Government cautioned not to bet on oil, green hydrogen

The World Bank has issued a cautionary statement to Namibia regarding its reliance on newly discovered oil and gas resources, as well as the emerging green hydrogen industry, as potential drivers of future economic growth. In its country framework partnership (CFP) report, the World Bank highlighted the considerable uncertainty surrounding Namibia’s economic outlook in the medium term.

“Namibia’s economic outlook is subject to considerable uncertainty in the medium-term. Promising developments in the areas of green hydrogen and petroleum could boost economic growth, while creating significant fiscal space for the government through additional revenue,” the World Bank stated.

The assessment also delved into the extent of potential investments in both the oil and gas sectors, along with green hydrogen. However, the timing and scale of these anticipated investments remain largely unknown. This uncertainty complicates their integration into Namibia's macroeconomic and fiscal framework.

“Moreover, their potential impacts on economic growth will also greatly depend on the use of the revenues collected by the government and other factors such as the governance framework and the development of associated value chains that could generate employment at a significant scale,” it added.

According to the National Petroleum Corporation of Namibia (Namcor), Namibia has the potential to become one of the leading global producers of oil and gas by the 2030s, which could result in a doubling of its Gross Domestic Product (GDP) per capita. However, the World Bank cautioned that the commercial viability of these discoveries is still uncertain due to fluctuating oil demand. The offshore fields lie in deep waters, complicating extraction efforts and increasing costs. Furthermore, Namibia will need to establish essential infrastructure, including pipelines and export terminals, to facilitate oil transport and sales.

Despite widespread optimism about the oil and gas sector's ability to drive economic growth, the World Bank warned that Namibia risks increased exposure to boom-bust economic cycles. “If Namibia can successfully manage these factors, a final investment decision could be reached in 2025, and oil production could begin by 2029. How Namibia manages its hydrocarbon wealth will be critical, as oil and gas development can bring about both upside and downside risks including revenue volatility, increased exposure to boom-bust cycles, and stranded assets as global energy demand shifts to lower-carbon sources,” it explained.

The report also addressed the green hydrogen sector, noting that it is still in its infancy regarding development. “With respect to green hydrogen, while Namibia’s comparative advantage in renewable energy has generated interest from several investors and a pipeline of projects is under active development, the industry is still nascent globally,” stated the World Bank.

For Namibia to realise its ambitions in green hydrogen as part of a broader green industrialisation strategy, it must create a conducive policy framework. “Its development will depend on policy, technology, donor support, and global market developments. Namibia’s ambitions to leverage green hydrogen is part of its wider green industrialisation strategy which could establish a new growth trajectory, creating significant employment,” it noted.

However, achieving this vision will require substantial investment in renewable energy and export infrastructure alongside policies designed to attract and protect investors. The challenges ahead include securing financing, developing a skilled technical workforce, addressing water scarcity issues, and mitigating potential environmental impacts from large-scale production.