Abstract
The primary objective of this paper is to assess whether Namibia is ready to become an oil producer. The geological estimates suggest that the country may possess the equivalent of as many as 11 billion barrels of crude oil. If the numbers are correct, Namibia would be sitting on the second-largest oil reserves in sub-Saharan Africa, and exploitation could start as soon as 2017. This clearly raises the question of whether Namibia is next in line to become a victim of the notorious “resource curse.” On the basis of critical discourse analysis and findings from field research, the authors have selected six dimensions of the resource curse and contextualised them within the spheres of Namibian politics and economy. While Namibia still faces a number of important challenges, our findings offer little evidence that the oil will have particularly disruptive effects.
In sub-Saharan Africa, negative aspects of natural-resource management are usually referred to as the “resource curse.” Despite two decades of debate on this phenomenon, the literature on the resource curse remains inconclusive. There is an ongoing discussion about whether developing countries should even bother to undertake actions in order to avoid the notorious curse. Inspired by reports claiming Namibia might be Africa's next big oil frontier, and taking into account promising geological data, this article considers Namibia's potential to become a successful oil producer.
The Kudu gas field in the Orange River Basin is the only hydrocarbon discovery in Namibia. 1 Although there are no proven oil reserves, geological estimates suggest that Namibia may possess 11 billion barrels of crude oil. It is by no means self-evident that these estimates could turn into actual commercial volumes; in fact, the numbers that have gone viral in recent years may be seriously flawed. Nonetheless, considering the geological features of seabed rocks (geologically similar to the Brazilian and Angolan shores) and the first promising, yet still non-commercial, discoveries, there is a good chance that Namibia will end up producing oil in the foreseeable future (Interview Iyambo 2013). Currently, exploration licences have been obtained both by medium-sized companies (e.g. Murphy Oil, Tullow Oil, Galp Energia, Repsol) and by oil-industry giants (e.g. BP, Shell). Furthermore, the Namibian government is pushing oil companies to drill more wells and warns that it will not renew licences for companies that do not carry out oil exploration.
The Kudu gas-to-power project (development of the 800 MW gas turbine power station near Oranjemund) is of key importance for Namibia, since it will make the country energetically self-sufficient. However, Tullow Oil's withdrawal from the project led to delays in its implementation and raised questions about its economic viability.
On the basis of a critical analysis of discourse concerning the resource curse, the authors have identified several factors that should be considered when answering the question of whether a country with new oil discoveries may be considered a potential victim of the resource curse. These are: resource location and resource type, the state's ability to deal with the economic consequences of the resource's discovery, the stability of the political regime at the moment of the resource's discovery, transparency, accountability, and the strength of civil society. The above-mentioned factors were contextualised and analysed in order to determine Namibia's readiness for oil production.
This article is based primarily on a field study conducted in Namibia. The major research techniques used during the work on the article were in-depth interviews, critical analysis of documents, discourse analysis, and comparative analysis. The authors conducted over 20 semistructured in-depth interviews with politicians, civil servants, representatives of civil society, academics, and representatives of the mining industry. The respondents were asked two general questions about their opinions on Namibia being ready for oil production in terms of legal framework, institutional adjustments, revenue collection, management of public expectations, and their estimations of the likelihood of a “resource-curse” scenario unfolding. Every respondent was also asked targeted questions dependent on his/her field of expertise. The interviews’ average length was 26 minutes. 2
The authors are grateful to all the interviewees for their invaluable input and to the reviewers for their critical comments. They would like to also extend their special gratitude to His Excellency Ambassador Neville Gertze and Dr. Mekondjo Kaapanda-Girnus, the commercial counsellor at the Embassy of the Republic of Namibia in the Federal Republic of Germany, for greatly facilitating our field study in Namibia. Finally, the authors would like to thank both the University of Wroclaw and the Polish Oil and Gas Company (PGNiG) for providing funds for this research.
Is Dutch Disease a Problem for Namibia?
As difficult as it is to discuss a possible de-industrialisation process in a country which, in fact, never experienced industrialisation in the first place (such as Namibia), it is still feasible to analyse the negative aspects of vast revenue inflows to the natural-resource sector spurred by a major discovery at the expense of other sectors. The cases of Angola and Nigeria can serve as good examples of how devastating the economic aspects of the resource curse can be for a new oil-exporting economy. For example, before oil was found in Angola in the 1970s, the country was a major African exporter of agricultural products such as coffee and maize (Odour 2007: 2). Nowadays, mainly due to the negligence of the government towards non-oil sectors (especially agriculture), combined with the devastating effects of the decades-long conflict that left behind a huge number of landmines, as well as the strengthening of the local currency, the country has fallen into patterns of monoculture characteristic of an oil-based economy. As a result, Angola has become a net food importer and has been struggling to diversify its economy away from oil ever since. Is Namibia doomed to a similar fate once vast oil quantities are discovered? Not necessarily.
