Multiplicative LMDI approach to south africa’s industrial energy consumption

Abstract

As a developing country, South Africa’s manufacturing sectors have led to the country’s present industrialisation. Where industrialisation occurs, energy plays a pivotal role. This study, therefore, focuses on analysing and understanding the contributing factors responsible for the energy consumed in South Africa’s manufacturing sectors. The period under investigation is from 1970 to 2016. Two different modes of understanding the factors responsible for energy consumption are structural decomposition analysis (SDA) and index decomposition analysis (IDA). The latter was preferred for this study. The logarithmic mean divisia index (LMDI) was adapted for the analysis. The energy consumed by the manufacturing sector is decomposed into the activity, structure, and intensity effects. Results show that both intensity effects and structure effects contributed to the country’s energy efficiency by 3.10 per cent and 1.73 per cent. On the other hand, activity effects contributed to the rise of industrial energy consumption by 8.04 per cent. The empirical findings of this study support initiatives in the form of policies to concentrate more on the industrial activity effects to complement energy efficiency strategies.