Can Namibia avoid 'Dutch disease' as the green hydrogen sector emerges?
OPINION
Over the past two years, Namibia has been the centre of attraction worldwide in so far as green hydrogen is concerned.
Notably, the launch of a series of large-scale projects has positioned Namibia as a destination for green energy project developers and financiers alike. Shockingly, the recent political parties’ manifestos that I perused did not say much on this emerging sector. However, that is a topic of another day.
It is inevitable that Namibia stands on the brink of a major economic transformation with the emergence of its green hydrogen sector, a venture that holds immense promise for the country's renewable energy ambitions and economic growth.
However, this development also brings a familiar challenge that resource-rich countries face: the threat of 'Dutch disease'.
Dutch disease refers to a situation where a sudden influx of wealth from a booming sector, typically natural resources, leads to the decline of other economic sectors, especially manufacturing and agriculture. This occurs due to an overreliance on one industry, causing the local currency to strengthen, which makes exports from other sectors more expensive and less competitive.
With Namibia's green hydrogen sector projected to generate billions in revenue, the key question is: Can we avoid the Dutch disease as the green hydrogen sector emerges?
Of course we could argue that when a country’s currency is pegged to another, as Namibia’s dollar is pegged to the South Africa rand, it can offer some insulation against the traditional symptoms of Dutch disease, such as rapid currency appreciation. However, pegging the currency does not fully eliminate the risk of Dutch disease affecting other sectors. Therefore, we need to ensure that we are ahead of time, as in yesterday.
Mitigating strategies
Namibia must strategise to avoid the pitfalls that come with rapid growth in a single sector. There is no one size fits all, but there are several steps, in no particular order, that can help mitigate this risk.
Firstly, we must invest in diversifying its economy beyond green hydrogen. Strengthening sectors such as agriculture, manufacturing and tourism can ensure that the country does not become too reliant on one industry. Secondly, revenue from green hydrogen should be managed prudently.
We should make use of the existing sovereign wealth funds or establish others specifically for this sector to ensure that we allocate funds for infrastructure, education and health, which can ensure long-term benefits for the broader economy.
Thirdly, developing the skills and capacities of Namibians to work in a variety of sectors is crucial. We must continue to invest in education and vocational training to prevent the green hydrogen sector from monopolising the country's workforce. Lastly, Namibia can avoid Dutch disease by strengthening local value chains by ensuring that the green hydrogen sector supports, rather than weakens, other industries. Developing local supply chains and fostering technological innovation across sectors can create sustainable economic growth.
Namibia has the opportunity to harness green hydrogen as a catalyst for national development. However, careful planning and a commitment to long-term, diversified growth will be essential to avoid the economic pitfalls associated with Dutch disease. By doing so, Namibia can ensure that the benefits of its green hydrogen revolution are felt across the entire economy for generations to come.
*Peya Junior Mushelenga is a national development advisor at the National Planning Commission (NPC) and a full-time master's of public administration (national development) student at Peking University in China. He holds a B-tech in Economics (Polytech), a bachelor degree in economics with honours (NUST), and an and an MBA-Strategy (UNAM-NBS). The views expressed in this opinion piece are his own views.
Notably, the launch of a series of large-scale projects has positioned Namibia as a destination for green energy project developers and financiers alike. Shockingly, the recent political parties’ manifestos that I perused did not say much on this emerging sector. However, that is a topic of another day.
It is inevitable that Namibia stands on the brink of a major economic transformation with the emergence of its green hydrogen sector, a venture that holds immense promise for the country's renewable energy ambitions and economic growth.
However, this development also brings a familiar challenge that resource-rich countries face: the threat of 'Dutch disease'.
Dutch disease refers to a situation where a sudden influx of wealth from a booming sector, typically natural resources, leads to the decline of other economic sectors, especially manufacturing and agriculture. This occurs due to an overreliance on one industry, causing the local currency to strengthen, which makes exports from other sectors more expensive and less competitive.
With Namibia's green hydrogen sector projected to generate billions in revenue, the key question is: Can we avoid the Dutch disease as the green hydrogen sector emerges?
Of course we could argue that when a country’s currency is pegged to another, as Namibia’s dollar is pegged to the South Africa rand, it can offer some insulation against the traditional symptoms of Dutch disease, such as rapid currency appreciation. However, pegging the currency does not fully eliminate the risk of Dutch disease affecting other sectors. Therefore, we need to ensure that we are ahead of time, as in yesterday.
Mitigating strategies
Namibia must strategise to avoid the pitfalls that come with rapid growth in a single sector. There is no one size fits all, but there are several steps, in no particular order, that can help mitigate this risk.
Firstly, we must invest in diversifying its economy beyond green hydrogen. Strengthening sectors such as agriculture, manufacturing and tourism can ensure that the country does not become too reliant on one industry. Secondly, revenue from green hydrogen should be managed prudently.
We should make use of the existing sovereign wealth funds or establish others specifically for this sector to ensure that we allocate funds for infrastructure, education and health, which can ensure long-term benefits for the broader economy.
Thirdly, developing the skills and capacities of Namibians to work in a variety of sectors is crucial. We must continue to invest in education and vocational training to prevent the green hydrogen sector from monopolising the country's workforce. Lastly, Namibia can avoid Dutch disease by strengthening local value chains by ensuring that the green hydrogen sector supports, rather than weakens, other industries. Developing local supply chains and fostering technological innovation across sectors can create sustainable economic growth.
Namibia has the opportunity to harness green hydrogen as a catalyst for national development. However, careful planning and a commitment to long-term, diversified growth will be essential to avoid the economic pitfalls associated with Dutch disease. By doing so, Namibia can ensure that the benefits of its green hydrogen revolution are felt across the entire economy for generations to come.
*Peya Junior Mushelenga is a national development advisor at the National Planning Commission (NPC) and a full-time master's of public administration (national development) student at Peking University in China. He holds a B-tech in Economics (Polytech), a bachelor degree in economics with honours (NUST), and an and an MBA-Strategy (UNAM-NBS). The views expressed in this opinion piece are his own views.
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