In early February, Shell and its partners announced they had made a significant oil discovery in Namibia. Two oil discoveries offshore of Namibia are likely to bring in an equivalent N$53 billion in revenues for the state, a prominent global consultancy group has estimated.
Namibia is expected to benefit tremendously from royalties and taxes paid by oil companies, as well as the employment opportunities that will be created. Since the discovery of oil, the nation has had amplified expectations on possible accelerated economic growth and development. If managed well, it has the propensity to transform a structurally weak economy into a self-sustaining economy, or can lead to social, economic and political instability, as evidenced in some resource-rich countries where their economies are characterised by corruption, poverty and conflict. The availability of both short- and long-term economic measures and macro-economic policies are needed to avoid the resource curse. The government of Namibia can effectively manage this scarce resource (oil) in the nation’s quest to achieve an upper-income status economy by 2030. Namibia’s Vision 2030 presents a clear view of where we are, where we want to go from here, and over what timeframe. It is a vision that will take Namibia from the present into the future; a vision that will guide us to make deliberate efforts to improve the quality of life of our people.
Furthermore, for a region that has never produced a barrel, these developments could be huge, for Namibia’s people. Exploration and production activities will open the door to thousands of well-paying jobs for Namibians, not to mention the opportunities for building local capacity and technology-sharing that come with the presence of international oil companies. Therein is the potential to improve local communities and help establish the right kind of infrastructure for education, healthcare and social services that will benefit everyone. The direct and indirect benefits will create jobs and entice entrepreneurship. The discovery is set to usher in a wave of new investment across the entire energy value chain. This discovery will significantly improve energy security in a nation that relies heavily on petroleum imports. The development of a consistent domestic energy supply will prove critical for the country’s economy, while reducing imports from neighbouring countries. Notably, the creation of a domestic petroleum market will create thousands of jobs for the local population across every industry in the value chain, while motivating the creation and establishment of various domestic companies.
The Ministry of Mines and Energy shall “ensure that petroleum resources are administered in a way that contributes to sustainable development of the national economy and welfare of the people of Namibia”. The Petroleum Act should provide a robust framework for the sector for the exploration, development and production of petroleum, create an enabling environment for increased private sector participation and investment in the petroleum sector, and strengthen the regulatory framework for healthy competition and quality assurance. Namibia should promote local contents and sense of ownership in petroleum production. However, it is important to state that creating the regulatory and legal frameworks alone is not the end. For Namibia to be able to be successful in promoting economic growth using petroleum revenues, it must strictly adhere to the frameworks, as done by other countries. Strong institutions and administrative capacity for transparency and accountability in the oil industry is an important tool in achieving the purpose of improving human lives.
The government of Namibia is set to reform laws which will enable it to bolster its economy, tackle poverty and meet crucial sustainable development targets. If used wisely, Namibia’s oil revenue could help it to fundamentally transform its economy and enable it to meet key sustainable development goals. That’s why we should work closely with the government to draft new legislation to establish a Sovereign Wealth Fund. Once implemented, the Sovereign Wealth Fund should contribute to economic stabilisation, fairly transfer petroleum wealth across generations and maintain economic competitiveness. Namibia should promote good corporate governance, while an effective regulatory framework for economic activities, corporate accountability, sound, transparent and predictable government policies should adhere to these standards in order to promote quality standards of living and reduce the poverty rate.
As observed in other countries, political instability and authority has been a key fundamental issue hindering the effective management of oil revenues. This is to say that though the promise of a piece of share of the oil cake keeps the nation together, its distribution has plunged countries into political, social and economic instability, resulting in high levels of poverty, corruption and militant takeovers of oil facilities.
A key challenge of windfall revenues is how to avoid or minimise the possible negative effect that spending from oil revenues could have on the non-oil sectors of the economy.
This negative effect usually leads to the shrinking of the non-oil sector by shifting production from exports while imports stay the same, shifting production from import substitute goods, and creating additional imports of goods and services. Since Russia started its military operation in Ukraine on 24 February, prices of commodities have gone up with the jump in global risk and economic uncertainty.
Nigeria and other commodity-dependent nations are expected to take advantage of the increase in price. However, Nigeria has failed to up its crude oil production due to weak infrastructure and several other internal factors.
In conclusion, in order to succeed with economic transformation, we should pay attention to education, health and infrastructure development. In this regard, the oil revenue should be kept in a separate account at the Bank of Namibia and not be used for general budget support. That will be the best way of preventing corruption and an unfocussed use of the oil revenue. The policies of the government on industry, technology and environment affect the prosperity of an economy. Out of other areas, the oil industry has a stronghold in the world’s economy.