Africa is rich in resources. From vast oil deposits to gold and diamonds, the continent is literally brimming with the potential to support a large resource extraction industry. The most recent development has been the expanded hunt for natural gas shale’s in South Africa.
The U.S. Energy Information Administration believes that South Africa could hold as much as 485 trillion cubic feet of natural gas. South Africa has just lifted a temporary ban on natural gas exploitation, which it installed after caving to pressure from environmental protection groups. While the government is lifting outright bans, it is still heavily restricting who can drill and where. So far, Royal Dutch Shell plc (NYSE:RDS.A) (NYSE:RDS.B) and Chevron Corporation (NYSE:CVX) are the only two major MNC’s involved in the region. Smaller companies, such as Falcon Oil & Gas Ltd. (CVE:FO) from Canada, are now involved in the early rounds of exploration.
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If vast deposits do exist, they will most likely be found in the Karoo Basin. The 400,000 square miles semi-desert basin is famed for both its natural beauty and the poverty of its local. Many environmental groups believe that if natural gas is exploited from the region the local people will see little benefit, while the environment could be greatly destroyed.
Much of the controversy centers around the use of fracking, or the creation of fractures in rock layers in order to release natural gas and oil. Usually hydraulic fluids are pumped into the ground to create the fractures. These methods could potentially lead to ground water contamination, increased seismic activity, and numerous other potential problems. The work itself is also dangerous to employees, with a risk of workplace accidents and exposures to harmful chemicals, such as silica dust.
South Africa is already sub-Sahara Africa’s most prosperous nation. Sitting at the tip of the continent, the nation is an important trading hub and supports a strong manufacturing sector. Like most of Africa, South Africa also controls vast deposits of natural wealth. Still while South Africa has a lot of upside, it is plagued with numerous problems including poverty, income inequality, AIDS, environmental destruction, and crime.
South Africa’s booming economy has benefited only a small portion of the country’s population. The country features a stunning unemployment rate of 25 percent, and 50 percent of the nation live under the poverty line. The top ten percent of the country accounts for over 50 percent of the total national consumption, and as of 2005 the country had a GINI score of 65, one of the highest in the world.
Finding more resources to extract could provide vital to reducing poverty and interlinked problems, such as AIDS and crime. Extracting resources can also destroy the environment, however, and this has drawn the ire of numerous environmental groups. If the South African government hopes to tap its potentially vast natural resources, it may need to balance the needs of the environment and the needs of the people.
A natural gas boom could creates tens of thousands of jobs, many of them well paid. Also, communities located around natural gas exploitation sites could also see a boon in business and commercial activity. With South Africa struggling to address income inequality and poverty related issues, natural gas could become a much welcomed economic industry and can lead to greater prosperity for the country. The government must be careful, however, to protect the local environment and make sure that the wealth trickles down to local communities and the industry’s potential employees.