Will the discovery of oil be a blessing or?
Namibia must learn from what happened to other oil-rich African countries to avoid the pitfalls
GEMINI JONES
There is much optimism about the prospects that Namibia might rise from the dust, fueled by its newfound oil wealth, but with an eye on the legacy of oil and gas exploration in Africa, we should consider the implications of this boom beyond the headline-grabbing figures.
Skeptics have long warned that Namibia, like many African nations before it, faces the risk of falling victim to the "resource curse," because as seen time and again, the sudden inflow of oil wealth to a country can lead to economic distortions between the rich and poor, as well as increased corruption, the neglect of democratic norms and regulations, and the potential collapse of other vital sectors of the economy.
Understandably, there are also widespread public concerns about the potential for corruption within government and industry, given the state of play, particularly in relation to licensing and contract awards, raising the need for stronger anti-corruption measures to prevent illicit activities.
Word on the street is that the terms offered to international oil companies are overly generous, with government typically opting for a small share in the ventures, thereby potentially depriving the state of significant revenue. Ordinary workers feel that the government should negotiate more favorable terms than the measly 10% it requires, so as to maximize benefits for the country. Others are concerned about potential tax loopholes (beside the fact that government claims a pitiful 3% royalty on mining exports), and preferential treatment for certain companies and the usual suspects, politically connected individuals.
The commissioner says local involvement is “mandatory” and that the government aims to provide “opportunities for its people to participate meaningfully in the industry,” but there is a perceived lack of public participation in the decision-making process regarding oil and gas development, as a lot seems to rest on who you know and whether you have insider access. Local communities are thus likely to be left behind by these fast-paced billion dollar developments and it is necessary therefore to set out clear policies to ensure Namibians have meaningful opportunities to participate in and benefit from the resources used and produced by the industry.
Oil-boom induced inflation has also been observed in Russia and Kazakhstan during periods of high oil prices. With local day rates for rig contracts averaging $365,000 and reaching up to $410,000 in recent months, we note the potential for rapid inflation in the area. While this is specific to the oil industry at the moment, it could spill over into the broader economy, especially in regions directly affected by oil development, affecting the housing and property market, for example, with oil money from abroad undercutting local buyers.
The rapid inflow of petrodollars and oil money can also lead to overheating in the local markets with too much money chasing too few goods. For one, locals on Namibian wages would be easily priced out of the rental and property market by those armed with US dollars, with rising demand adding inflationary pressure on the limited housing market, while the inflationary risk associated with the “Dutch disease” more broadly points to a potentially rapid rise in currency value due to the inflow of capital, which would place some exporters in difficulty.
The related problem of over-reliance on oil money as a source of state revenue and associated problem of fluctuations in the price (particularly when it falls very low) have not yet become a problem for Namibia, but may well if the country fails to adequately invest and diversify into other areas of production. Namibia can in this respect take a lesson from Nigeria, whose agricultural sector actually declined after its oil boom. An over-reliance on oil to lubricate the economy, if not balanced with other priorities, could lead to the neglect of other important sectors of the economy and society.
Many African countries have long wrestled with the problem of mass poverty, underdevelopment, inequality and environmental degradation, alongside their vast oil wealth. It should thus be clear that increased production and exports do not necessarily or automatically translate into greater benefits for the majority of citizens.
Ignoring the climate
Finally, as the world grapples with the urgent need to move away from fossil fuels to combat climate change, it is no secret that Namibia's belated oil boom comes at the twilight of the oil age. The nation must therefore carefully weigh the short-term gains against long-term sustainability of the planet and our environmental responsibility towards future people, so as not to be blinded by the lure of printed paper.
Yet, conspicuously absent from ongoing public debates and all the salutary articles in the press is any mention of how the potential environmental impact of these many onshore and offshore mining developments square up with Namibia’s climate change commitments. There is also no indication that the country's environmental regulations are sufficiently stringent to protect the oceanic life-systems and locals are concerned that offshore drilling poses risks to sensitive marine ecosystems.
The risk factors, as seen elsewhere around the world, indicate that there is potential for disastrous oil spills, like the terrifying Deepwater Horizon incident in 2010 and other risks that cannot be ignored, but must be foremost in our considerations, as they call for precautionary measures, strict standards and enforcement mechanisms to mitigate potentially disastrous impacts of oil and gas exploration and development.
Corporate narratives as news
Media reports have focused on the technical aspects of ongoing drilling campaigns and congratulatory announcements to the markets, often echoing the optimistic narratives of company statements to investors, but the experiences of oil-rich African nations, such as Angola, Ghana, Uganda, and more recently, Guyana, who have all experienced similar oil exploration booms, have shown that the promised economic benefits often fall short of expectation, while the environmental and social costs loom large.
The Namibian public, who are said to be the true owners of the country’s resources, deserve to know the government's plans for managing these expected oil revenues.
Political leaders and parties running for office in the 2024 elections must clarify their policies on economic diversification and wealth redistribution. The public deserve to know what measures they plan to take to protect against inflation; and what they will do to boost to education and infrastructure for long-term economic development. The question of social justice and fairness cannot be left to the market. Fair and far-sighted public policy will be decisive in determining whether Namibia can avoid the pitfalls that come with newfound oil wealth.