Fred Nkayi Mbagadhi
28 October 2009
opinion
The recent announcements by Tullow Oil that it made a potential multibillion-barrel oil discovery in western Uganda have exhumed memories of the oil curse amongst some Ugandans. The oil curse emanates from the resource curse theory which is a paradox of plenty; suggesting that nations well-established with abundant natural resources may fail to develop in other sectors, ultimately culminating into socio-economic and political problems.
Proponents of the oil curse including the Nobel prize-winning economist Joseph Stiglitz have used valid and statistically robust empirical evidence that indicate an inverse relationship between high natural oil resources dependence and economic growth. Moreover this is reinforced by the abject poverty, autocracy, instabilities, corruption opaqueness and slow growth rates exhibited by some of the oil rich nations such as Sudan, Angola, Chad, Saudi Arabia,Venezuela,Nigeria, Iraq, to mention but a few. However, it is also empirically true that there are many oil rich countries like Norway, Canada, Mexico, and United Arab Emirates among others that have beaten the odds of the oil curse. This makes me believe that Uganda of today has the potential to do the same.
Before most of us attempt dragging Uganda into the oil curse debate, it is imperative to examine the political and economic systems that predated oil in countries where it has turned into a curse. Research points to the fact that countries that have suffered the curse of oil have had other curses of unrelenting wars, autocracy, lawlessness, unabated corruption, profligate government spending on untenable projects predating oil to the extent that oil discovery could not perform any magic to improve state welfare.
Moreover even after striking oil, these countries thought that this resource was the alpha and omega in providing solutions to their already existing socio-economic and political hardships. This marked the end of diversification efforts in such countries. Little did they know that volatility of oil prices calls for impeccable fiscal planning and that oil extraction is capital intensive requiring a lot of cash and skilled labour of which lack of any creates a perfect rent seeking environment.
The other grave mistake that countries prone to the oil curse have always committed is abandoning their tax regimes. This translates into governments becoming unaccountable to the masses (now that they don't pay tax) which graduates into autocracy, corruption and inequality.
For one to insinuate an oil curse for Uganda may be an over statement. Remember that Uganda has struck oil after two decades of established democracy, accountability, rule of law, macroeconomic stability and unprecedented growth rates only rivaled by Dubai and some Asian tigers.
The other ray of hope for Uganda comes from the oil production sharing agreements (PSAs) with Tullow oil and Heritage oil and Gas. Reliable information indicates that government is to bag 80 per cent of all oil revenue. Moreover the drilling companies have been tasked to initiate development projects for the local communities hosting oil to avoid a replica of the Niger Delta and Darfur scenarios here in Uganda.
The fact that Uganda is moving towards fully funding her budget for the first time in history is in itself an assurance that it can easily survive the oil curse as oil revenue is most likely to play a supplementary role. This, coupled with government's massive investment in technical human resource and the rejuvenated fight against corruption is all but an indicator that the risk of oil curse for Uganda is far-fetched.
Mr Mbagadhi is the MP Kagoma- Jinja
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Mr Mbagadhi has some real and valid points. The key to keeping oil revenue from being a curse is to keep it small and slow. It is very important to keep it from being the government's main source of revenue, which would (has elsewhere) divorce the government from the people.
Develop and produce your oil slowly and for your own use. The injection of money into an economy is the real nature of the resource curse.