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THE LAST WORD: Uganda’s real oil curse

 

THE LAST WORD: By Andrew M. Mwenda

How our overblown expectations of what oil is going to do for our country are likely to cause trouble

I had always thought about the “oil curse” in terms of the “Dutch Disease” and the adverse incentives it creates that foster corruption in politics. The Dutch Disease refers to the tendency of oil revenue windfalls to kill other productive sectors of the economy. This happens when oil revenues lead to the appreciation in the value of the national currency thereby making a country’s other exports less competitive.

There is also the corrupting effect of oil on national politics. For instance, all governments need money to secure their political survival. This money can be used for basic things like paying the security services to ensure law and order. It can also be used to buy off powerful elites and make them loyal to the government. Governments also need revenues pay for public services for their citizens in order to secure their loyalty.

If revenue is collected as taxes from multitudes of anonymous citizens in the marketplace, government would be driven by self-interest to govern in a more enlightened way. Such governments would be inclined to negotiate with citizens about the appropriate political institutions and public policies that can increase their productivity, a factor that would drive economic growth thereby increasing public revenues. If not handled well, citizens can withhold their productive effort and thereby cause economic decline and a sharp fall in government revenues. Governments that depend on multitudes of their citizens for tax revenue would be more inclined to value citizen consent in governing.

Now mineral windfalls (just like foreign aid) undermine these incentives. With a rich mineral, a government can sit on a hole in the earth, pump out large quantities of oil at a handsome profit and pay for its public expenditure needs. This tends to discourage such a government from forging productive arrangements with its citizens. If you look at many mineral rich countries that have come to tears, this has been a major factor.

However, I think I have always ignored a third factor. The real danger for Uganda may not only come from how government handles the oil revenues but from overblown expectations. Ugandans harbour expectations of what oil revenue will do that defy all imagination. It seems Ugandans expect that when we begin selling oil, our roads will be paved with marble, our street lamps decorated with diamonds and our sidewalks made of gold. Once oil begins to flow, these overblown expectations will drive our politics into a particular direction so that regardless of the facts, the struggles unleashed could lead this nation to disaster.

This lesson began to take shape in my mind when then youth MP for Western Uganda presented documents in parliament in October 2011 alleging ministers had been paid millions of dollars in bribes by oil companies. Parliament sat and in a charged debate, without any effort to establish the authenticity of the documents, passed 14 resolutions literary halting all activities in the oil industry. Anyone who tried to call for caution, including the First Lady, Janet Museveni, was shut down.

4 comments

  1. Ugandans especially MPs have alot of hope in the oil industry this is quite worrying.The current investigation on the oil hand shake tells it all those who received the money have acknowledged that they indeed received the money but the MPs are still investigating.

    The world price for Diamond and Gold is higher than that of oil thats why countries like S.Africa,Namibia,Botswana are performing well economically other nations like Britain and USA have made it coz of investing in technology and research.

    Ugandans should accept that oil is a new discovery Ugandans may have little participation in this business and they should not feel bad 2ndly, the govt has borrowed alot to finance the railway and refinery construction it may take us years to breakeven after oil production.

    Uganda’s real curse is the former colonialists and UPC who judged each Ugandan’s capabilities basing on the tribe they were from e.g the Bakonzo coz of their height could not make it to the civil service coz Doctors,Teachers Policemen have to be presentable and should be of a certain height up to now some tribes are so traumatized.

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  2. It is not true that oil wealth has always been a curse. Say that to the wealthy Arab Sheikhs, whose countries and lives have been immensely transformed by the largest, historic transfer of financial economic resources from the industrialized west to the Middle East. The dollar is a world currency because the Saudi Kingdom underwrote it by agreeing to peg all oil transactions to the US dollar. Norway is doing just fine with its new found oil wealth. Those who have been afflicted with the so-called oil curse are using oil as an excuse for their perpetual economic shortcomings. For Uganda the only problem may that the oil boom is about to bottom out with the discovery of alternative resources and newer and better technologies, especially with increasing concerns about and focus on global warming.

    • Ocheto who told u that the govt will be relying on oil o as its main source of export in future? You mention threats of Global warming but Europe ,America ,Japan ,China have more industries why do you think Ug will fail to manage the waste from oil production? have you ever heard of the term environmental impact assessment?

      its not easy to be a 1st world country you can see how India is struggling economically despite having exports like Machinery,Pharmaceutical products,Oil,Minerals,ICT etc.

      The Sheikhs of the Arab world are progressing coz they are independent minded they dont listen to the stories of the West.2ndly there is no democarcy ,3rdly they are headed by monarchs who by nature are brutal thats why their citizens are so ‘disciplined’ coz of intimidation the Kings there dont have time for big headed people.

  3. The protest must be about what the expats earn compared to the ‘local’ employees. You have tactically dodged that discussion. Now, can you please show us the statistics for: Expats vs local employees in benefits, recent handshakes et al

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