GILLIAN HAMILTON: Oil and gas will not help develop the inclusive economy SA needs

Recently, finance minister Enoch Godongwana voiced his support for investing in “old reliable technologies” such as nuclear and gas. Before that the department of mineral resources & energy announced that it would allocate an additional R500m for the Council for Geoscience to “accelerate geo-mapping” for exploration on- and offshore — in effect subsidising the oil and gas industry.

It was clear from the recent COP27 conference in Egypt, where world leaders were focused on dealing with climate change, that investment should move away from fossil fuels and energy sources that harm the environment, and towards funding the just transition if we mean to effectively deal with the climate crisis.

In the case of offshore gas (and oil), not only are these unsuitable for dealing with the climate crisis, but related activities threaten the health of our oceans, which in turn threatens coastal communities and small-scale fishers. Couple this with the fact that historically SA’s oil, gas and nuclear industries have not exactly proven themselves to be inclusive. Just recently oil companies Searcher and Shell were sent packing after communities won their fight to be recognised as relevant parties who should have been meaningfully consulted.

There were many positive elements in the finance minister’s 2022 medium term budget policy statement (MTBPS) on October 26. His realistic take on many of the challenges that undermine our efforts to reduce unemployment, poverty and inequality in SA was on point. As an eco-justice organisation that is largely motivated by building our country and the economy in a sustainable manner from the ground up, The Green Connection was relieved when the minister spoke about growing an inclusive economy, especially since this is necessary for a just transition.

Let us take look at what the evidence reveals about offshore oil and gas and the economy. Government claims that the establishment of an offshore oil and gas industry in SA — via upstream production, the development of oilfield services and expansion of supporting industries — would bring significant economic development. This is supposed to increase the country’s GDP and improve our balance of payments, in addition to increasing foreign direct investment and gross fixed capital formation. There is also the claim that investing in this sector will bring greater employment, thereby generating additional tax revenues. But how true is this really?

Recent research by the International Institute for Sustainable Development (IISD) points out that "...a gas investment flurry could prove to be a very expensive mistake for the SA people”. This is because investment in gas will most likely lead to higher costs for consumers and will in future create just transition challenges for gas workers, leading to losses for investors.

The IISD adds that investing in oil and gas does not make economic sense because of the decreases in costs of both renewable energy and battery storage. The Davis Tax Committee (2016) also concluded that "...attracting investment in the oil and gas sector may NOT deliver significant tax revenue for the fiscus.”

And though the oil and gas sector promises to create jobs and claims to act as a multiplier for local economic development, international experience indicates these industries’ promises of job creation have been greatly exaggerated. In some cases unemployment around oil and gas extraction sites has in fact increased. In other cases, as with Azinam and Teepsa here in SA, it was made clear that there would be few jobs for locals, as most employees will be highly-specialised people from other countries.

It is a well-known impact of any oil and gas extraction that huge numbers of people arrive at these projects looking for nonexistent jobs, leading to a rise in prostitution, drugs, crime, conflict and other social ills. Health is often affected too.

The fact is, in terms of job creation to date Operation Phakisa — government’s project driving the country’s offshore oil and gas industry — has been a failure. Freight News (2019) reported that Phakisa has “failed dismally to generate the number of jobs it anticipated”. Between 2014 and 2019, while over R40bn had been invested in targeted maritime sectors, fewer than 10,000 of the 77,000 direct jobs promised had been created.

This lower-than-forecast job creation rate has been attributed to the mismatch between skills available and those required. The offshore oil and gas sector requires highly specialised skills and fewer people to perform them (Freight News, 2019).

It is also important to factor in the effect an offshore oil and gas industry will have on other SA industries. Both our small-scale fishing sector and coastal tourism — thriving industries that have high employment and income multipliers — could be adversely affected.

These are also industries that have been forged around the cultural and heritage values of our indigenous people, who have built and sustained their communities, values, and lifestyles around the bounty of the ocean. Any negative socioeconomic effects and destabilisation of these communities would reap a high humanitarian cost.

These environmentally sustainable industries could be devastated by offshore oil and gas industries, not only during exploration and drilling operations but especially in the event of a catastrophic oil spill. What SA needs is industries that work in harmony with the country’s indigenous peoples and the natural environment.

It was therefore disappointing that, despite the recent research reports on the positive effect of the local manufacturing industry and the need for localisation in SA, Godongwana did not mention this. Unfortunately, it seems that no financial allowance has been made to support these efforts. It should be a priority for SA to create a truly inclusive economy. Small, open economies like SA must begin to build their resilience in the face of the global storms.

Finally, The Green Connection is well aware that for the economy to thrive the environment must thrive. This is what we are working for, because a healthy economy is deeply embedded in a healthy environment. This is why we want to see government, including the finance ministry, prioritising the restoration of the environment and creating an allowance for climate adaptation.

As one part of the solution, the Treasury could start by increasing the carbon tax and ending fossil fuel subsidies, to ensure money is available to support these initiatives.

• Hamilton is economic researcher for The Green Connection.