Unlike Nigeria, Angola, and Equatorial Guinea, Namibia is a member of a monetary union 3 and its currency is pegged at par with the South African rand. This means that as long as the par exchange rate is sustained, Namibia will not experience nominal currency movement. The real exchange rate can still be subject to fluctuation – reflecting changes in the purchasing power of the Namibian dollar against other currencies (Interview Pastor 2013). However, once appropriate macro-economic policies are set and tailored to country circumstances (including fiscal consolidation and adjustments in short- and long-term spending), the appreciation pressure on the Namibian dollar – at least to some extent –can be abated (Ostry et al. 2011; Badia and Segura-Ubiergo 2014).
A positive prognosis for any future vast commercial oil discoveries is the fact that in the past two decades Namibia has avoided real currency appreciation – even though revenues from the mining sector were relatively large during that period. The South African rand has not appreciated either. On the contrary, in the period from 1991 to 2013, the South African currency depreciated by more than 3.5 times against the US dollar (from 2.8 to 10.1 per dollar). This suggests that revenues from the mining sector in Namibia are insignificant when compared to total South African export revenues.
Namibia became the fourth member (joining South Africa, Lesotho, and Swaziland) of the Common Monetary Area (CMA) in 1992. The CMA agreement and bilateral agreements of each “small” member state with South Africa provide a framework for monetary policy and exchange rates for the region.
In fact, revenues from the Namibian mining sector, which totalled NAD 12.1 billion 4 in 2012, constituted just 1.3 per cent and 0.2 per cent of the South African total export and GDP, respectively. 5 Therefore, it seems that even if commercial quantities of oil are discovered and the revenues from oil production plummet, these revenues would still be easily accommodated by the giant South African economy.
USD 1.2 billion, cf. Chamber of Mines of Namibia website, www.chamberofmines.org.na (29 May 2015).
Authors’ calculations based on WTO data available at http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Language=E&Country=ZA (29 May 2015); SA total merchandise export in 2012: USD 87.3 billion; SA GDP (current PPP in 2012): USD 585.6 billion.
Stabilising Mineral Revenue Streams in Namibia
Even though over the past years the mining sector has been generating approximately 10 per cent of the country's annual GDP (Chamber of Mines of Namibia 2014: 88), Namibia has not established any revenue-smoothing mechanism yet. As a result, any drop in global uranium or diamond prices affects Namibia's national budget heavily. For example, after reaching a peak of almost USD 140/lb in 2007, the uranium price tumbled to USD 40/lb in 2009. This plunge in prices reflected negatively on the government's revenues: total tax revenues from mining dropped from NAD 1.7 billion in 2007 to NAD 1 billion in 2009 (Chamber of Mines of Namibia 2014: 90), and the budget surplus of 5.9 per cent changed to a deficit of 4.6 per cent in the same period (IMF 2014: 74).
At the dawn of the discovery of commercial quantities of oil, Namibia is considering establishing the Namibian development funds, modelled on Norwegian solutions, whose major objectives would be, first, to minimise the negative effects of price volatility (stabilisation fund) and, second, to save money for future generations (create a heritage fund) as the resources are depleted (Interview Natangwe Nashandi 2013).
In the past, Namibia experimented with purpose-oriented funds replenished by mining revenues, but the effects were not very promising. In the 1990s, the country had the Development Fund of Namibia, the major objective of which was to provide funds for infrastructure projects across the country. As noted in 1999 by the chairman of the fund, the money from the Development Fund of Namibia was spent on projects that were neither technically nor financially viable (Development Fund of Namibia 1999: 7). This raises the question of whether the possible establishment of any new fund, fuelled with oil money, will bring an end to similar difficulties, especially when the government openly admits that a lack of skills will be the country's greatest challenge in the future.
Stability of the Political Regime
The claim that oil-related revenues might cause a dysfunction of the political system has been developed by Benjamin Smith and Terry Lynn Karl, who independently of one another came to the conclusion that political and institutional conditions under which oil rents become available to the governments of developing states powerfully shape the subsequent uses of the oil revenues (Smith 2007; Karl 2007: 273). If the state where oil has been discovered is institutionally strong and the government does not experience massive protest movements, then it is less likely that the state will become a victim of the resource curse. The occurrence of the resource curse is usually associated with the notion that since the government has relatively easy access to financial resources, it has very little incentive to improve the overall situation in the state's functioning (Dunning 2008: 11). It is also argued that the state administration puts itself at the mercy of multinational extractive corporations, and the government does not conduct an effective fiscal policy. The ruling elite might use the resource rent to bolster its position on the domestic political scene (this scenario has played out, for example, in Equatorial Guinea and Gabon). Additionally, when the amount of the rent allows the ruling elite to stay in power, then the political system might be transformed into a clientelist or neopatrimonial one (Thomson 2006; Omeje 2008: 5). In the long run, political systems dependent on resource rent are often associated with exclusions, and they bring frustrations and social unrest (Lowi 2009: 36) since various groups attempt to control an asset which allows them to remain in power (Collier 2007: 42). Political stability can also be achieved by the domination of one political elite, which, thanks to the effective redistribution of incomes related to raw material, remains in power, but the power is maintained and legitimised democratically. This is the case in Botswana, for instance, where the Botswana Democratic Party (despite accusations by the opposition of being increasingly authoritarian) maintains an omnipotent position in the political system.
