Abstract
M.A.
Global energy insecurity and the US energy bonanza has birthed a “new” worldwide “scramble” for Shale gas exploration and production licenses. However, the development of the Shale gas resource has proven to be slow and complicated in other host countries (including South Africa) because of the politics surrounding Shale gas development. When a foreign company intends to invest in a new technological industry outside its home country, it is imperative that the politics and economics of the host environment are assessed because political decisions or events often disrupt new business operations especially if the sector is perceived negatively (as in the case of Shale gas exploration). This study examines the variable political risks within the political economy of South Africa related to Shale gas exploration of the Karoo by adjusting the International Country Risk Guide (ICRG) risk model to a Shale gas industry model in order to quantify the sector risks. The ICRG model is chosen because it can be tailored to a specific sector without compromising the quality of the assessment.
The assessment of micro political risks within the Shale gas sector of the Karoo is currently more pertinent considering that Standard and Poor’s and Fitch Ratings both downgraded South Africa to sub-investment status largely because of high political risk resulting from the recent cabinet reshuffle (Standard and Poor’s, 2017; Fitch Ratings, 2017). Shale gas exploration and production is a capital intensive investment that requires skilled personnel to be imported, therefore, the sub-investment rating is problematic because it is more likely to increase business costs should the junk status hold for the next decade without any positive “fiscal improvements and policy certainty” (Mugobo and Mutize, 2016: 15). Mugobo and Mutize (2016: 15) submit that, if there is no fiscal prudence and policy certainty, the long-term effects of the downgrade will comprise of large capital outflows that will depreciate the local currency, increase inflation and increase interest rates thereby resulting in an increase in the cost of borrowing for private companies and government as well as an increase in the cost of sourcing foreign skilled labour...