The recent discovery of gas off the shores of South Africa has many asking how it will impact the country. The discovery of gas is often viewed as exciting as it brings much potential benefits to a country. But there have been many instances where, even when it has been discovered, the wealth that comes with it often does not trickle down to everyone in the country, like in the case of Nigeria. Nigeria has seen many highs in their economy after the discovery of gas, but at the same time the country carries a label as one of the most impoverished countries in Africa. So will South Africans have a chance at benefiting from whatever positives come out of this new found discovery and not end up in a similar destitute situation?
One must ask how this discovery directly benefits South Africans. Oil represents more than 15% of South Africa’s imports. The possibility of South Africa producing its own oil would not only help to reduce importing of oil but potentially make it an exporter which would increase the country’s GDP, adding more value to the local currency. The different jobs that would be required to support the gas and petroleum industry would increase the employment rate by having more working South Africans. This would allow the economy to grow because more people would have access to money, which provides them with more spending power. However a major concern is that gas production often has foreign companies working with local gas and energy companies. These foreign companies are, in large part, overseas based companies, with a significant portion of the operations being undertaken overseas that help to extract, produce, and process gas.
Total, the French energy company that helped discover the gas in South Africa, along with other partners, owns the exploration rights to the Brulpadda block, an area of 19,000 km², some 275km south of Mossel Bay in South Africa. The fact that a major foreign company has the rights to a known high potential gas production area deprives South Africa of full autonomy over how the gas can be utilized. Total is the reason behind the discovery, and it is more than likely that whatever profits or benefits that come from the production of this gas the bulk of it will go back to Total.
Nigeria is an example of a country where the discovery of oil contributed to the economy of the country, but the general well-being did not improve. In 1960, the country had a significant manufacturing sector, especially in textiles, furniture, and other goods. But with the emergence of oil in the 1970s, the fiscal and economic policy were misleading, and oil sucked-up domestic and foreign investment at the expense of other sectors of the economy.
The hurting of other sectors meant that employees who worked in these sectors were possibly hit with pay cuts or even laid off, as the revenue being made before was no longer available. And when oil prices were low it resulted in the country borrowing money, which put the country in debt. Nigeria does not produce as much oil as countries like Saudi Arabia, so when the price of oil per barrel drops, it will lower the price of the already small amount of oil that they produce, further reducing their profit. Ngozi Okonjo-Iweala who is the former finance minister and foreign affair minister in Nigeria said that Nigeria is a very poor country, and stressed that the country must diversify its economy, not putting all their eggs in one basket as they did during the early days of oil discovery and production. Diversification would allow for strength in different areas of a country, so that if one sector was lacking it could draw from the others to rebuild. Strength in different sectors also means job creation as it would need employees to help build and maintain these industries, which would allow the citizens of Nigeria a chance at having a steady income.
The emergence of gas and oil clearly has its advantages and disadvantages. It is only in hope that we can wish for the best in South Africa and that whatever comes from this discovery of gas will not leave the country in a worse economic state, but give it a chance to become more prosperous.
Do you have any examples of when it has benefited a nation, and the well-being of its citizens?
Featured image | Gas | Andrew Malone | flickr
The views and opinions expressed here are those of the author and do not necessarily reflect the views of The Best of Africa.
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