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South Africa has just come into a huge gas find south of Mossel Bay, estimated by Total at about one billion barrels. That’s the good news. The bad news is that oil and gas are often accompanied by conflict and “resource curse”. That’s when an over-reliance on commodity exports leaves a country prone to wild cyclical economic swings.
SA has a sufficiently diversified economy to avoid resource curse, but any benefit to the economy from gas-related tax and royalties could be squandered if we follow the examples of other oil-rich countries such as Nigeria, Equatorial Guinea and Angola. All three have huge oil deposits and massive corruption. Nigeria’s discovery of oil in the Niger Delta in 1956 fuelled ethnic tensions and coups. The agricultural sector was neglected to the point where Nigeria went from food exporter to importer, as all attention went on the easy money to be made from oil exports. It still has to import refined fuel.
Good examples
If we are looking at good examples to follow, Botswana and to a lesser extent Gabon are two countries worthy of mention — Botswana for diamonds and Gabon for oil.
Gabon has been ruled by a single family since 1967. There was an attempted coup in January this year, but the government managed to avoid fiscal deficits until 2015, when the once-lofty oil price that sustained government spending came tumbling down.
Botswana, despite its massive reliance on diamond exports, has likewise avoided the resource curse. It did this by avoiding external debt and promoting economic diversification. Speaking at a recent International Mining and Oil & Gas Law, Development, and Investment conference in Brazil, Peter Leon, a partner at law firm Herbert Smith Freehills, pointed out that the Botswana government accumulated international reserves and ran budget surpluses earmarked for stability spending in leaner periods.
“This policy avoided having to drastically cut expenditures during bad years and reduced inflationary pressures.”
Checks and balances
Another key factor in avoiding resource curse is maintaining strong institutional structures, with checks and balances to root out corruption and maladministration.
When Norway discovered oil in the North Sea in the 1960s, it put in place policies to ensure that there would be economic benefits long after the oil was gone. Key among these policies was an insistence on developing the local oil and gas sector, rather than leaving it all to outsiders.
Petroleum accounted for 43 percent of exports in 2018, and great care is taken to ensure that exports exceed imports — which in turn provides currency stability. Compare this to Venezuela, where oil accounts for 95 percent of exports, a key factor behind its current political instability. — hese are state-owned funds that invest in real assets such. — Mineweb.
Bongani Ndlovu