Namibia's political scene is dominated by the South West Africa People's Organization (SWAPO), which was the major force throughout the liberation struggle (Thornberry 2004). During the transition period and constitution-making process, smaller parties supported the idea of a relatively weak presidential office subject to the Parliament, while SWAPO forced the idea of a strong executive branch led by the president, and this idea was mirrored in the Constitution (Hishoono et al. 2011). The Constitution provides separation of powers and checks and balances between the legislative, executive, and judiciary powers, but due to SWAPO's absolute dominance in the Parliament, the legislature is literally controlled by the executive. In 2013, 47 out of 60 SWAPO members of parliament (MPs) served as ministers or deputy ministers (The Parliament of the Republic of Namibia 2014). The percentage of SWAPO MPs who are government members has remained more or less unchanged since independence (Hopwood 2007: 23).
A strong executive was of crucial importance for political stability during the transition period and for the creation of robust state institutions, yet the current political dominance of SWAPO does not originate from an attractive political programme but is, rather, derived from voters’ loyalty to the party that brought about Namibia's independence (Interview Schade 2013) and an extremely weak and fragmented opposition. The most visible example of SWAPO's omnipotence was the amendment of the Constitution in 1999 that enabled Sam Nujoma to have a third presidential term (Hopwood 2007: 70). It should be noted that the vast majority of Namibians did not advocate against the amendment of the Constitution, and the amendment was met with much more criticism of outside Namibia than within the country itself. Nevertheless, SWAPO's omnipotence in the political system is undisputed. Furthermore, Namibian political analysts and intellectuals stress the existence of the “freedom-fighter mentality” among SWAPO members –who sought to build the most successful country in Africa – which could prevent the current political elite from abusing power (Interview Lindeke 2013). It is obvious that the “freedom-fighter mentality” as well as other aspects of Namibian political mythology and pre-independence ideals are not a sufficient guarantee for the proper management of oil and gas revenues. Although the existence of the “freedom-fighter mentality” has gone almost completely unmentioned in the Western literature on Namibia, it is often highlighted by Namibians and should be taken into account, together with a strong historical argument that the resource rent from diamonds and uranium extraction has generally not been pocketed by SWAPO. However, recent controversies around various contracts signed by the government might imply that a rent-seeking elite is indeed emerging in Namibia. Nevertheless, as of today, it is still a far cry from the rent-seeking elite in countries such as Angola or Nigeria, and a deliberate weakening of the state institutions for the sake of personal benefit does not seem be the case.
The leader of the Afrobarometer team in Namibia claimed that according to his research over 70 per cent of the population agrees with the statement that the government is steering the economy in the right direction (Interview Lindeke 2013). It is obvious that the general public's support for the government's macro-economic policy does not imply a low risk of opportunistic or non-transparent behaviour on the part of SWAPO in the oil sector. However, the risk of SWAPO's position becoming further strengthened on the political scene due to the additional revenue created from the sale of crude oil is relatively low. Namibia would be better compared with Botswana than with the textbook examples of resource-curse victims. As in the case of Botswana, due to the role of the state in the economy there is a constant threat that contracts, concessions, or licences will be granted to those who are politically well connected. Additionally, the line between SWAPO and the state might be blurred. Some challenges may also emerge from ethnic heterogeneity and its management by politicians (the presidential appointment of Hage Geingob from the minority Damara ethnic group was meant to reduce ethnic tensions and the growing demands for increased social security) (Interview Edwards 2013). Political tensions might also be generated by the need for generational change in SWAPO. But unless there is a sharp economic downturn, or disclosure of major political scandals (possibly connected with the licensing processes), it is highly unlikely that oil-related rent will strengthen or facilitate the creation of opposition parties capable of challenging SWAPO. In other words, in the short and medium term, potential oil-related rent will neither strengthen SWAPO's political position nor contribute to the strengthening/unification of the opposition on the basis of anti-corruption rhetoric.
