This piece by Robin-Sherbourne summarises the experiences of seven major oil and gas producing countries in Sub-Saharan Africa – Angola, Equatorial Guinea, Gabon, Ghana, Mozambique, Nigeria and Uganda – which may hold important lessons for Namibia and also briefly analyses some of the main economic challenges that Namibia will face as it seeks to exploit its newly discovered hydrocarbon resources.
On 10 January 2022, industry trade magazine Upstream reported that Shell had made a major oil discovery at its Graff-1 well offshore in southern Namibia.
Since then, Shell has confirmed the find, followed by an announcement in February by TotalEnergies that it had made a second discovery at its Venus well not far from Graff-1.
It has become clear that Namibia is on the brink of a substantial discovery of oil and gas. However, the exact quantities have yet to be determined with greater precision.
This feature briefly summarises the experiences of seven other major oil and gas producing countries in Sub-Saharan Africa – Angola, Equatorial Guinea, Gabon, Ghana, Mozambique, Nigeria and Uganda – which may hold important lessons for Namibia and also briefly analyses some of the main economic challenges that Namibia will face as it seeks to exploit its newly discovered hydrocarbon resources.
Angola
With a population of 32.9 million people, lower-middle-income Angola was the fourth largest oil producer in Africa after Nigeria, Libya and Algeria and ranked 18th in the world in 2021. Its economy is heavily dependent on the oil and gas sector. The crude oil sector accounts for about one-third of the country’s GDP and 95% of its exports.
The first commercial oil discovery occurred in 1955 in the onshore Kwanza Basin. Since that discovery, Angola’s oil industry has grown substantially despite a civil war from 1975 to 2002.
Deepwater exploration in Angola began in the early 1990s, and 1994, deepwater blocks were licensed, which led to more than 50 significant discoveries. The first deepwater field to come online was the Chevron-operated Kuito field in late 1999, and oil production boomed as several deepwater fields came online up to 2008.
The majority of the proven reserves are in the offshore parts of the Lower Congo and Kwanza Basins. Most exploration activity in Angola is conducted offshore at depths of more than 1,200 metres, with the lion’s share of exploration and production activities located in the offshore part of the Lower Congo Basin.
Most of the drilling is by industry supermajors and state-owned Sonangol. Major companies active in Angola include Total, Chevron, Exxon Mobil, and BP.
Sonangol owns one oil refinery in Luanda, and three are under development. Angola also exports LNG from a single LNG plant at Soyo in the north. Policy towards the sector is implemented by the Ministry of Petroleum and the National Oil Gas and Biofuel Agency (ANPG), while Sonangol, founded in 1976, is the operational arm of government in the industry.
The former president’s daughter, Isabel dos Santos, was fired as head of Sonangol two months after President João Lourenço came to office in 2017. Angola established a sovereign wealth fund, Fundo Soberano de Angola (FSDEA), in 2012. In 2007, Angola became a member of the Organisation of the Petroleum Exporting Countries (OPEC). The IMF classifies Angola’s exchange rate regime as an “other managed arrangement” (which cannot be easily classified under other categories of exchange rate arrangements). Angola has credit ratings from Moody’s (B3 stable), Fitch (B- stable) and S&P (B- stable).
Transparency International ranks Angola 136th out of 180 countries on its Global Corruption Perceptions Index, scoring 29. Angola was admitted to the EITI in 2022 but has yet to be assessed.
Equatorial Guinea
With a population of 1.4 million, upper-middle-income Equatorial Guinea was Africa’s tenth-largest oil producer and ranked 39th in the world in 2021.
Its economy is heavily dependent on the offshore oil and gas sector based around the Alba, Ceiba, and Zafiro fields following the discovery of oil in the Zafiro field by Exxon Mobil in 1995, followed by Triton’s discovery further south in the Ceiba field in 1999. The industry continues to be dominated by US oil companies.
