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Is it Norway or Nigeria for Namibia?

Staff Writer
Botswana's neighbour has discovered a 'herd of elephants'. In the oil industry an 'elephant' is defined as an oil field of more than one billion barrels.

On July 6, the Namibian Mines and Energy Minister, Isak Katali, announced the discovery of vast oil reserves off the Southern Namibian coast. It is estimated that the deposits are huge at 11 billion barrels, this is slightly lower than the reported Angolan reserves.

This will certainly put Namibia in the top five oil producing countries in the continent which include Nigeria, Libya, Algeria and Angola. Unfortunately it would appear that our neighbour Namibia is now in bad company for not one of these countries can be seen as a by-word for peace and prosperity on the African continent. In the last decade or two each of these countries has undergone the most violent of civil wars and internal conflicts and the existence of large deposits of oil has certainly been part of the equation.

Namibia, following its brutal war of liberation has been a generally peaceful and welcoming country. It has conducted reasonable policies and has seen a steady rise in GDP/capita. Despite having the unenviable record of vying with South Africa as the nation with the world's most unfair distribution of income there has as yet been no attempt to forcibly redistribute wealth. There remains relatively good policy in Namibia and an economy based on minerals such as diamonds and uranium but also very importantly with a relatively healthy agricultural sector (beef, grapes, fish) as well as tourism.

Unfortunately all this is probably set to change. There is  a general belief that oil buys you wealth, but the track record of its management says the exact opposite. If you fly to any of the other top oil producers in Africa you won’t see the wealth, at least not in the hands of the poorest parts of society. The reason is simple- oil produces a great amount of revenue for government and whether the people benefit depends entirely upon how effective the government is at using these resources. If the funds are squandered on giant buildings and completely unnecessary and inappropriate infrastructure projects rather than carefully targeted projects to help the poor then oil will actually worsen matters. Big infrastructure projects are easy, targeting the poor is far more difficult.

In my first senior job as an economist in 1988, I worked for the then Prime Minister of Papua New Guinea, Sir Rabbie Namiliu, as his senior economic adviser. PNG as it is called is a resource economists dream with five million people, incredibly fertile soil, abundant water, minerals such gold, nickel copper and huge oil and gas resources that are the envy of many nations. In theory resource abundance should have made the country fabulously rich.

While it is a resource economists dream it remains a policy maker's nightmare with a fractious political system based on 700 (yes, that's right 700) language groups.

The country had just discovered oil when the government came to power in 1988 and I implored the Prime Minister to take the oil revenues off-shore and create a fund for future generations where only a sustainable amount of money would return to the economy every year but at least it would be indefinite.

I argued that even though PNG

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desperately needed the money to alleviate poverty we did not have capacity in government to get that revenue to the people and it would be squandered as it was in Nigeria. The Prime  Minister announced this policy  in his inaugural speech to parliament but it is one thing to announce such a policy, quite another to implement.

The politicians that made up his coalition government never accepted the necessary economic prudence to follow the path that  a country like Norway had followed when it discovered oil and gas. Much of the wealth in PNG was squandered and stolen and when I left the Pacific islands several years ago the UN was debating whether to reclassify PNG from a developing to a 'least developed country' and one of the world's poorest.

As anyone knows who is a farmer there is nothing more dangerous to your crops than a herd of stampeding elephants. Namibia's oil elephants stand the possibility of doing precisely the same thing to its agricultural and tourism sectors as a herd of elephants do to a maize field  if it is not managed properly.

Economists call this the Dutch disease  whereby the huge increases in foreign exchange reserves, as experienced by Holland following its gas discoveries, causes the currency to appreciate which destroys the other traded goods sectors such as agriculture. This Dutch disease is often confused with but is different from what is often called the 'resource curse' which is a much broader problem. While Botswana is a good example of a country that has managed many aspects of Dutch Disease through its policy, managing huge inflows of government revenues coming from oil resources is much more complex than just managing exchange rates and inflation.

Namibia stands at a cross-roads in its history and its children will judge the current generation of leaders by the decisions they now make.

Like PNG it can declare that it will follow the path of Norway and take these oil resources off-shore and then only bring them back slowly and sustainably or it can follow the path of Nigeria or PNG actually did, which was to allow the oil revenue to hit the economy and almost certainly  squander its wealth.  All leaders who discover 'elephants' in their back yard say they will follow Norway's path, and  such declarations have now become standard practice.

You should only believe they are serious when they enshrine it in the nation's constitution. It is easy to be smug when you are rich but when Norway made its choice to take its oil and gas revenues off-shore, it was already one of the richest countries in the world.

But in a country like Namibia where there is such terrible poverty stemming from its colonial past, policy makers will find a good reason to spend the oil money. All Namibia's neighbours can do is wish it well and hope and pray its leaders have the strength to make wise choices and learn from the many lessons of history.

*These are the views of Professor Roman Grynberg and not necessarily those of the Botswana Institute for Development Policy Analysis where he is employed.



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