Preparing the Future: Hage Geingob’s Blazing Creation of Namibia’s First Sovereign Wealth Fund

  • President Hage Geingob’s strategic vision for Namibia’s oil wealth is centred on the establishment of the Welwitschia Fund. Aim: To harness the nation’s resources for the benefit of future generations, demonstrating a forward looking approach
  • The Welwitschia Fund may not yield immediate benefits, but it reflects a visionary approach to addressing long-standing socio-economic issues in Namibia, particularly benefiting the country’s youth.
  • Evaluating the effectiveness of Sovereign Wealth Funds (SWFs) and their impact on national development is crucial. Questions about the environmental implications of oil wealth management also warrant consideration, as these funds play a pivotal role in shaping a nation’s economic and environmental future.

Why is Geingob Blazing?

Answer: In 2022, Namibia- through President Geingob, introduced the Welwitschia Fund to secure economic prosperity for Namibia given the recent discovery of oil in the Orange Basin.

The President of Namibia, Hage Geingob came into power in 2015 and has displayed a strong commitment to preserving Namibia’s resources notably through the Welwitschia Fund. Namibia’s first Sovereign Wealth Fund (SWF) was introduced in 2022 following the recent discoveries of oil in the Kavango basin  in February 2022, and in the Orange basin  in March 2023. Namibia is rich in natural resources- particularly oil and natural gas with a GDP of 12.3 billion USD and a HDI  of 0.6 (2021). The mining sector stands out as the primary driver of Namibia’s economic hope and prosperity. Despite this, persistent socio-economic challenges in the form of high poverty levels of 53% and 46.1% youth unemployment continue to exist.

Geingob’s governance goal of creating inclusive prosperity for all Namibians is showcased through the diversification of economic activities and value addition through appropriate value chains as seen in his Harambee Prosperity Plan. The Harambee Prosperity Plan serves as a comprehensive blueprint for driving sustainable economic growth. It encourages the development of key sectors and the integration of value-adding processes particularly in product diversification and promoting their domestic markets. This strategy aligns closely with the approaches of Kenya and Ghana where they have respective percentages of 59% and 62% in export product diversification opportunities. These figures signify potential benefits for initiating structural changes in their economies. Through this plan, President Geingob seeks to create a more resilient and competitive economy, capable of withstanding global challenges and offering opportunities for entrepreneurship, job creation, and wealth distribution.

Under Geingob’s leadership, Namibia has embarked on a transformative journey  aimed at not only expanding the scope of economic activities but also enhancing the potential energy value brought by the oil wave. This approach to economic development reflects the President’s dedication to ensuring that the benefits of growth are accessible to all citizens, thus reducing disparities and promoting broad-based prosperity. While the goal is to reduce disparities and promote broad-based prosperity, it may be argued that insufficient detail on specific social programs and policies aimed at achieving this goal can exist causing the failure of the SWF- as seen in the Venezuelan case. Concerns about the equitable distribution of economic benefits and potential impacts on social inequality could arise. However, Geingob’s governance goals of ensuring economic growth remains relevant here where he aims at continuously mitigating the effects of the global economic downturn, debt and deficit levels.

The Welwitschia Fund adopts a similar approach to Norway’s Pension Fund, the most prominent example of an oil funded Sovereign Wealth Fund. The system will comprise two distinct accounts: (1) A liquid stabilisation account designed to mitigate the adverse impacts of macroeconomic shocks and safeguard the foreign reserve position, (2) a prolonged intergenerational savings account, with the Bank of Namibia overseeing the management of both accounts.

The proactive strategy of the Welwitschia Fund aligns with Geingob’s commitment  for sustainable development and economic growth. This has the potential of fostering diplomatic relations with other countries. Notably, collaborations with Qatar and Angola– the largest oil producer in Africa, on energy security, decarbonization and sustainable development have emerged. In essence, Geingob’s heat level can therefore be characterised as ‘blazing’ -derived from his efforts to reinvest wealth into the country and enhance diplomatic relations through the fund with minimal opposition.

What is changing Geingob’s temperature?

Answer: The Welwitschia Fund is unlikely to deliver noticeable benefits for Namibians within the next decade. Nevertheless, given the prominent socio-economic challenges like poverty and inequality, today’s youth will lean towards this hopeful approach

Namibia, like many developing nations, grapples with high levels of poverty and inequality. These challenges have deep-rooted historical and structural causes, making them difficult to address in the short term. In response, the government under President Geingob’s leadership launched the Welwitschia Fund to signify a long-term commitment to securing the nation’s long term economic stability. As the fund grows over time, it will generate returns that can be reinvested in education, healthcare, infrastructure, and other critical areas, providing opportunities for the country’s youth and future generations to thrive.

When compared to established Sovereign Wealth Funds (SWFs) globally, such as those in Saudi Arabia, the UAE, and Norway, several critical factors come into focus. Where Namibia’s Welwitschia Fund faces the challenge of delayed substantial benefits, with projections extending beyond 2031 , this extended timeline aligns with the intricate nature of economic development and the necessary preparations for significant gains. In contrast, the Public Investment Fund of Saudi Arabia demonstrated an accelerated return rate, yielding substantial returns 29 years after its launch- further due to their revenue diversification and projects with faster payback periods. With respect to the economic dependency Namibia has on the oil market, UAE , Saudi Arabia and Norway  differ as they have diversified the sources of revenue funding their respective SWFs to reduce the risk from global market fluctuations.