Equatorial Guinea has no oil refinery but possesses a large Bioko oil storage terminal. Equatorial Guinea also exports LNG from a single LNG plant at Punto Europa, built in 2007, and in 2016, opened a CNG plant powering a fleet of public buses. The Ministry of Mines and Hydrocarbons implements policy towards the sector, while the national oil company GEPetrol, formed in 2002, and the national gas company Sonangas, formed in 2005, provide for state participation in the oil and gas sector. Equatorial Guinea established a sovereign wealth fund, Fonds de Réserves pour Générations Futures (FRGF), in 2002. In 2017, Equatorial Guinea became a member of the Organisation of the Petroleum Exporting Countries (OPEC). As a member of the Central African Economic and Monetary Community (CEMAC), the IMF classifies Equatorial Guinea’s exchange rate regime as a “conventional peg” tied to the Euro. Equatorial Guinea does not have credit ratings from the three major credit rating agencies. Moody’s, Fitch, and S&P. Transparency International ranks Equatorial Guinea 172nd out of 180 countries on its Global Corruption Perceptions Index with a score of 17.
Equatorial Guinea joined the EITI in 2008 but left in 2010 and has not been readmitted. President Teodoro Obiang Nguema Mbasogo has been in power since 1979.
Gabon
With a population of 2.2 million, upper-middle-income Gabon was Africa’s eighth-largest oil producer and ranked 36th in the world in 2021. Oil was first discovered near Gabon’s capital, Libreville, in 1931 when the country was still a French colony.
During the 1960s, Gabon saw an upsurge in exploration and production activity, which led to a dramatic increase in production. The economy is now heavily dependent on the sector, which has in the past accounted for 80% of exports, 45% of GDP, and 60% of fiscal revenue. Gabon’s oil industry is based on onshore and offshore, including shallow and deepwater wells. Gabon has a single refinery, the Sogara Refinery in Port Gentil, which is owned by Société Gabonaise de Raffinage (SOGARA), a joint venture between Total, the government, Portofino Assets Corporation, Petro Gabon, and ENI. The Ministry of Mines and Petroleum implements policy towards the sector. Gabon established a sovereign wealth fund, Fonds Gabonais d’Investiseements Strategiques (FGIS), in 2012. Gabon became a member of the Organisation of the Petroleum Exporting Countries (OPEC) in 1975 but terminated its membership in 1995 before rejoining in 2016. As a member of the Central African Economic and Monetary Community (CEMAC), the IMF classifies Gabon’s exchange rate regime as a “conventional peg” tied to the Euro.
Gabon has credit ratings from Moody’s (Caa1 stable) and Fitch (B- stable) but not S&P. Transparency International ranks Gabon 134th out of 180 countries on its Global Corruption Perceptions Index with a score of 31.
Gabon joined the EITI in 2007 but was delisted in 2013 before being readmitted in 2021 but has yet to be assessed. Omar Bongo was the second president of Gabon from 1967 until he died in 2009 when he was succeeded by his son Ali Bongo, who remains president to this day.
Ghana
With a population of 31.1 million people, lower-middle-income Ghana was the seventh-largest oil producer in Africa and ranked 34th in the world in 2021.
Although onshore drilling in Ghana goes as far back as 1896, Tullow Oil and Kosmos Energy discovered significant commercial oil reserves in the offshore Jubilee field only in 2007, with oil production commencing in 2010. Output has since been supplemented by further offshore production from the Twenboa-Enyenra-Ntomme (TEN) in 2016 and Offshore Cape Three Points (OCTP) fields in 2017 operated by Tullow and Eni, respectively.
Ghana started full commercial natural gas production at the Jubilee field in 2014, with natural gas transported via a pipeline from the Kwame Nkrumah FPSO to the onshore Atuabo natural gas processing facility, which is used for domestic power generation.
Ghana has one oil refinery, the state-owned Tema Oil Refinery in Tema, established in 1960, but has ambitious plans to create a petroleum hub involving four new refineries by 2030. Policy towards the sector is implemented by the Ministry of Energy and Petroleum and regulated by the National Petroleum Authority (NPA). The Ghana National Petroleum Corporation (GNPC) is the state-owned company responsible for exploiting, developing, and distributing petroleum. Ghana established a sovereign wealth fund, Ghana Petroleum Funds (including the Ghana Stabilisation Fund and Ghana Heritage Fund), in 2015. Ghana is not a member of the Organisation of the Petroleum Exporting Countries (OPEC). The IMF classifies Ghana’s exchange rate regime as “floating”. Ghana has credit ratings from Moody’s (Caa1 stable), Fitch (B- negative) and S&P (B- stable). Transparency International ranks Ghana 73rd out of 180 countries on its Global Corruption Perceptions Index with a score of 43. Ghana joined the EITI in 2007 and was assessed to have made “meaningful progress” in 2020.