One can argue that the absence of significant political powers capable of challenging SWAPO seems to be the factor that affords the ruling elite a comfort zone while preparing institutional structures and legislation that eventually might help the country to avoid the resource curse. However, this assertion will be proven true only when the systems of oil extraction and oil-revenue management develop built-in mechanisms to correct the policies of the ruling party. In this context, the timing of the oil discovery will largely determine the negotiating position of internal and external organisations that may influence the management of resource rents. As noted by Jędrzej Frynas,
Once the government begins to receive oil and gas revenues, third parties such as the World Bank and Extraction Industry Transparency Initiative (EITI) lose much of their bargaining power in persuading host governments to adopt principles of good governance and transparency. (Frynas 2010: 170)
As for today, the Namibian government sees no need to involve third parties in the process of creating oil-related legal infrastructure and ensuring transparency in extractive industries (Interview Mulunga 2013).
State and Institutional Capacity
Most available research finds a robust link between a weak state and the likelihood of the resource curse transpiring. In fact, the state and its institutions have recently been placed at the centre of discourse concerning the natural-resource curse. Countries such as Nigeria, Angola, Zambia, Equatorial Guinea, Gabon, Cameroon, the Democratic Republic of the Congo, and Sudan all suffer from weak institutions. Nevertheless, the evidence on the nature of a relationship between weak institutions and economic performance in Africa is not very clear, as causality mechanisms could in fact run both ways (Sachs and Warner 1995; Brunnschweiler and Bulte 2008). Mehlum et al. argue that the ultimate reason that some resource-rich countries grow and others falter rests largely with institutional quality. But they also point out that the resource boom may weaken the state's already weak capacity and lead to institutional decay, for which they use the term “double resource curse” (Mehlum, Moene, and Torvik 2006a, 2006b).
The institutional weakness of the state is investigated in a number of areas; with regards to resources, the attention is usually centred on problems such as corruption, rent-seeking, and inadequate taxing capacity. Examples from Nigeria (Agbiboa 2013), Equatorial Guinea (Frynas 2004; McSherry 2006), Cameroon (Cossé 2006), and many other first-generation African petro-states clearly show that resource rents have all too often become an easy target for political elites. Another aspect is the ability to tax. Most generally, according to the taxation-leads-to-representation paradigm (Ross 2004), states willing to tax must offer things in return to its citizens, such as public goods and representation. They often prefer to rely on natural-resource rents, tax the extractive sector and use easy-to-collect revenues (e.g. indirect taxation). Taxing the extractive sector comes, however, with many hurdles, as the administrative capacity in Africa to identify tax liabilities, collect taxes, and deter possible evasion remains greatly insufficient (Stürmer 2010).
In Namibia, despite many development challenges ahead, the quality of institutions is relatively high, at least by regional standards. This is reflected in the 2013 Heritage Index of Economic Freedom, in which the country is ranked above world averages – 9th out of 46 countries in sub-Saharan Africa, and it is largely confirmed by the World Governance Indicators prepared by the World Bank. The country's development path renders the hypothesis about minerals adversely affecting institutions rather difficult to substantiate. The Namibian economy has grown on the back of mineral extraction for decades, with no signs of institutional decay. Having said this, there is no historical or empirical evidence that might indicate that this time, with the discovery of oil, things might turn ugly. On the contrary, if oil production ultimately gets underway, Namibia might be better off, as it will start with a relatively good institutional set-up that has been forged over the course of decades. It is fair to say that even though the oil business has many of its own peculiarities, challenges, and problems related to oil production and revenue management, it will not catch the government off guard and will be handled more effectively than in a country without prior experience in resource extraction.
As mentioned above, one of the symptoms of institutional decay is corruption. Yet in Namibia corruption does not seem to be a problem as acute and widespread as in many resource-rich countries from the region. According to the World Bank, “public corruption is not endemic, as in other jurisdictions in the developing world” (Yikona et al. 2011: 61). Transparency International puts Namibia at 58 out of 176 countries in its ranking (the third-highest scoring country in sub-Saharan Africa, behind Botswana and Rwanda). Still, corruption scandals are not that unusual (The Namibian 2013) and awareness of corruption among the public remains rather high and stable (Sasman 2012; Melber 2006). Graham Hopwood, director of the Namibian Public Policy Research Institute, is even less cheerful, arguing, “Namibia is at a tipping point – with endemic corruption inevitable if stern action is not taken in the near future” (Grobler 2014). The fairly limited corruption may be explained by relatively effective legislation and enforcement bodies (e.g. the Anti-Corruption Commission), whose effectiveness has been, nonetheless, questioned more recently (the Commission's conviction rate was less than 1 per cent of cases appearing before a court) (Grobler 2014). Active journalism has also played its part in investigating many high-end corruption affairs in past years (Interview Kaapama 2013). In 2005, Namibia's newly elected president, Hifikepunye Pohamba, declared zero tolerance for corruption in Namibia, and despite some setbacks and voiced opinions that his initially tough stance on corruption has largely faded away (The Namibian 2010), the country essentially remains on track by regional standards. Having said that, with oil production coming on stream, there is relatively little historical evidence suggesting that the new wealth is likely to trigger a major corruption spiral. This view, however, acknowledges that a blurred line between party politics and the state, combined with a near political monopoly held by SWAPO, makes corruption harder to weed out.
