By Enock Nyorekwa Twinoburyo, Ugandan based Economist:
With proven reserves of 2.5 billion barrels of oil so far confirmed in
the Albertine Rift exploration areas, Uganda could be the nextimportant oil producer in Africa. The discovery could elevate Ugandafrom a low income country to a lower middle income country within thenext 25 years making Uganda more of an independent country. Oildefacto has far reaching effects, but I will try highlighting 5reasons why Uganda will likely be locked in the paradox of plenty.As much as Uganda has the right vision on oil to invest in the newlyfound oil resource into infrastructure and other types of domesticcapital necessary for economic transformation, the implementationprecedence is worrying – as recently noted by the Global integrityreport, Uganda has the largest implementation Gap in the World.Implementation gap being the deviation between strategy and actualimplementation. To be more specific, e.g. the concrete debt strategyaimed at addressing arrears (commitment of government beyond itsplanned budgets) among others has continued to be prevalent. Also tonote in relation to this, is that on the fiscal side, Government ofUganda has become accustomed to use of supplementary budgets most ofwhich are consumption oriented( refer to the budget performance reportFY 2010/11 on the ministry of Finance website). Typical non-adherenceto plans, budgets among others.The oil sector is increasingly being politicized. The president oftenquoted as referring to oil as “MY OIL” spells concerns of running theoil management as his own. Recent cases of CHOGM, HABA case, fighterjets purchase, among others seem to have the president as thedenominator. The recently submitted Petroleum Bill does not protectthe independence of the Petroleum Authority. Although the Billprovides for the independence of the authority, it also empowers theMinister for Petroleum to give ‘policy directions’ to the Authorityand requires compliance to those directions. The power of the Ministerin this regard is not defined in the Bill and thus politicalinterference is an obvious risk.Lack of transparency and accountability: The process of the petroleumbills presented to parliament on the 12th of February 2012 (bills onthe website- http://www.petroleum.go.ug/ ) was non-consultativeenough- in fact no public consultation was carried out on the upstreamor the middle stream bill. The legislation does not containsignificant oversight of parliament in the overseeing theseinstitutions. Uganda is not yet a member of the EITI, and the billsin the current state don’t guarantee public disclosure of oil relatedinformation. Commercial confidentiality exist in these bills. Thehasty signing of the oil contracts against the resolutions ofparliament points to disregard of parliamentary oversight in the oilprocess. Lack of transparency exacerbates corruption. According toTransparency International, Uganda was ranked 80th least corruptcountry in the world in 2001 but slipped to 127th out of 180 countriesin 2010.Uganda’s credible economic growth levels of an average of about 7% hasnot translated in to inclusive growth but rather growth bound withsocial economic inequalities like regional inequality have continuedto grow. Refer to the UNHS 2009/10. Economic forecasts seem toindicate that a country that grows at an average of 7%, should achievemiddle income status in 10 years- using the 71 principle (71 dividedby average growth rate gives the number of years required fortransformation.) Oil undoubtedly will likely lead to high levels ofgrowth but non-transformative growth is what we should expect if weare to project from historical paths.(Reference should be made tosimilar economies in Africa such as Equatorial Guinea, DRC , andNigeria.)Oil resource and poor governance is a bad cocktail. Anecdote evidencefrom African oil economies seems to point to the realism of the likelycurse on our economy. This is only conditioned on the bad politicalgovernance and is a long run phenomenon. Premised on bad governance,the resource curse is transmitted through three main channels:excessive domestic consumption, debt overhang, and real exchange rareover valuation. The resource boom when accountability is lackingallows politicians to expand public sector employment or to directlyboost private consumption. Bad governance also discourages savings,increases overall spending which is normally reflected in theappreciated exchange rates. The resource rents in bad governanceeconomies will end being misallocated and wasted as the resource basegets depleted while non-resource tradable sectors get marginalised.In a synopsis, the risks above, if not mitigated soon enough, willlead to the paradox of plenty that will rein in on our country. Therecent signing of South Sudan- Kenya pipeline deal through Ethiopia isa clear indicator of lack of trust by neighbouring countries. Ugandacould potentially lose out the comparative advantage of its oilresources in the region. Tanzania recently discovered oil whichincreases the number of neighbours with the oil resource. Kenya too ison the hunt.CAVEAT: Polinomics (politics plus economics) = zero economics =politics. So if the political reform supports effective extraction,production and the rest of the value chain, then oil resources couldbe curse-less.