Ghana was the first country in sub-Saharan Africa to achieve independence in 1957 and has had regular and democratic president changes since the 1990s.
Mozambique
With a population of 31.3 million people, low-income Mozambique does not produce any crude oil or have any refining capacity but has the third largest natural gas deposits in Africa after Algeria and Nigeria since the discovery of a massive gas field in the deepwater Rovuma Basin, which lies off the northern coast of the country in 2010 by Anadarko.
This discovery attracted gas majors, including TotalEnergies, ExxonMobil, ENI and CNOOC.
This led to the go-ahead in 2019 for the construction of a US$20 billion gas liquefaction and export terminal at the Afungi site in Cabo Delgado – Africa’s most significant investment – which was later sold to TotalEnergies after Occidental bought Anadarko.
The project was due to come on stream in 2024, but nearby Palma was subject to a high-profile attack by Islamic militants in March 2021 as part of a 3-year insurgency, which forced TotalEnergies to halt work on the project. ExxonMobil and ENI are completing a second larger Romuva LNG plant due to come on stream later in 2022.
Policy towards the sector is implemented by the Ministry of Mineral Resources and Energy and regulated by the Autoridade Reguladora de Energia (ARENE). The state-owned Empresa Nacional de Hidrocarbonetos (ENH) provides for active participation in the industry.
Mozambique does not have a sovereign wealth fund, but plans are afoot to establish one later this year. Mozambique is not a member of the Organisation of the Petroleum Exporting Countries (OPEC). The IMF classifies Mozambique’s exchange rate regime as “floating”.
Mozambique has credit ratings from Moody’s (Caa2 positive), Fitch (CCC) and S&P (CCC+ stable). Transparency International ranks Mozambique 146th out of 180 countries on its Global Corruption Perceptions Index with a score of 26. Mozambique joined the EITI in 2009 and was assessed to have made “meaningful progress” in 2019.
Nigeria
With a population of 206.1 million people, lower-middle-income Nigeria was the largest oil producer in Africa and ranked 14th in the world in 2021. and is one of the world’s top LNG exporters. The country heavily depends on the sector, which accounts for over 80% of exports, a third of banking sector credit, and half of government revenues. Oil was first discovered by Shell D’Arcy (Shell-BP) in 1956 at Oloibiri in the Niger Delta, after which the sector opened up to international oil companies in the 1960s. The industry comprises offshore and onshore wells concentrated around the Niger Delta, with offshore wells in up to 1,700m of water. Nigeria’s first LNG exports commenced in 1999 from Nigeria LNG’s Bonny Terminal.
Formed in 1999, NLNG is a joint venture owned by NNPC, Shell, Total and ENI. NLNG started producing LPG in 2007.
Nigeria has three major oil refineries, all owned and run by the NNPC: Port Harcourt I and II, Warri, and Kaduna, plus a smaller private-owned one in Ogbele. The Federal Ministry of Petroleum Resources implements policy towards the sector, while the Nigerian National Petroleum Corporation (NNPC), formed in 1977, provides for state participation in the oil and gas sector. Nigeria established the Nigeria Sovereign Investment Authority (NSIA) in 2011.
Nigeria joined the Organisation of the Petroleum Exporting Countries (OPEC) in 1971. The IMF classifies Nigeria’s exchange rate regime as a “stabilised arrangement” linked to the US dollar. Nigeria has credit ratings from Moody’s (B2 stable), Fitch (B stable) and S&P (B- regular). Transparency International ranks Nigeria 154th out of 180 countries on its Global Corruption Perceptions Index with a score of 24. Nigeria joined the EITI in 2007 and was assessed to be making “satisfactory progress” in 2019.