With regards to the inefficiency of the tax regime, discussion in Namibia currently hovers largely around the problem of tax evasion, which, as the World Bank's study has shown, is far from negligible and costs the Namibian state a staggering 9 per cent of GDP annually (Yikona et al. 2011: 9). It remains unclear, however, what part of this leakage can be attributed to the extractive industries per se. A closely related issue that has increasingly captured the government's attention is transfer pricing, which helps to siphon off a great deal of mineral revenues. Recognising this, the Ministry of Finance has recently been reinforcing capacity in order to address transfer pricing, by using external auditors and training new staff (Interview Natangwe Nashandi 2013). Even though Namibia introduced transfer-pricing legislation (Section 95A of the Income Tax Act) on 14 May 2005, its execution remains a challenge. Tax-collection problems and the contribution of the mining sector to the budget should be contextualised within a number of more general facets. To begin with, the country has a relatively short tradition of tax-policy formulation and administration. For many years, Namibia has been, at least fiscally, a quasi-province of South Africa, with its tax policy for all intents and purposes determined in Pretoria. The revenue mobilisation has been heavily constrained by the significant role of the Southern African Customs Union, which has created a financial comfort zone for the government of Namibia. The tax burden is placed on a relatively small formal sector, yet at the same time it is argued that “the Namibian system already collects too much of the poor's income by a high VAT” (Rademacher 2011: 16). Moreover, the tax policy is essentially characterised as regressive (Rakner 2011).
It should be noted that even though most of the government officials interviewed by the authors during their visit to Namibia feel relatively confident about the state's capacity vis-à-vis oil production and the subsequent handling of oil revenues, it is rather naive to expect any country to actually be “ready” ahead of the actual oil discovery and before the oil starts flowing. As aptly expressed by Immanuel Mulunga, petroleum commissioner in the Ministry of Mines and Energy, “You cannot be ready for oil without oil” (Interview Mulunga 2013). This attitude has also been confirmed in many other ministries and government agencies. Very often, officials are aware of the need to build more skills and capacity, hire new staff, and come up with new legislation, but all of this requires financial resources and political will. And mustering the above, quite paradoxically, requires a major trigger, such as the discovery of oil in commercial quantities. This is where the situation comes full circle.
Transparency and Accountability
According to proponents of oil-sector transparency, its major objective is to achieve “clear disclosure of information, rules, plans, processes, and actions,” including bidding rounds, contracts, expenditures, and revenues. 6 Accountability is required to ensure that stakeholders involved in all aspects of oil exploration and production are accountable for their actions. Both concepts – transparency and accountability – apply to the relations between oil companies, governments, and society, as well as to oil-revenue management, and are usually considered to be of utmost importance for avoiding the natural-resource curse. To this end, as the proponents emphasise, the government and oil companies should publicly disclose information about contract terms and conditions, revenue flows, and operations.
Definition according to the Transparency and Accountability Initiative; see www.transparency-initiative.org/about/definitions.
Recent research has provided a significant amount of evidence showing that, in general, developing countries holding vast amounts of natural resources tend to be less transparent, whilst their politicians are less accountable and more corrupt. Additionally, as well noted by Jean-François Bayart, African countries tend to sustain a specific interdependence of relations between the government and the elites controlling private spheres, where each side is trying to prosper (Bayart 1993).
Moreover, most of the studies also suggest that improving transparency and accountability is of key importance in avoiding the devastating resource curse. For example, Nicholas Shaxson has noted that African countries such as Chad, Equatorial Guinea, Congo-Brazzaville, and Nigeria can serve as prime examples of opaque revenue payments and Byzantine contract negotiations (Shaxson 2007a). Abiodun Alao has pointed out that appropriate “governance structure” and transparency levels are the key elements of good revenue management and avoidance of the resource curse (Alao 2007). Macartan Humphreys, Jeffrey Sachs, and Joseph Stiglitz have noted that the impact of the natural-resource effect on political conditions, including transparency, is actually much greater than it is on economic factors such as Dutch Disease and price volatility (Humphreys, Sachs, and Stiglitz 2007) and, therefore, its role should not be undermined in efforts to disrupt the link between resource wealth and the negative outcomes of the resource curse. Global Witness, in its landmark report titled A Crude Awakening: The Role of Oil and Banking Industries in Angola's Civil War, identified lack of transparency as the leading cause of the Angolan civil conflict (Global Witness 1999). Collier argues that the “misaligned incentives” of decision-makers have been the major reason behind the poor performance of resource-rich countries, and that applying adequate laws and codes to improve, among other things, transparency in revenues is critical in order to ensure convergence between the interests of the society and those of the government (Collier 2008). Lederman and Maloney argue, on the basis of several case studies, that appropriate policies on transparency, accountability, and other elements of good governance together with strong institutions constitute a sound foundation for long-term growth fuelled by resource revenues (Lederman and Maloney 2007).
