The impact of petroleum production on economic growth in South Africa

Abstract

The petroleum industry in South Africa, marked by a historical dependence on imported crude oil and recent challenges faced by local refineries, is a critical concern for the nation's economic growth and energy security. The absence of significant domestic oil reserves maintained South Africa's status as a net importer, accentuated by the recent closure of refineries and a subsequent reduction in refining capacity, has cast doubts on the sustainability of the energy sector. Against this backdrop, this study aimed to investigate the short- and long-term impact of petroleum production on economic growth. The overarching concern is whether focusing on improving petroleum production would stimulate economic growth. Employing a quantitative approach, an autoregressive distributed lag (ARDL) model was used to estimate the dynamic relationship between petroleum production and economic growth, using data for the period spanning from 1980 to 2022. The results of the study revealed that petroleum production has both short- and long-term impact on economic growth in South Africa. The findings underscore the responsiveness of the economy to changes in refinery capacity. Furthermore, the long-term association emphasised the sustained positive contributions of an expansion of refinery capacity to the country’s economy. Based on the results, the study recommends substantial investments in refinery infrastructure to enhance the petroleum industry. This study provided an understanding of the complex interactions within the petroleum industry, offering key insights for informed decision-making by policymakers and stakeholders.