Simonis Storm Economist Theo Klein has added his voice to growing calls for Namibia to attract foreign direct investments to fully develop its ambitious green hydrogen project.
This was after a new report released by global research firm McKinsey this week indicated that the Africa Green Hydrogen Alliance (AGHA) members countries – Egypt, Kenya, Mauritania, Morocco, Namibia, and South Africa – need to invest between N$7.7 trillion- N$15 trillion (US$450 billion to US$900 billion) in cumulative investment by 2050 to realise the grouping nations green hydrogen potential.
On its part, Namibia has indicated that it was close to securing a N$9 billion (€500 million) concessionary loan from the European Investment Bank (EIB) towards its green hydrogen initiative.
“It might very well be the only option given that local savings and banking sector reserves are not sufficient to finance the whole project that the government is planning in the South,” Klein told The Brief.
“The estimated revenue from this project is about three times our current GDP. In essence, the project is three times the current size of our economy. For this magnitude, you definitely need external financing to assist.”
The Economist added that if the foreign debt is used efficiently and a local green hydrogen production facility is established, then risks of repaying the debt should be fairly low in the long run, amid concern of the government’s ability to repay the loans.
“This is however dependent on green hydrogen generating sufficient revenues and if the government can successfully cooperate with Hyphen on their project in the South. With not too many success stories of Public-Private Partnerships in Namibia, it remains to be seen whether the government can bring the green hydrogen story to realisation. One positive of foreign debt is that foreign financial institutions might be better at keeping the government accountable with regards to spending and allocations made with the loans,” he said.
Klein further indicated that the country’s foreign debt levels to GDP remain fairly low when compared to African peers, allowing the government the ability to rake in more debt, whose repayment ability will depend on the growth rate of the domestic economy.
“Currently, foreign currency debt is about 24% of total government debt and our foreign debt to GDP ratio at about 16% is very low compared to other African countries. I would argue these levels are fairly sustainable and implies there is much room for further external borrowing. Of course, we would need better economic growth rates with meaningful job creation to improve our repaying abilities of foreign debt.”
Quizzed on other funding mechanisms that the country could use besides taking up debt through loans and issuing of green bonds to funding its share of green hydrogen projects, he said, “not too sure on other options.”
According to the McKinsey and AGHA report, several funding possibilities exist, including developing consortia and securing offtake agreements, developing public– private partnerships, providing credit guarantees, establishing incentives programs, and tapping into green and development finance institutions.
“These instruments could help ensure that no project fails for lack of finance, especially in countries where risk premiums tend to be higher.”
The Ministry of Mines and Energy has already indicated that the country is looking to produce more than green hydrogen, as it also aims to export green ammonia, e-methanol, synthetic kerosene and hot-briquetted iron, where the final ambition is to also manufacture more complex products, such as green zinc and steel.
Namibia is banking on green hydrogen to attract more than US$6 billion in foreign direct investment (FDI) which is anticipated to generate annual revenues more than US$800 million, while also contributing to its much-anticipated Sovereign Wealth Fund.
Hyphen Hydrogen Energy, a joint venture between Nicholas Holdings of the UK and ENERTRAG of Germany was selected as the preferred bidder for the country’s first green hydrogen project in November 2021.
