WINDHOEK, Mar. 11 – 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, has the propensity to transform a structurally weak economy into a self-sustain economy or can lead to social, economic and political instability as evidenced in some resource rich countries where their economies are characterized by corruption, poverty, and conflict. 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 achieving upper income status economy by 2030. Namibia Vision 2030 presents a clear view of where we are, where we want to go from here, and over what time frame. 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. 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 neighboring 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.
Ministry of Mines and Energy shall “ensuring 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 and create an enabling environment for increased private sector participation and investment in the petroleum sector and to 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 meet key sustainable development goals. That’s why we should working closely with the Government to draft new legislation to establish a Sovereign Wealth Fund. Once implemented, the Sovereign Wealth Fund should contribute to economic stabilization, fairly transfer petroleum wealth across generations and maintain economic competitiveness.
Namibia should promote good corporate governance, effective regulatory framework for economic activities, corporate accountability, sound, transparent and predictable government policies should adhere to these standards in order to promote quality standard of living and reduce poverty rate.
As observed in the other countries, political instability and authority has been a key fundamental issue hindering effective management of oil revenue. This is to say that though the promise of piece of share of the oil cake keeps the nation together, its distribution has plunged the country into political, social and economic instability resulting in high levels of poverty, corruption and militants takeovers of oil facilities. A key challenge of windfall revenues is how to avoid or minimize 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 shrinking of non-oil sector by shifting production from exports while imports stay the same, shifting production from import substitute’s goods and creating additional imports of goods and services.
Since Russia invaded Ukraine on February 24, 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 infrastructures and several other internal factors.
In conclusion, In order to succeed in the 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 to be used for general budget support. That will be the best way of preventing corruption and 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 holds stronghold in world’s economy. – Josef Kefas Sheehama
