GILLIAN HAMILTON: Let’s not swap one resource curse for another

Someone is giving President Cyril Ramaphosa and his team bad economic advice and the government of national unity (GNU) seems hell-bent on forging ahead on an expensive path. 

If those in charge truly understood the financial disaster that awaits us if we continue to push oil and gas exploration and exploitation they would immediately put a stop to this foolishness. If it’s about economic development, job creation and bolstering our GDP they are being misinformed by either outdated thinking or nefarious interests. 

Certain politicians and lobby groups keep touting gas as a “transition fuel” and solution to energy security, especially in the name of economic growth. This is partially because there have been claims that methane gas has lower greenhouse gas emissions than other fossil fuels. Yet this has been disproved many times.

Another reason leaders from across the Southern African Development Community are being told that the expansion of oil and gas production will increase energy security. However, most of Africa’s hydrocarbons are exported rather than used to meet domestic energy needs.

The “drill, baby, drill” refrain is ostensibly in pursuit of solving the energy poverty that mars the continent. However, the narratives of African leaders and elites differ substantially from the needs and wants of people living in sacrifice zones.

Resource risks

Studies continue to identify risks associated with the well-known resource curse. While usually linked to oil and gas booms, South Africans have long seen similar effects from the exploitation of resources. A research report by Ainsley D Elbra of the University of Sydney, “The forgotten resource curse: SA’s poor experience with mineral extraction” found that SA has experienced many of the symptoms outlined in the resource curse literature, including slow GDP growth, gross inequality and entrenched poverty.

Overall, it found that most of the SA population has failed to benefit from natural resource wealth, with sections of society harmed through the process of mineral extraction. This research classifies SA as a resource-cursed state. 

If SA plans to export oil and gas, who will buy it? It is likely that the global transition to net zero will make these hydrocarbons too expensive to be marketable. Global demand is set to decline by the mid-2020s. 

If the intention is to use these resources domestically, models developed in SA indicate that the country’s power needs can be met with little gas and that most new generation capacity should be wind and solar, albeit with the support of more flexible (dispatchable) capacity.

Gas power is almost triple the cost of renewable energy and is thus not cost-competitive. Research by NBI indicates that either way, SA will soon have to substitute gas with greener alternatives and phase it out if it is to meet its net-zero 2050 target.

At no point are returns likely — only debt underwritten, of course, by our tax rand.

Whether for our own use or export, establishing new oil and gas industries now will be bad for the economy. Entering the market as it ebbs for good means dealing with declining demand and falling prices. Projects will take years to develop and recouping costs will take longer, if they can be recouped at all.

Most African oil and gas projects take more than 12 years to start producing anything. Should we find viable gas as soon as 2025 the first cheque won’t clear until 2037. Payback terms for setting up gas typically span 15 years before turning a profit, taking us to 2052 before any real magical money could materialise. By then our carbon commitments will require the shutting down of major polluting industries, though the market would have long since declared these investments obsolete, uncompetitive and just not financially viable. 

At no point are returns likely — only debt underwritten, of course, by our tax rand. That said, it may serve as a nice new financial feeding trough for the connected and crooked. Ultimately, even if this economic evidence is not enough to put us off, Mozambique’s harrowing experience should help convince us. 

The advisers to the GNU need to shift away from magical thinking — oil and gas will not bring SA economic prosperity. These boffins need to provide better advice to our president and the ministers about all the negative economic consequences of establishing an oil and gas sector in SA so late in the game.

Instead, we need to find better ways to shift away from our extractive economy to improve the lives of all South Africans. We know it makes environmental and social sense, but the numbers don’t lie — it’s also best for the economy. 

• Hamilton, an economist and analyst focused on sustainable development and trade, is exploring alternative economic models and the just transition with SA NGOs.