Oil discoveries in Namibia

Significant oil has been discovered off-shore in southern Namibia

Discovery

Sizable quantities of oil were recently discovered at an offshore site in Namibia. The announcement was made by the National Petroleum Corporation of Namibia (NAMCOR) – alongside partners Shell Namibia Upstream B.V. and Qatar Energy. The discovery has been greeted with enthusiasm and relief given that numerous explorations in the country have been undertaken for several years to no avail. It’s thought that this discovery will usher in a new era for Namibia with the ensuing investments from oil production that will hopefully result in trickle-down employment. This follows another recent announcement from TotalEnergies of a “massive” discovery at one of its offshore sites.

Location of Namibia within Southern Africa

The Namibian Economy

Since gaining Independence in 1990, Namibia has been resource rich with the key drivers of the economy being construction and mining. Mining accounted for on average 9% of GDP between 2015 and 2019 but provided more than 50% of foreign exchange earnings. The Namibian economy is closely linked to its neighbour South Africa which is its second-largest trading partner (behind China).  The Namibian dollar is pegged one-to-one to the South African rand, whilst Namibia receives 30%-40% of its revenues from the Southern African Customs Union (SACU)  which is made up of South Africa, Botswana, Eswatini and Lesotho. Since Namibia’s debut Eurobond in 2011, its public debt-to-GDP has increased from 26% to 67% in 2020. This ratio increased not only because new borrowing raised the numerator but also because growth has failed to raise the denominator.

Although mining accounted for the majority of export earnings, the sector only employs a meagre 2% of the population. Lack of citizen participation in such a capital intensive sector results in a large number of the population invariably being unemployed. Half of Namibia's people are unemployed while about two-thirds live in rural areas; roughly two-thirds of rural dwellers rely on subsistence agriculture.

The pre-1990 history of colonialism and apartheid which resulted in the exclusion of the black majority in economic activities and education continues to shape society and the economy, constraining the country’s economic and social progress to this day. Economic advantage remains in the hands of a relatively small segment of the population, and significant inequalities persist. A recent World Bank report recently ranked Namibia as one of the most unequal countries in the world, this inequality is predominately driven by the disparities driven by the legacy of apartheid and colonialism. The uneven distribution of agricultural land is also a factor driving inequality, especially in rural areas. In Namibia, 70% of the 39.7 million hectares (98.1 million acres) of commercial agricultural land “still belong to Namibians of European descent”, the World Bank said. Whilst the top 10% richest Namibians holds 65.5% of the country's financial assets.

Namibia is home to a population of 2.5 million

Final thoughts

Analysis shows that oil discoveries increase expectations of better economic conditions and living standards by 35% and 52%, respectively. Citizen expectations will be driven by the prospects of the discovery acting as a catalyst for economic growth. The development of an oil market can facilitate the creation of jobs in burgeoning industries within the value chain which would result in improvements to infrastructure and various sectors throughout the economy.

Namibia will need to ensure that robust governance and regulatory regime is created to support the oil industry. Discoveries of oil in countries with weaker institutions can result in a decline in growth post-discovery, potentially due to the excessive expectations about the benefits that will flow from the discovery. To maintain growth, Namibia will need to ensure that its institutional framework is transparent, inclusive and collaborative in terms of citizen involvement. The history and actions of previous oil-rich countries should be relied upon to ensure that Namibia does not suffer the same fate as other oil-rich nations on the continent.

Check out our weekly insights on Instagram for further updates