Both economic theory and economic history suggest that mineral-rich economies are not necessarily doomed in the long run. Conversely, over the long term, if the growth comes hand in hand with social and political changes, minerals can lead to stronger institutions. Nevertheless, many examples from sub-Saharan Africa prove otherwise and demonstrate that countries that rely heavily on natural resources tend to perform below average in indexes ranking countries according to level of governance, transparency, and accountability (Shaxson 2007b; Gillies 2010) – for example, first-generation oil producers such as Equatorial Guinea, Gabon, and Nigeria (McFerson 2009: 1529–1548; McSherry 2006: 25–45). In Angola, the contract-awarding process and resource-revenue management are everything but transparent, whilst undisputed loyalty to José Eduardo dos Santos, the president of Angola, is the political key to ministerial nominations (Global Witness 1999).
The global push for higher transparency and accountability in the oil sector started in the late 1990s, and now, over two decades later, includes initiatives such as the EITI, Publish What You Pay (PWYP), and the Revenue Watch Index. Obviously, it should be noted that the mere adaptation of the EITI or PWYP transparency procedures is not synonymous with improved transparency, and even if this is the case, better governance or accountability in the oil sector may not necessarily follow. Therefore, the enthusiasm, while probably not misplaced, should be curbed. On a general level, many authors have already argued that whereas the idea of the EITI is clearly commendable, there are many weaknesses embedded in the system, ranging from the reliability of data audited, the ability of the various stakeholders to process information, and the voluntary nature of commitments, to a risk of free-riding on the part of EITI members (Haufler 2010: 53–73; Hilson and Maconachie 2009). As aptly noted by Haufler, the “EITI can be a triumph of form over results, with real power remaining in the hands of government and corporate elites” (Haufler 2010: 69).
As the experience of Shell and other majors in Nigeria shows (who decided to withdraw their operations from the violence-prone Niger Delta region and focus on offshore oil in the country), the business environment can be just as important as (or even more important than) cash flow and profitability calculations. In other words, drilling an oil well or constructing a pipeline in a developing country that lacks transparency and accountability (together with other elements of good governance covered in other parts of this paper) is now considered to be a high-risk bet, and the transparency concept itself is emerging as an internationally recognised standard for the oil industry rather than a loose, participate-or-not scheme.
Transparency in the Namibian Extractive Sector
Unlike the first generation of oil-producing countries in sub-Saharan Africa, Namibia claims to have one of the most transparent extractive sectors globally. “Mining contracts are not a secret and are available for inspection” for everybody (Interview Iyambo 2013). The most important terms and conditions of each mining agreement – from royalties and annual charges to employment and training to reporting and audits – are plainly set out in the model agreement which is the starting point of each contract negotiation and which is available to the general public (The Parliament of the Republic of Namibia 1992).
Although Namibia can be portrayed as a role model for transparency in the mining industry in Africa, there are also aspects of the country's management of mineral resources that can be described as opaque and vague. For example, even though Namibia more than qualifies, it has not joined international non-governmental organisations (NGOs) such as the EITI or PWYP which seek greater accountability and transparency in the mining sector, and is not planning to do so anytime soon. Both the Namibian government and mining companies admit that there is no need for Namibia to join PWYP or the EITI, since mining revenues “are properly utilised” (Interview Iyambo 2013) and there have been no disputes over reported revenues and payments made by the mining companies to the country's coffers (Interview Malango 2013).
Indeed, in the Chamber of Mines’ Annual Review one can find excerpts from the audited financial statements of each mining company containing information related to profits, taxes, and royalties paid to the government. However, strangely enough, the government does not compare these figures to those obtained from the mining companies (Interview Natangwe Nashandi 2013). Furthermore, as the study by the Institute for Public Policy Research shows, the issue of transparency in the exploration-licensing process “is more of an optional add-on than a core feature of the system” (Hopwood et al. 2013). In addition, mining companies are not always treated in a consistent and fair manner, mainly due to the fact that Namibia lacks clear policies and laws in certain areas. For instance, the scope and role of the newly created and first-ever state-owned mining company Epangelo have yet to be determined, and thus the terms and conditions of cooperation of the private mining companies with Epangelo are far from clear. Finally, lack of a Black empowerment policy means that the “positive discrimination” associated with the Black Economic Empowerment (BEE) can be used in an ad hoc manner, further increasing the level of uncertainty in the mining sector (Hopwood et al. 2013).
According to Vestor Malango, chief executive officer of the Chamber of Mines, there are few mechanisms regarding the revenue-management process in the mining industry which can be transplanted to the emerging hydrocarbons sector. For example, the annual reporting and disclosure of profits, taxes, and royalties paid to the government by foreign companies operating in the extractive sector can serve as a good starting point.
