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Oil discoveries likely to worsen Namibia’s inequality

2023-11-28  Maihapa Ndjavera

Oil discoveries likely to worsen Namibia’s inequality
After learning that Namibia had made significant offshore light oil discoveries, some people began to celebrate, thinking this would be a cure for the nation’s problems with a high youth unemployment rate, extreme poverty and inequality.Vetumbuavi Mungunda, the CEO of Ombu Capital and a former CEO of Standard Bank Namibia, however, stated that this is not a piece of cake – and that the emergence of single dominant sectors, like oil and gas discoveries, seems to exacerbate inequality, particularly when locals lack the necessary skills and capacity to participate.“We are discussing the potential impact of oil finds on Namibia’s ability to overcome its issues. However, we discover high levels of inequality when we look at other nations, especially those that rely on oil activity. We are currently unequal – and unless we make other plans, we are probably not going to diminish the inequality if and when the oil discoveries materialise,” warned Mungunda.Namibia remains the second most unequal society in the world. The Gini coefficient deteriorated between 2016 to 2020 due to lack of economic growth. The country’s Gini score was reported at 59.1 in 2015. The Gini Coefficient is also known as the Gini index, which is the statistical measure used for the distribution of income among the population of a country.In 2021, around 64.5% of the Namibian population was projected to live on less than US$5.50 daily (N$83.42). Mungunda was making his presentation last week at the ‘Development of Skills for Trade & Economic Diversification (STED)’ workshop in the capital. To deal with inequality, Namibia needs to have a growing economy as a critical enabler. Furthermore, mines and energy minister Tom Alweendo shared the same sentiments earlier this year as he noted that lessons from other oil-producing nations show that excluding the majority of people from meaningfully benefitting from the lucrative oil and gas sector has resulted in huge social inequality, which fuelled social discontent and unrest.“I have reason to believe that our institutions, our political system and our legal framework are such that there is no reason why the oil discovery should not be a blessing. What we need to do, however, is to manage the resources with a clear understanding that the resources belong to both current and future generations,” emphasised the minister.Alweendo reiterated that oil and gas discoveries in commercial quantities hold great potential to transform the domestic economy beyond taxes and royalties that would accrue to the State. However, a leading Namibian wealth management outfit, PSG Namibia, said Namibia will only reap the rewards of these discoveries after a few years.“Namibia is set to receive massive oil revenues only after 2030 when oil giants would have recovered their exploration and development costs, and Namcor had repaid its share of the costs. Given that the first production of crude oil is only likely from 2028, potential government oil revenues will be relatively limited before 2031, but it could rise markedly thereafter if the oil price remains strong,” reads a PSG Namibia report, titled ‘Namibia Economic Focus February 2023’. In addition, oil companies still have to confirm the technical and financial viability of the discoveries. Despite this, some analysts made bold predictions that the size of the Namibian economy could double by 2040, and that government could earn more than US$3.5 billion (approximately N$53.5 billion) from oil fields in peak production annually in royalties and taxes. -mndjavera@nepc.com.na
2023-11-28  Maihapa Ndjavera

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