Uganda
With a population of 45.7 million people, low-income Uganda is not yet an oil or gas-producing country.
Although oil seeps have been known about since at least the 1930s, commercial reserves were only discovered by Tullow in Lake Albert on Uganda’s north-western border with the Democratic Republic of Congo in 2006. But successive problems over tax, a planned refinery, and, not least, the challenge of how to build the 1,443 km electrically heated pipeline (the world’s longest) needed to export the crude from the Total and CNOOC wells in Lake Albert to Tanga in Tanzania, led to repeated delays and questions over whether the project would ever be realised.
In February this year, TotalEnergies, China National Offshore Oil Corporation (CNOOC) and the Uganda National Oil Company gave the green light to the US$10 billion pipeline project.
Oil production from the Tilenga project, operated by Total, and the Kingfisher project, run by CNOOC, is expected to start in 2025. Uganda is expected to surpass Gabon in oil production. A UN study forecasts that oil will raise government revenues by a third over the estimated three-decade life of the project.
Policy towards the sector is implemented by the Ministry of Energy and Mineral Development and the Petroleum Authority of Uganda, while the Uganda National Oil Company (UNOC), established in 2014, provides for state participation in the oil and gas sector.
The UNOC subsidiary Uganda Refinery Holding Company will be responsible for the refinery currently under development. The IMF classifies Uganda’s exchange rate regime as “floating”. Uganda has credit ratings from Moody’s (B2 stable), Fitch (B+ negative) and S&P (B stable). Transparency International ranks Uganda 144th out of 180 countries on its Global Corruption Perceptions Index, scoring 27.
Uganda joined the EITI in 2020 and has yet to be assessed. President Yoweri Museveni has been in power since 1986. Key Issues Exploiting oil and gas resources will pose various challenges for Namibian economic policymakers. The sooner they start thinking about them, the better. Timescale The first is one of timing. It is one of the ironies of fate that Namibia had just sought to present itself to the world at CoP26 in November 2021 as a model green economy when oil was discovered shortly afterwards.
Namibia has always been thoroughly signed up to global action to address climate change through the United Nations Framework Convention on Climate Change (UNFCCC). CoP26 recognised the need to halve greenhouse gas emissions by 2030, achieve net zero CO2 by 2050, and limit global temperature rise to 1.5 degrees or “well below 2 degrees”. Following CoP26, 136 countries had adopted net zero targets covering 88% of global emissions, 90% of global GDP and 85% of the world’s population.
“In a landmark study published in May 2021, the IEA published a Roadmap of 400 milestones to reach Net Zero by 2050 and stated: “…from today, no investment in new fossil fuel supply projects, and no further final investment decisions for new unabated coal plants.
“By 2035, there are no new internal combustion engine passenger cars sales, and by 2040, the global electricity sector has already reached net-zero emissions.”
However, there are no strong incentives for individual countries, especially developing countries, to forgo the exploitation of fossil fuel resources.
The Namibian government has been transparent that it intends to do so, with Mines and Energy Minister Tom Alweendo asserting that Namibia will not “suffocate itself by cutting off potential oil and gas resources that will assist in solving our problems”.
However, given global commitments by countries and energy companies, the window allowing Namibia to do so is closing. “This was the right time to make a discovery,” Emmanuelle Tutenuit, deputy director of Africa for TotalEnergies, said at a conference in Windhoek recently.
“In 10 years, it might be too late with those moving to net zero.” Both Shell and TotalEnergies have committed themselves to Net Zero by 2050. The interests of Namibia and the energy companies
are aligned in terms of wanting to exploit the resource. At the same time, it is still possible to do so, but technical challenges (the resource lies in water depths of 3,000 metres) and haggling over taxation, refineries, onshore infrastructure, local content and employment, as well as a harsh offshore operating environment, could slow things down significantly. The examples of Uganda (where oil was discovered in 2006 but has yet to start flowing) and Mozambique (where gas was discovered in 2010 but has yet to be exported as LNG) above are instructive.
