Kampala — WHEN oil and other mineral wealth is discovered in an underdeveloped country, its social impact is usually negative unless value is added before it is exported.

If exported in a crude form, it leads to a number of problems called the oil or resource curse.

However, if oil is refined at home, a number of industries spring up to process various petroleum products, the country gets these products at affordable prices, the skills of the workers are enhanced, the Government tax base is increased and the likelihood of conflict is reduced as more wealth for distribution is created.

Refineries produce various grades of fuel oil and gasoline, various chemicals, asphalt, diesel fuel, fuel oil, gasoline, kerosene, liquefied petroleum gas, lubricating oils, tar (for our roads) and an assortment of other chemicals.

Income from these petroleum-based industries reduces a country's import bill.

If Uganda opts to export its oil in crude form, the country is unlikely to escape the oil curse that other oil producing sub-Saharan countries like Chad, Angola, Nigeria, the DRC, the Central African Republic, Gabon and Equatorial Guinea have gone through.

The consequences will be the neglect of other sectors of the economy, conflict, rentier status and the mushrooming of extractive industries that build structures which facilitate the taking away of wealth from Uganda. In most of the above countries, downstream industries resulting from extractive mining activities have not emerged.

What then is the "oil or natural resource curse"? This curse phenomenon has many ugly heads and I will only discuss a few. Subsequent letters will address the rest. The first ugly head is what is known as the "Dutch Disease". When oil is discovered and exported in crude form, it tends to "crowd out" other exports by rendering them uncompetitive.

Tradeable sectors such as agriculture and non-oil industries become less competitive both at home and abroad. If Uganda exports oil in crude form, it will have no downstream industries.

The second component of the curse is the "rentier" status that mineral rich underdeveloped nations often become. A rentier state is one in which the country derives most of its income from exporting primary crude products to external "clients".

Democratic institutions cannot develop in rentier states. In those states, the government does not need the taxes of the local people and, therefore, is not accountable to them for what it gets from the resources.

It is no wonder that more than three quarters of oil rich nations in Africa (Nigeria, Angola, Gabon, Chad, Congo and Sudan) have been ruled by military or one party autocracies for most of the last 40 years. In rentier states, there is no strong domestic productive sector because the government depends on external "rent". That is why most of the oil developing countries of the Middle East and Africa are autocracies.

The third ugly aspect of the curse is corruption. When minerals are exported in a crude form, it is difficult to track transactions. Huge inflows of cash into the hands of a few people in government are not accounted for and are often used to buy support or to suppress opponents - usually those trying to get part of the oil cake. Due to increased revenue, the incumbent government has no need to build infrastructure, to regulate and tax other sectors of the economy. As a result, the economy remains underdeveloped.

The government has relations only with the oil companies and when the oil is finished as is about to happen in Gabon, the companies leave citizens to eat dust. They go back to the comfort of their homes.

The fourth component of the oil curse that has happened to a number of countries that export their oil in crude form, such as Venezuela and Nigeria, is excessive borrowing.

However, if the price of oil falls, the country has less money to service the debt. In the 1970s, oil prices rose and Nigerians expanded administrative structures by creating more states, hiking salaries of public workers, building more universities and other service institutions.

As a result, Nigeria, an oil rich country producing over 2.7 million barrels a day and the sixth world exporter of crude oil, was saddled with one of the highest per capita debt in Africa. Due to mismanagement, the country is also an importer of oil products.

As Antonio Pedro has stated: "Resource booms produce a false sense of security, overconfidence and illusions of plenty amongst policy makers and tend to break state institutions."

On the other hand, if downstream industries utilising the many petroleum products are created, nations need not go through this aspect of the curse. Such an eventuality can come true if Uganda opts to build a refinery.

I hope Uganda will be one of the lucky few in Africa. There are many other aspects of the "oil curse" including the development of economic enclaves that exacerbate regional inequalities, lack of economic diversification, volatility, brain drain and dependence on foreign skills, at the expense of training locals, conflicts, damage to the environment and the skewing of the social service system.

However, there are countries that have optimally used their mineral resources to modernise their states and grow their economy. In these countries, mineral resources have not been a curse.

Natural resources have spurred development in Botswana, Morocco and South Africa. Uganda should join these three countries in using minerals resources to modernise the state.

Extracting crude oil and exporting it will be unfortunate. Uganda will have lost a war. Africa's failure to develop is linked to a number of factors including bad governance, low higher education levels and weak states. Despite over $1,000b of aid to Africa by donors since 1960, about 30% of Africans live below the poverty line.

The writer is the director of the National Council for Higher Education