!Gawaxab warns of ‘Dutch disease’ amid oil, green hydrogen discoveries

Bank of Namibia governor Johannes !Gawaxab has cautioned against the phenomenon whereby the rapid development of the oil and gas and green hydrogen industries in Namibia may lead to a decline in investments in other vital sectors such as agriculture, fishing and tourism.

While acknowledging the positive contributions of oil and gas exploration activities, as well as green hydrogen investments to Namibia’s economic growth, !Gawaxab said this could have potential repercussions for monetary policy.

Speaking at a public lecture at Lüderitz yesterday, he said the increased export of natural resources could lead to currency appreciation, subsequently encouraging imports and discouraging exports from other sectors, thereby impacting their competitiveness.

He also highlighted the potential impact on Namibia’s current account deficit, citing a recent example where the deficit worsened to 15% in 2023 from 12,5% in 2022, largely attributed to intensified exploration and appraisal activities.

While a recovery to 12,6% is expected in 2024, !Gawaxab said there are projections of a further deterioration to 14% in 2025 if unchecked.
“These issues, if left unchecked, could potentially culminate into resource curse risks for Namibia or what is referred to as Dutch disease,” !Gawaxab said.

Dutch disease is typically caused by uneven growth across sectors when resources such as oil are discovered, and the mismanagement of these resources, often associated with corruption.

Originating in the 1960s when The Netherlands discovered gas reserves in the North Sea, the phenomenon saw non-oil sectors becoming less competitive and unemployment increasing from 1,1% to 5,1%.

!Gawaxab listed Venezuela, Ghana, Nigeria and Angola as countries who suffered Dutch disease, following oil discoveries in their countries, and credited Norway and the United Arab Emirates as countries who turned their fortunes around.

!Gawaxab said in order to positively benefit from these resources, there needs to be a long term goal of where Namibia sees itself in the years to come.

“We need to ensure strong and competent institutions that are transparent and free of corruption,” !Gawaxab said.

He called for the implementation of other measures to prevent Namibia from falling victim to the curse, such as establishing stabilisation funds, planning for future generations through initiatives like the Welwitschia Sovereign Fund, diversifying into other economic activities due to the volatility and depletion of oil resources, and promoting local content participation in the industry’s value chain, alongside appropriate monetary and fiscal policy frameworks supportive of macroeconomic stability.

Furthermore, !Gawaxab said the oil and gas discoveries and the anticipated green hydrogen industries are expected to change the socio-economic landscape of the town of Lüderitz and drive the need for the town council to make large sections of land available for industrial and residential purposes.

He said as a significant initial move, the council has formulated a strategy to enlarge the townland area of Lüderitz, yet he acknowledged several obstacles that must be tackled, including mining licences impeding urban expansion, the difficult topography, funding constraints and limited water availability.

“Lüderitz has a unique opportunity to be a leading economic hub in Namibia and an example of prudent natural resources management that benefits the people,” !Gawaxab said.