The Cost of Importing Oil on South Africa’s Economy

November 25th, 2009 | Categories: News | Tags: none

I recently attended an interesting conference that took place in Jerusalem, Israel. The conference had several speakers on a panel providing their perspective on the challenge the world faces in the quest for a clean, secure supply of usable energy and electricity. The major take away from this conference for me was a point made by Dr Gal Luft of the IAGS or the Institute for the Analysis of Global Security. During his presentation, he clarified the huge economic impact that importing oil from the twelve major producing countries is having on economies around the world. Essentially by relying on oil mainly for transport fuel purposes, countries that are net importers of oil are effectively transfer a significant amount of wealth into the hands of a few countries mainly in the Middle East. Take for example South Africa. According to the latest figures posted on the Energy Information Administration website, South Africa imports more than 306,000 barrels of oil per day. 35% comes from Iran and 35% comes from Saudi Arabia. 16% comes from Nigeria and another 16% comes from other countries. If we assume the price of oil is $76 per barrel (the price on November 25th 2009), this translates into an annual oil import bill for the South African economy of $7.8 billion US Dollars. This is about 3% of South Africa’s Gross Domestic Product. In a country with an unemployment rate of 22.9%, South Africa cannot afford to export so much money especially if there is a viable alternative that not only avoids exporting so much greatly needed foreign currency but also creates a significant amount of local jobs and produces energy almost for free once the capital costs are paid for. Solar, wind and other renewable energy offer a viable alternative today. If the South African government were to create the required regulatory framework that would enable renewable energy power producers to sell the electricity they produce with the same favorable government incentives and tax structures that oil and other fossil fuels enjoy, these non polluting energies would be price competitive. For an excellent review on the real cost of fossil fuels and benefits of renewable energy, please see Robert F KennedyJr’s presentation at the recent “Solar Power International conference in Anaheim, Calif”.  But this is only half of the equation. In order to get the South African economy off its addiction to oil, we need to build out an infrastructure that can support electric vehicles. Once again, the benefits of such a national program would be huge. Local jobs, transfer of skills and ongoing local revenue generating businesses instead of imports would help South Africa catapult into developed world status. This can be done in our generation.

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