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Can Namibia avoid “resource curse” with oil discovery?

A royalty free image from the oil and gas industry of an oil worker at an oil derrick.

Staff Writer

Namibia has been advised to take lessons on the African continent from how petrostates succeeded and failed to deliver economic growth with the discovery of oil in order to derive maximum results.

A latest report by Simonis Storm observes that the discovery of oil poses great challenges to any state, especially developing countries, however it submits that Namibia has higher chances of avoiding the economically destructive phenomenon.

Challenges faced with petrostates include anarchy and conflict.

The report notes that between 1990 and 2009, 18 plus violent conflicts were sparked by the exploration of natural resources (including oil) in regions such as Angola, Cambodia, Democratic Republic of Congo, Darfur in the Sudan and the Middle East (United Nations Environmental Programme, 2009).

“Transnational Corporations which exploited resources in developing countries have played significant roles in a number of destructive civil wars in Colombia, Sierra Leone, Angola, the Democratic Republic of Congo, Azerbaijan and Myanmar. This serves as proof of the so-called resource curse thesis,” says the report.

According to the report, the question is, will Namibia be able to avoid the resource curse?

“Looking at a few indicators, Namibia is in a better institutional position compared to most African petrostates. Namibia has the highest governance index score compared to African petrostates   However, the strength of Namibia’s governance system has deteriorated since 2019 according to a Bertelsmann Stiftung Transformation (BTI) index report.”

“Namibia also ranks higher than all African petrostates with regards to economic freedom (i.e. property rights, movement of labour and capital, financial freedom, freedom of speech, etc.) (Figure 14). Namibia scores better than all African petrostates in terms of corruption. Lastly, while Namibia’s ease of doing business is nowhere close to optimal, it ranks much higher compared to all African petrostates,” says the report.

The report submits that in some cases, the exploration and discovery of oil had the potential to negatively affect the political system of developing nations.

“In most cases, discoveries of oil have led to the destruction of local communities and anarchy in oil producing developing countries (World Bank, 2006). In most instances, Western communities and oil producers derive more benefit from oil discoveries compared to oil producers in the global South.”

“This is evident when looking at GDP per capita data. Namibia (a non-oil producer) has the second highest GDP per capita when compared to oil producers in Africa. However, Namibia has a much lower GDP per capita compared to oil producers in advanced economies,” says the report titled Namibia’s oil resources: lessons from African petrostates.

What is key, however, is that in some indices Namibia has scored better than some continental states despite having run a non-oil economy.

The report observes that what is interesting to note is that Namibia spends a greater proportion on education and health compared to oil producing countries in general.

“However, the quality of public spending is not controlled for here, but remains a crucial factor to be aware of which we omit for now. One can easily argue that public spending on education in Namibia has a low quality for example,” says the report

As the country braces for the commercialization of its oil find, ideally, oil revenue should be used to create sustainable and diverse investments for long-run benefits to be enjoyed by future generations.

According to the report, Namibia already scores fairly high in terms of its Human Development Index (HDI) score compared to African oil producers/petrostates, including Angola and Nigeria who are part of the top 10 oil producers in OPEC.

This, according to the report, implies that if Namibia manages its oil revenues efficiently, the country can significantly increase its HDI score above other oil producing countries in Africa and the Middle East.

“Evidence around the world suggests that whether a country benefits from its discovery of oil and gas is a function of the global position of the oil producing country in question as this influences market share (Bloomfield, 2008).”

“Western oil producing countries have been more successful than developing country oil petrostates in diversifying their economies into other industries. Fuel exports account for in excess of 70% of total exports on average for African, Middle Eastern and South American oil producers, compared to 30% for Western oil producers,” says the report.

Another observation is that a lack of export product diversification is already a concern in Namibia, where current mined commodities and fish constitute about 70% to 80% of total exports on average.

“It is vital for government to impose policies and regulations to avoid becoming complacent on oil revenues in future. Oil revenues in Namibia should be used to improve education, skills and expertise to enhance development and activity in other sectors such as manufacturing, agriculture, ICT, healthcare, water management, research and development and energy transition,” says the report.

 

Staff Writer

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