So far, Namibia has been doing quite well in terms of its transparency level in the mining sector. An appropriate level of transparency is often identified as the crucial element in avoiding the resource curse. If past records of the transparency level in the mining industry in Namibia can serve as a guide, it is fair to state that in terms of transparency the country is relatively well prepared for the discovery of commercial quantities of oil. It should be acknowledged, though, that the country's general lack of interest in EITI and PWYP principles, as well as the unclear status and role of Epangelo, provide less reason for optimism. Additionally, as the examples of Nigeria and Angola prove, lack of transparent mechanisms in the oil sector leaves a lot of room for corruption and rent-seeking behaviour, specifically once oil revenues are weighted in as a factor. And in the case of Namibia, due to the small size of its economy (GDP of approximately USD 12.6 billion in 2014), even modest oil-production figures will translate into a “heavyweight” revenue inflow, amplifying the propensity for mismanagement and rent-seeking.
Civil Society
In sub-Saharan Africa, there is a certain ambivalence surrounding the concept of civil society, hinged both on the fact of the non-African nature of the political activity of civil society organisations (CSOs) and NGOs and on observations that some African CSOs are simultaneously dependent on their respective country's governments along with Western donors (Comaroff and Comaroff 1999). Nevertheless, a strong civil society is perceived as a way to provide checks and balances to counterbalance the government and mining corporations in order to ensure proper management of the resource rent. In the first generation of oil-producing sub-Saharan countries, relations between local NGOs and governments are hostile and manifest themselves in mutual accusations of corruption and failing to act in the best interest of citizens. Historically, the largest confrontation between local groups and the state administration occurred in the Niger Delta (Watts 2004: 70–72). However, in Ghana, a vibrant civil society and its involvement in creating oil-related legal infrastructure is perceived as, arguably, one of the safeguards against the resource curse (Kopinski, Polus, and Tycholiz 2013). Among actors involved in resource governance, international NGOs usually act as whistleblowers (mineral extraction normally poses numerous environmental and social challenges) or promote international schemes, such as the Kimberly Process or the EITI (Carbonnier, Brugger, and Krause 2011).
In the case of Namibia, the activity of NGOs seems to be limited by a number of structural factors. First of all, the Namibian non-governmental sector is relatively small, 7 and the vast majority of Namibian NGOs are service-oriented. There is also a long history of NGO–SWAPO collaboration. Before independence, Namibians were denied certain services and NGOs filled that gap (Interview Lombardt 2013), although SWAPO's position as the main representative of the population of Namibia was never challenged. In the 1990s, NGOs’ loyalty to SWAPO was an important factor in the relationship between the government and the NGOs. On the level of rhetoric, SWAPO also emphasised the NGOs’ role in the political transition, and NGOs did not engage with the government.
In 2013, the Namibian NGO Forum (NANGOF) had 163 member organisations.
When Namibia joined the ranks of middle-income countries, NGOs experienced a sharp decline in funding (Höhn 2008). The situation is slowly changing at the time of writing, since NGOs are becoming more research-based and more advocacy-oriented (Interview Lombardt 2013), but their activity in mining-related areas is heavily constrained by shortages of skills, limited financial capacity, and failure to carry out continuous research on the social and environmental impact of mining (Interview Lendelvo 2013). Furthermore, the Namibian political environment makes criticising the government extremely difficult due to the weak opposition and Parliament. 8
What is more, in this context, the government is planning to adopt strict legislation on any kind of research activity conducted in Namibia. According to the government plans, every researcher will need formal approval of his/her activity by the government. Namibian advocacy NGOs are pointing out that if this legislation is adopted, there will be a real threat that hardly any more meaningful empirical work will be able to be done there; cf. www.lac.org.na/news/inthenews/2014/news-20140317.html (6 July 2014).