While the fund may not yield immediate returns in the next decade, understanding the risks and potentials associated with the Welwitschia Fund is crucial for its success. Namibia’s reliance on oil revenues for the fund exposes it to global market fluctuations. The extended timeline for substantial returns poses challenges in addressing immediate socio-economic issues. Ensuring effective governance and transparency in fund management is crucial to avoid pitfalls encountered by some failed SWFs globally. Successful growth of the fund can lead to opportunities for job creation, contributing to the reduction of poverty and inequality. Returns from the fund can be reinvested in critical areas like education, healthcare, and infrastructure, enhancing overall societal well-being.

Drawing lessons from both successful and failed SWFs is imperative for Namibia’s Welwitschia Fund.Venezuela’s mismanagement and economic instability resulted in the failure of Fonden, serving as a cautionary example. Angola faced governance issues and the impact of falling oil prices, contributing to the challenges faced by its SWF.

What is driving Geingob? 

Answer: Support from investors involved with the fund as well as Geingob’s commitment to ensuring the oil discovery is a boom for Namibia through properly implemented policies

At the centre of determination of  President Hage Geingob’s drive to create Namibia’s first SWF lies strong support from investors, who are deeply involved with the initiative. Geingob’s commitment is to transform Namibia’s recent oil discovery into a catalyst for national prosperity. However, the realisation of this vision hinges critically on the proper implementation of policies and the establishment of firm government structures. To support this, it is evident that Geingob- in the quote : “Namibia recognises that its world-class renewable energy resources provide a strong foundation upon which we will build a sustainable and impactful green industrial base”is driven by Namibia’s strategic partnership with the European Union on sustainability and green industrialization.

In terms of revenue generation, the SWF sources its income from various areas. The fund is designed to accumulate a portion of the royalties generated from the sale of all mineral resources and tax revenues. Another source of its funding involves investment holdings, contributing to the overall financial sustainability of the SWF. Through these mechanisms, the fund aims at securing a somewhat diversified and stable source of income, laying the groundwork for long-term economic resilience and prosperity.

The Welwitschia Fund has not only spiked his popularity but also secured substantial interest and investment from both domestic and international stakeholders . Investors see the potential for a prosperous future built upon the country’s oil reserves. Their confidence in this initiative, driven by Namibia’s leadership, has brought additional motivation to Geingob’s government. Despite the optimism surrounding the Welwitschia Fund, analysts  argue that an overreliance on oil prices as a determinant of economic performance poses a significant risk. The lack of diversification in revenue sources is seen by critics as a potential vulnerability that could lead to a fund’s downfall, especially in light of the increasing global awareness of climate-related concerns. This criticism underscores the need for a balanced and diversified approach to safeguard the fund against the volatility of oil markets and align with the growing global emphasis on sustainable and environmentally conscious practices.

What does this mean for you?

Answer: Evaluating the success of SWFs worldwide and considering their environmental impact becomes crucial in understanding their broader implications for both financial stability and sustainability.

The Commodity Price Boom  from 2010 to 2014 played an important role in sustaining many African economies by generating increased export revenues. This was particularly evident in countries rich in oil and natural gas, such as Namibia. This allowed for substantial investments in infrastructure, with countries like Nigeria and Angola strategically focusing on enhancing their energy use, especially in the transportation sector. 

The subsequent crash in commodity prices in 2014 and 2015 brought a shift in economic strategies across African countries. The spike in public debt and the economic downturn prompted a reassessment of financial policies. In response to the challenges posed by the escalating public debt, several African countries recognized the need for alternative financial mechanisms. This period saw the establishment of Sovereign Wealth Funds in various countries as a proactive measure to mitigate economic vulnerabilities.Notable examples include Morocco , Nigeria , Gabon , Rwanda , Senegal , and, more recently, Djibouti. By establishing these funds, these countries aimed to safeguard and provide a mechanism for sustainable management of resources. 

Now comparing Namibia’s initiative to other SWF-holding countries, such as Qatar and Norway, offers interesting insights. Norway’s  Government Pension Fund Global, for instance, is often hailed as a success story from its effectively managed oil revenues which has contributed to the country’s economic stability and funding future generations. In contrast, Qatar’s experience has been marked by significant investments but also faces critical challenges, especially concerning the fund’s transparency and governance.

The effectiveness of SWFs is a topic of debate worldwide. While successful cases like Norway exist, some countries like Venezuela have faced difficulties in achieving their intended economic and developmental goals from their SWF with key issues on corruption and resource mismanagement. The key lies in proper management, transparency, and adherence to ethical standards. Through his state of the nation address, Geingob explains the existing Anti Corruption Strategy and Action Plan to properly promote ethics and transparency in the public and private sectors in Namibia going hand in hand with the Welwitschia Fund.

Furthermore, there is a growing concern about the environmental impact of SWFs. Namibia’s commitment to responsible wealth management should include considerations for environmental sustainability. The choices made in investments can influence ecological landscapes positively or negatively. Norway, for instance, has been mindful of environmental, social, and governance factors in its investment decisions- to some extent.