The dreaded “Dutch Disease”: Economic Impact Avoidance

AUTHOR: Vetumbuavi Mungunda FounderofOmbuCapital

Seventy percent (70%) of Namibia’s livelihoods depend on the two rural sectors of Agriculture and tourism, yet these sectors contribute only 5-7% to

the country’s GDP

The afore explains the high level of poverty and inequality in Namibia with a Gini coefficient index averaging 59 1, the 2nd most unequal society in the world behind only South Africa.

Namibia has an unemployment rate of 33% with the highest number of unemployment being amongst people with qualifications at junior secondary schooling and below Our national budget allocation to agriculture, land reform and water amounts to a paltry 2 45% of total budget (including the development budget) or only 1.57% excluding the development budget. This is especially unjustifiable when viewed against the 7.6% we spend on Defence Further, this is a far cry from the target allocation to Agriculture of 10% as per the Malabo declaration by African Heads of States

Are we not suffering from the Dutch disease already seeing the above data points?

Recent oil discoveries made off the coast of Namibia and developments relating to green hydrogen point to a promising future for Namibia We should congratulate our leaders to getting our country at the leap of the most promising economic future since independence However, these discoveries also require decisive planning to prevent us from falling (or digging deeper) into the traps experienced by other countries when discovering oil, crowding out other sectors into oblivion.

There is a historical structural impediment hampering local small businesses from creating linkages into the formal economic system, resulting from strong barriers to entry for local start-ups, small businesses and the majority of our semi- and unskilled employment force The formal economy is sophisticated and capitalintensive, and unable to absorb or integrate the informal, small enterprises and semi-skilled workforce. It is therefore imperative that Namibia prepares for these discoveries and the emergence of the green hydrogen sub-sector by deliberately creating internal competencies, legislative and regulatory reforms that would maximise benefits from these resources whilst at the same time working to integrate local, rural, small enterprises into the value chains.

To ensure maximum benefits from these resources require that the following areas are prioritised:

Comparative Review of the Petroleum Act, Model Petroleum Agreements and ancillary regulations against model countries to identify opportunities for improvement.

·Comparative Review of the Petroleum Taxation Act and the projected Government Revenue model and Revenue percentage take-out against model countries for insights and opportunities for improvement Development of Financial Models depicting forecast Government Revenue based on current legislation and regulations, whilst presenting scenarios based on key value-drivers.

·Identification of key risks arising from Profit shifting, Transfer pricing, related parties’ transactions and contracts process manipulation, followed by Proposals on key institutional, governance and oversight arrangements necessary to mitigate these risks

The areas of focus to prevent Dutch disease syndrome will require:

Analysis of the potential oil & gas and green hydrogen value-chain linkages into the local economy, with strong emphasis on opportunities for increased local and transformation beneficiation and key policy recommendations

· Local content policy has to be developed that will assess the capacity of local enterprises and skills sets of locals and develop targeted skills and capacity development programmes well ahead of the time before these sectors come into production The above skills and capacity development programme will need to be supported by the finalisation and enactment of laws and regulations especially relating to NIPFA, NEEEB, local skills development programmes and adjacent industry skills gap analysis & mitigation measures.

The question is what are some of the support industries and services for the petroleum and green hydrogen sectors and how can an entrepreneur and average Joe make sure they participate. Most critically, how is average Joe going to be supported to ensure that he or she participates.

Some of the goods and services with potential linkages into these sectors include supply of goods and services (pipes, etc), Maintenance & repairs, Engineering, Sampling, Accommodation, Cleaning, Professional services (Legal, accounting, marketing, etc), Catering, Security & Safety, Spares & warehouses, Transport & logistics, Chartering services, Fuelling & bunkering, Geological, R & D laboratories, Docking, etc

It is important that every effort is deployed today to assess our capacity so as to create linkages into these new sectors. That requires that an undertaking is completed urgently for the mapping of the downstream sector linkages, Assessment of capacity & gaps, Development of plans to close gaps followed by the Development of regulations to enforce these plans

The reality is that most of our unemployed citizens do not have the skills and experience to participate in these two new sectors. We need to be deliberate about integrating the two most rural sectors of agriculture and tourism, which have the potential of absorbing many Namibians into the formal economic system and particularly these two new sectors’ value chains

That means leveraging technologies and using proceeds from these sectors as investment to uplift rural communities into a thriving ecosystem. Unless we act decisively today, the alternate scenario will worsen inequality, unemployment and urban migrations. Until we act intentionally, our current Dutch disease could grow into a full-blown pandemic at the proportions of Covid

Is Namibia on the right track? The conversation continues editor@rdjpublishing.africa

It is an investment and advisory firm with a focus on the rural economic sectors of agri-business and tourism.

Mr. Mungunda is the holder of:

• B. Com (Unam)

• HDipAcc (Rhodes)

• Chartered Accountant (Namibia),

• Chartered Accountant (South Africa)

• AMP (Harvard Business School)