Thus far, the main mining-related actions of Namibian NGOs have focused on the social and environmental impact of uranium-mining (the largest anti-mining campaign was led by Earthlife Namibia), and there is a visible antagonism between the Ministry of Mines and Energy and the umbrella network of NGOs in Namibia known as NANGOF. NGOs criticise the government for a lack of transparency in the mining-licensing process and claim that “the Ministry of Mines and Energy is one that was very difficult for us to infiltrate. We basically are ‘reduced to’ produc[ing] statements” (Interview Lombardt 2013). On the other side, the ministry argues that all of the data are provided to the NGOs, but they are misused, and that the main purpose of NGOs’ activity is to obtain funding from foreign donors (Interview Shivolo 2013). As for now, possibly negative aspects of drilling for oil are not included in Namibian advocacy groups’ agendas (Interviews Lindeke; Schade 2013), and the ministry has not experienced any pressure in this regard (Interview Iyambo 2013), but it is likely that, due to the offshore location of Namibian oil, the major future point of concern will be the management of oil revenues. However, due to the complex nature of mining contracts and visible lack of skills and capacities, it is highly unlikely that Namibian NGOs and civil society could critically assess the government's approach to oil-revenue management and thus contribute in any significant way to the creation of oil-related legal and institutional infrastructure in Namibia. Nevertheless, the absence of strong advocacy groups in Namibia should not be seen as a factor that might facilitate the resource curse following the start of oil production, since factors other than the “strength of civil society” seem to have a much greater importance in this particular case. Nevertheless, Namibian NGOs and the government are now undergoing a period of redefining their relationship, and the outcome of this process will largely determine advocacy strategies adopted by the NGOs’ community in the future. Taking into consideration the relative weakness of the Namibian legislature, stronger civil society may provide additional checks and balances in the political regime. On the basis of the experience of other sub-Saharan petro-states it can be reasonably asserted that the hostile relations between advocacy CSOs and the government will not contribute in any way to the increased transparency in the oil sector.
Conclusion
Since the presence of oil in commercial volumes in Namibia has not been officially confirmed, it seems reasonable to question whether we should require developing countries to be ready for oil production before they have discovered it. If anything, it is fair to assume that oil, if proven to be present in large volumes, will be commoditised gradually, and it might be assumed that the moment of discovery will be a catalyst for the creation of oil-related legal and institutional infrastructure.
It is also sometimes argued that until this happens Namibia should seek to build its capacity by tapping into its massive gas reserves; however, since the recent oil discovery by Tullow, the Kudu project has once again suffered from delays and it is now far from certain that it will be carried out at all. The recent developments might have also provided a quite unexpected twist to the story: with the oil price taking a nose dive and some experts arguing that the current level is the “new normal,” there is a risk that the optimal time to develop these resources might pass without Namibia reaping the benefits.
If the country, however, starts pumping oil someday, the offshore location of the potential oil fields and material characteristics of the anticipated natural resource places it in a relative comfort zone. Considering the current structure of the Namibian economy, the development of the oil sector should be seen as a shift towards more, not less, economic diversification. It is very unlikely the oil will crowd out other economic activities and turn the country into a petro-state with all the negative syndromes that come along with that. Additionally, the monetary union with South Africa makes the country less prone to Dutch Disease, although some loss of competitiveness of domestic industries seems to be inevitable. The timing of the oil discovery and relative transparency of the extractive industries as well as the stability of the political regime are additional assurances of Namibia's relative immunity against the oil-related curse. Given SWAPO's dominance on the Namibian political scene together with general public support for the government's macro-economic policy, the ruling elite is in a comfort zone as it prepares institutional set-up and legislation that eventually might help the country to avoid the resource curse. Whereas it may be argued that this very comfort zone can also provide a space for the further self-enrichment of the country's elites, our research does not provide sufficient evidence that this is to be feared.
In Namibia, the geography and material characteristics of anticipated natural resources place the country in a relative comfort zone. Namibian oil, if discovered in commercial quantities, has several important characteristics that might insulate the country from adverse effects associated with the oil curse evidenced across Africa. First of all, exploration takes place offshore along the coast (for example, the Kudu gas field is located 130 km offshore and the three-well programme of HRT Participações em Petróleo SA is located over 200 km northwest of Walvis Bay), which mitigates the risk of interstate war or internal conflict. With its geographical location offering vast amounts of the Atlantic Ocean's coastal waters ready to be explored without any territorial constraints, and relatively stable and friendly neighbours, there is very little risk of any upheavals, border disputes, or conflicts over oil deposits. Internal conflict or resource-related violence of any kind is hard to imagine in present-day Namibia. Greed and a grievance type of reasoning (Collier and Hoeffler 2000), widely applied in many African countries, would not hold sway in Namibia, like most of the other arguments explaining resource-related violent conflicts. Additionally, the offshore character of oil deposits makes both the “obstructability” and “lootability” risk essentially irrelevant in Namibia. If discovered, oil will be uploaded directly onto tankers and shipped out to refineries overseas, as happens in many other coastal African countries engaged in offshore production. The only concern might arise with regard to the fishery sector, which is a vital part of the Namibian economy (Interview Sikabongo 2013). In fact, recent research has demonstrated that the tuna catch has declined sharply as a result of seismic exploration (Njini 2013).
The past and current management of the resource rent suggests that comparing Namibia to Botswana makes more sense than comparing it to the first-generation African petro-states. On the negative side, a relatively weak civil society, non-institutionalised political advocacy and, above all, a lack of skills in state institutions and unclear policy towards BEE might cause turmoil in Namibia's oil sector. Nevertheless, in terms of the Namibian oil potential, the possible “curse” should instead be perceived as a treatable “condition” (Kopinski, Polus, and Tycholiz 2013).