibility.  Those who succeed will find new partners, rapidly growing markets, and access to highly educated workforces.  Those who fail will have to face the economic reality of limited markets with limited growth potential.

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