FNB Namibia economist Helena Mboti speaks to Observer Money about Shell’s recent announcement that it will write down approximately US$400 million related to an offshore oil discovery in Namibia, which was deemed commercially unviable. Observer Money asked Mboti how this announcement could impact Namibia’s GDP growth projections.
Observer Money (OM): How does the recent announcement by Shell that it will write down around US$400 million over an oil discovery offshore Namibia that it deemed commercially unviable affect FNB’s future GDP growth projections?
Helena Mboti (HM): While a US$400 million write-off may seem significant relative to the size of the Namibian economy, it’s important to recognize that write-offs are a normal part of exploration activities and not unique to Namibia. While this setback is a blow to the oil and gas industry, it doesn’t warrant panic until we receive FIDs from other appraised wells. It simply means that Shell’s discovery was not commercially viable for them based on their own risk-return assessments. We had not factored a positive FID into our quantitative forecasts. We will only revise our forecasts once we receive final investment decisions from other players or if there is evidence that the challenges highlighted by Shell are systemic and could negatively impact the sector as a whole.
OM: Has FNB ever factored in or projected the future impact of oil, gas and green hydrogen on the Namibian economy?
HM: Not yet. While we have accounted for an increase in spending in line with exploration activity, we have not included production from the industries in our forecasts, as it cannot be quantified without final investment decisions.
OM: What is the projected or expected impact of these industries on the Namibian economy?
HM: As long as value is captured within Namibia, we expect positive economic growth. However, the risk of a resource curse remains, especially in the absence of strong policies to ensure that the benefits are retained within the Namibian economy.
OM: The Shell announcement has come as a bombshell to many in the country, any assurances from you that future growth prospects will not be heavily impacted?
HM: As mentioned earlier, large write-offs during the appraisal process are a normal part of oil exploration, given the significant initial capital risk involved. However, the potential returns from the sector can be substantial, making it still worth pursuing. When exploration began, all stakeholders were aware that write-offs on at least one of the wells were a possibility. Therefore, the country should not panic until we receive decisions from other companies. While there was excitement around the oil industry’s emergence, it’s important to recognise that other sectors, such as agriculture and transport, also offer growth potential. We should focus on fostering growth in these existing industries to contribute to economic expansion, whether oil exploration proves successful, ensuring broad-based growth and diversification. This announcement should be seen as a cautionary reminder to invest wisely in our other sectors.
