After the Bell: Minister Mantashe guilty of inhaling his hallucinogenic fumes at the oil and gas conference

I suspect they do but, honestly, I have no proof, outside of just listening to some of the more unhinged politicians among us, of which we seem to have a global oversupply at the moment. 

Often reading about something a politician did or said, I can’t help wondering whether he or she actually said it (in this age of misinformation). Were the politician’s words twisted somehow? Did the reporting fairly represent what the politician actually meant in the context they were uttered? Or is trust and truth fraying with the advent of social media and more advocacy journalism as so many people believe? 

I had one of these moments this week reading reports on what the Minister of Mineral and Petroleum Resources, Gwede Mantashe, said at the Investing in African Energy Conference currently taking place in Cape Town. If you look closely, there is a case to be made that he was badly misinterpreted on one topic but, on another, there is a case to be made that we should be told what he had been smoking. 

First, where he was probably misinterpreted: Mantashe - never one to hold back - was reported as having said that the fuel price “should be R14 per litre instead of R20 per litre”. Discussions are taking place with Treasury about how to rectify this situation, he is reported to have added.

Well, this is kinda unfair. Mantashe was merely pointing out something everyone in the industry, and indeed outside the industry, already knows - excise taxes more or less double the petrol price. In SA, the taxes include not just VAT, but also something called the General Fuel Levy and the Road Accident Fund levy. 

This situation is by no means unusual around the world. In fact, SA’s petrol taxation is comparatively low. In OECD countries, taxes of various kinds make up about 60% of the price paid at the pump and explains why petrol in SA is lower than the global average. According to data tracked by GlobalPetrolPrices.com, the average price of petrol around the world is $1.28/litre, which is around R22.30. The current petrol price per litre in South Africa is sitting at R20.73 a litre. 

I suspect what Mantashe was doing was playing politics; by citing the taxes that push up the petrol, he is playing to the gallery. Saying he was in discussions with Treasury on the topic is signalling that he would like the price of petrol to decline (who doesn’t) and that, if it doesn’t, then the people to blame are not his ministry but Treasury. Not necessarily honourable politics, but not fantastical either; Treasury has tried to keep the petrol price down by reducing the tax levels before. 

So that is one thing. But in his official speech, Mantashe said the recently passed Upstream Petroleum Resources Development Bill “will not only pave the way for an orderly development of the Upstream Petroleum Industry, but will boost the country’s economic growth to 8%, as is the case with Namibia, which increased its potential to double its economy by 2040 on the back of its recent discoveries of oil and associate gas”. 

This is a hallucinogenic episode of full-on rock star proportions. It’s not only bizarre rubbish, but it’s bizarre rubbish in multiple dimensions. First, the Upstream Petroleum Resources Development Bill is not an industry supporting piece of legislation as Mantashe claims; its intention is to carve out a fat 20% set-aside for government and grants the minister - that would be Mantashe - the right to designate reserve certain areas for petroleum development exclusively for black investors. And, if history is anything to go by, that would be ANC cadres. AfriForum calls it a “flawed bill that must be stopped”. It wasn’t.

You can tell this is not going to work because, to great fanfare, it was announced in 2019 and 2020 that two very large gas field discoveries were found off of Mossel Bay, Brulpadda and Luiperd, with around a billion barrels of equivalent gas in each. Well, two of the consortium members in these finds, TotalEnergies and the Canadian major Canadian Natural Resources (CNR), have recently announced they are pulling out of the project. 

Mantashe actually referred to this situation saying, “contrary to the view that suggests that TotalEnergies’ withdrawal from the block is tantamount to lack of confidence” (it unquestionably is), but he found it encouraging that the company was still a major shareholder in other prospects. Well, you know, yes - but Total hasn’t greenlighted these projects either. 

This commentary is actually a lightweight hallucinogenic compared with the 8% comment. (Actually, he said “5% to 8%”, but the speech just states the 8% alone.) Just think about it for a moment: What quantity of investment would be required to increase SA’s GDP growth from 1% to 5%? Well, this is complex because it’s not just about the investment but how the investments are used, how productive the investments are, what global demand looks like, etc. 

But one way of measuring it is to use something called the ICOR, the incremental capital output ratio. What this measures is how much capital is needed to generate an additional unit of output. The average global ICOR is around 5, which means R5 of investment gives you one R1 of GDP growth. 

SA’s GDP is around R6-trillion now and SA has an annual fixed investment level of around 15%, so call a bit less than a R1-trillion. This means if you want to increase GDP from 1% to 5% (let’s make it easy) and your ICOR is 5, you will need an investment of four times what you have now, or roughly R4-trillion - 66% of current GDP. In the past 25 years, fixed investment has never been remotely close to that. In fact, it’s only ever been above 20% once, in 2008. The Centre for Risk Analysis says World Bank data show that middle-income countries had an average investment rate of around 30% or more for each year since 2007.

These are back-of-the-cigarette-box numbers, but can I just say without fear of contradiction that local and international investors are not lining up at the moment to invest R4-trillion in just SA’s oil and gas sector. SA has lost around R1-trillion of foreign investment over the past decade.

The fact that Mantashe puts this number in an official speech demonstrates, ironically, why it’s not going to happen, because can you really do business with someone that bad at maths? DM