As highlighted in several previous QERs, although there appears to be no talk of changing the oil and gas taxation regime established after independence, vital legal elements of Namibia’s investment framework – the Namibia Investment Promotion Act and the National Equitable Economic Empowerment policy – remain in limbo.
Authoritative consultancy Wood MacKenzie assumes the first oil could flow in 2028 from an initial development via more than 35 production wells tied back to a leased FPSO (Floating Production, Storage and Offloading). However, the more uncertainty and haggling there is, the greater the delay in production will be.
Taxation
Namibia has a long-standing special taxation regime for oil and gas established in the early 1990s, which remains un-tested given oil and gas have never been produced.
Any income generated by a petroleum oil and gas operation is taxed under the Petroleum Taxation Act of 1991. The tax is assessed based on the profitability of each licence area, and each licence area is ring-fenced for tax purposes. The holder of a production licence pays a levy of either 12.5% or 5%, depending on when the exploration licence was issued. In addition to the normal profits tax of 35%, the after-tax net cash flow generated from petroleum activities in each licence area is subject to an additional profits tax (APT). The APT is based on a formula levied in cases where a licence area earns an after-tax inflation-adjusted rate of return of 15%, 20% and 25%.
However, the tax rates are negotiable, and agreed rates are set out in each Petroleum Agreement signed between the government and the investor. This taxation regime is in line with best practices internationally. Still, if experience with mining taxation is anything to go by, it could be subject to unexpected change, giving rise to considered uncertainty for investors. On the public perception that Namibia will not receive its rightful share of oil and gas revenue, Finance Minister Iipumbu has been quoted as saying, “Namibians misunderstand this. They believe we have found oil and will not get much from this. The context is that the government has a tax regime and collects its share through taxes, royalties and company taxes. If you look at that cake, about 60% comes to the government through taxes.” 1 Revenue and Expenditure It is still early days, but Wood MacKenzie estimates Graff and Venus could rank among the top 20 global discoveries in the last decade with the potential to turn Namibia into the third largest producer of oil in Sub-Saharan Africa with revenues peaking at US$5.6 billion by the mid-2030s.
Countries with significant oil and gas revenues often “bank” revenues in a sovereign wealth fund, where they are invested for future generations or to help cushion unexpected economic shocks.
Examples include Angola, Equatorial Guinea, Gabon, Ghana, and Nigeria above. Namibia formally launched its own Welwitschia sovereign wealth fund on 12 May 2022.
While the public finances are extremely tight (to say the least), this welcome initiative should stand Namibia in good stead if properly managed. Experience with mining – especially the diamond mining industry – does not give much cause for hope regarding transparency. A past QER (QER Q3 2020) showed just how opaque Namibia’s most important industry is. Namibia’s relatively small population of 2.5 million means that revenues per capita will be substantial. It is available to download free of charge from www.ippr.org.na. The opinions expressed herein do not necessarily reflect those of the Hanns Seidel Foundation. IPPR With substantial revenues from oil and gas, the government will be faced with the choice between spending or saving or some combination.
Economically speaking, spending should be preferred if the economic returns from expenditure exceed the returns from saving.
Unfortunately, Namibia’s record of cost suggests economic considerations do not play a major role in public spending decisions. There is a danger that spending will again focus on fostering a bloated and unproductive public sector focussed on Windhoek, which draws in skilled human resources from the rest of the economy, or on unproductive white elephants but does little for long-term economic prosperity. Substantial revenues will give Namibia the option of meaningful participation in industrial and infrastructure projects it would otherwise leave to the private sector (including green hydrogen). But oil and gas revenues will also affect social spending and allow Namibia to fund its climate adaptation initiatives.
Revenues per capita may be such that a meaningful Basic Income Grant (BIG) can be introduced, which channels cash directly to citizens, including the poorest. Currency Namibia belongs to a currency arrangement whereby its currency is pegged to the South African Rand and where the Rand remains legal tender. Hints have already been dropped that oil may allow Namibia to break with this arrangement.
