Fuelling Change: Policy and the Socio-Economic Impact of Oil and Gas Discoveries

UP UNTIL NOW, Namibia’s economy has been largely dominated by mining, agriculture, fishing and tourism.

Now the country is on the verge of an energy revolution that could transform its economy.

However, the discovery of large reserves of crude oil off the Namibian coast comes with both prospects and pitfalls.

Oil alone influences a third of the world’s energy production far more than any other commodity – making it the lifeblood of the global economy.

Namibia’s Constitution provides that all natural resources on, in, or under any land in the country are vested in the state unless they are otherwise lawfully owned.

This includes natural oil and natural gas, generally referred to as petroleum in Namibian legislation.

It is likely that the massive oil revenue expected to flow into Namibia will help power the country towards economic prosperity.

However, it could drive new levels of corruption which could fuel social tensions and threaten political stability.

There is a worrying regional trend of potential conflict, especially among countries with a liberation struggle history, when it comes to extractive resources such as oil and gas.

EFFECTIVE POLICIES

However, Namibia is fortunate to be in a position to benefit from the experiences of other oil- and gas-producing countries.
We can learn from their best practices as well as from their mistakes.

Importantly, this offers our legislators an advantage they need to capitalise on: They have the opportunity to implement effective policies to benefit ordinary Namibian citizens.

In particular, to enact laws that will help spread future wealth among all Namibians, the development of skills in oil and gas professions and promoting the establishment of Namibian oil and gas businesses.

This would help safeguard the long-term, sustainable economic impact from these resources.

To help local companies and citizens benefit across the industry’s value chain, Namibia has drafted a National Upstream Petroleum Local Content Policy.

The draft reportedly reflects the government’s desire to leverage the oil and gas discoveries for broader national development.
There is a focus on achieving a balance between local participation and attracting foreign investment.

The move towards implementing local content regulation and the draft policy offers a glimpse into its goals.

However, Namibia still has a long way to go in implementing policies and regulations.

It also has to ensure that its local content policy leaves no room for misinterpretation.

Policies should promote domestic businesses by requiring a certain percentage of goods or services to be sourced from domestic companies, as well as motivating international companies to share knowledge and expertise with local firms, stimulating job growth in the domestic economy, and encouraging investment in local infrastructure that benefits the industry.

THE INEQUALITY EQUATION

Namibia and South Africa are two of the world’s most unequal societies in terms of income and wealth distribution, with Gini index scores of 59,1 and 63, respectively.

Together with Zambia, they place three members of the Southern Africa Development Community (SADC) among the four most unequal countries globally.

Namibia’s oil discoveries have led to talk about whether oil exploration could help Namibia double its gross domestic product (GDP) by 2040.

Further, if it could shape not only the country’s own development, but if the successful exploration and management of oil revenue in Namibia could also benefit the region as a whole.

Growing a successful oil and gas industry in Namibia will require significant investment in infrastructure, workforce development and regulatory frameworks.

But because the multifaceted oil and gas sector requires high initial investment and specialised technology, among others, it can be difficult for local companies to readily participate.

Equally, it’s vital for the country to be practical in the implementation of its laws and/or policies to continue fostering investment.

Namibian lawmakers need to avoid government overreach. While local content regulations can have positive effects, they can also raise concerns about potential drawbacks, such as increased costs or limitations on competition.

Striking the right balance between local requirements and international competitiveness will be key to the success of the oil and gas sector.

• * Elline BN Uusiku has an LLB from the University of Namibia and is an LLM candidate at the University of South Africa. The views expressed here are entirely her own.