Regarding green hydrogen, presidential economic advisor James Mnyupe says: “At the core of these objectives, greater sovereign autonomy remains a fundamental aspiration. Within this opportunity, Namibia has a realistic chance of becoming energy-independent and, in the process, saving N$3 billion in foreign reserves we spend to import power every year, contribute to a regional decarbonisation agenda and earn enough stable foreign income that could one day allow us to moot floating our currency realistically?”
It is striking how few major oil-producing countries have fixed currency arrangements, partly because petro-currencies tend to behave differently (varying primarily according to oil price) than non-petro-currencies.
However, some countries choose to peg their exchange rate against other currencies. Equatorial Guinea, Gabon and the Republic of Congo, along with Cameroon, Chad and the Central African Republic, are pegged to the Euro as part of the Central African Economic and Monetary Community (CEMAC), whilst Nigeria has spent decades without a peg managing an overvalued exchange rate. Quite where this leaves continental monetary integration (which Namibia has also signed up to), yet there will be a need to prevent the currency from undue appreciation and thereby under-mining other export industries, in which case a peg might help. But to which currency and how adjustable?
Economic Diversification
The classic resource curse or Dutch disease so well documented in the economics literature works differently. For example, excessive revenues inflate the public sector, and dollar export earnings exert upward pressure on the exchange rate, which renders other export sectors less viable. Combined with the effect on where scarce skilled workers end up, these impact negatively on other export sectors and inhibit economic and export diversification. Only greater diversification will generate employment for the majority as the oil and gas sector is highly capital and skill-intensive.
Namibia’s track record on economic diversification is already poor, and special efforts will have to be made on currency management, public investment, and skills will have to be made if the strong forces that act against economic diversification are to be countered. There is a danger that, with oil and gas, the government will conclude it doesn’t need other outside investors and consciously or unconsciously throw in the towel on export diversification.
Local Ownership
The Graff-1 and Venus wells have both involved Namcor as a partner (Shell 45%, QatarEnergy 45% and Namcor 10% in the former and TotalEnergies 40%, QatarEnergy 30%, Impact Oil and Gas 20%, and Namcor 10%). The Namibian State, therefore, has a 10% involvement in both projects. A key question is whether the offshore find can lead to economic linkages that bring further economic benefits to Namibia or whether the industry remains an isolated offshore island generating revenue but little else for the domestic economy. Corruption Perhaps the greatest danger is that the presence of substantial revenues leads to higher levels of corruption.
The presence of a huge pot of money makes it easy for politicians and those connected to them to syphon off rents. Most countries described above have exceedingly poor track records on corruption, although it is unclear whether the presence of hydrocarbons caused the corruption problem in the first place or simply exacerbated an already bad situation.
Namibia scores better on Transparency International’s Corruption Perceptions Index than other African oil and gas producers, but its anti-corruption institutions – both public and non-governmental – will need to be strengthened if greater levels of corruption are to be avoided.
Joining the Extractive Industries Transparency Initiative (EITI)3 would send a clear signal of positive intentions and allow Namibia greater access to international best practices when it comes to avoiding many of the dangers associated with oil and gas, but so far, Namibia has not been keen to join. OPEC membership A further choice is whether Namibia joins the 13-member Organisation of Petroleum Exporting Countries (OPEC)4 and coordinates oil production with other countries.
Angola, Equatorial Guinea, Gabon, Nigeria and the Republic of Congo are currently members. Since 2016, OPEC+ has included a further ten countries with which OPEC tries to stabilise global supply: Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan. It would be worth exploring whether membership could be beneficial and looking at the experiences of other African oil producers.
Conclusions
The discovery of commercially significant quantities of oil and gas will have major consequences for Namibia and many aspects of economic policy: taxation, revenue and expenditure, currency, economic diversification, local ownership, local ownership, corruption and membership in important international organisations. There is a huge range of experiences within Africa and further afield upon which policymakers and politicians can draw to ensure the country avoids the resource curse and makes the most out of this resource before the global energy transition renders it a stranded asset.
The sooner policymakers start addressing these issues, the better. After all, forewarned is forearmed.
*Robin-Sherbourne is an independent freelance economist and the founding Director of Windhoek-based IPPR in 2000 and the author of “Guide to the Namibian Economy
