By Mubatsi Asinja Habati
Botswana discovered diamonds and transformed itself into a vibrant economy. Sierra Leone discovered diamonds and went to the dogs. Prof. Paul Collier, director of the Centre for Study of African Economies at Oxford University, thinks Uganda could go either way depending on how well it establishes the rules to guide the exploitation of oil and investment of accrued revenues. Following Bank of Uganda’s 19th Joseph Mubiru Memorial Lecture (Governor 1966 – 1971) under the theme “Managing Uganda’s Oil Discovery”, at which the eminent economist was key-note speaker, Prof. Collier talked to The Independent’s Mubatsi Asinja Habati:
Can Uganda avoid the resource curse as it is in many African economies?
You have discovered oil but the revenues are not yet streaming so it’s important the Central Bank, a trusted voice for government and the citizens, is contributing to debate on managing this oil. If we take the analogy of the discovery of diamonds, for Botswana they enabled the rapid growth to prosperity. But the same diamonds destroyed Sierra Leone. The history of natural resources, around the world, is dominated by plunder. That plunder takes three forms: A few expropriating the natural resource revenues that should benefit the many; the present generation unsustainably consuming revenues that should benefit the future; and revenue saving and investment challenges. To avoid this fate, you need a public debate to formulate distinct economic policies.
How can we encourage local participation in Uganda’s oil management?
The main role of the oil industry is to generate revenues for government. Anything beyond that is peripheral. The key concern should be how government uses the oil revenue to diversify in other economic activities. Take the example of Malaysia which has harnessed its minerals to diversify the economy. It transformed a country originally of poor fishermen into a formidable lighting electronics centre, among other things. Ugandans should not get fixated on their participation in the oil industry, how everyone will be transformed working in the re. The oil industry doesn’t employ very many people. More important is how local laws apply to the industry; tax what you can observe and observe what you tax to help in what you can monitor. It is the same with all other requirements you put on oil companies. If you overdo that you are paying an awful a lot of money for those skills because for each extra requirement you place on an oil company, they are going to get it back by being tougher on some other aspect depending on how much tax they pay.
You talked of the need for a critical mass in Uganda’s oil management. But institutions like parliament that should lead by example are bribed by Shs 5 million to change laws. What do you do if you don’t have institutions the masses can look up to?
This is where it’s vital to get a critical mass of citizens speaking up enough to say these are the rules we want. At the moment there is draft legislation on oil and you need to get very good public commentary done on revenue, the strengths and weaknesses of the proposed legislation. Revenue Watch Institute in Tanzania did very good work when parliament there was given very little time on gold mine legislation, and there was considerable improvement as members of parliament recognized the group’s contributions as useful. The oil debate in Uganda is not a lost cause by any means. If the citizens of Tanzania can use expertise which is downloadable on internet to enrich the content of their legislation you can certainly do it too. This is going to be played out in real time in the next few weeks. Independent funds can be used to get the views of citizens into legislation. Chile has become a model in this scheme. They piloted a sovereign resilience fund which can be pulled out when times are bad.
What role can private sector play in oil management?
The kind of private sector behavior you get very much depends on the legal environment you set. If you are too permissive there are lots of roads out there. They call themselves private sector when they are more honestly thought of as the criminal sector. The default option in Africa is the criminal’s triumph. Recently in Iceland a criminal managed to get a banking license and abused one of the biggest banks, just because the central bank there was too lax. I don’t believe that is going to happen here. The worst case is you get a criminal private sector, or a patronage private sector protected by their political patron. The best case is a competitive private sector, where companies compete to your advantage. But it depends on what rules you set. The other option is to force competition, getting reputable firms competing against each other.
Can Uganda’s oil revenues push it into a middle income economy?
If you use your oil revenues right you can rapidly diversify so by the time you run out of pumping oil you will not go back to where you started. It would be a disaster if the oil gets finished and no transformation has taken place. If you use enough of the money to invest within Uganda then oil will become dominant. Spending oil money on consumption doomed Nigeria. If you consume oil money rather than invest, you will be damaging the rest of the economy. If this money is invested well it can transform society; you will be telling your children or grandchildren that you used to be poor. That is the privileged position your policy makers should yearn for. In 25 years Uganda’s economy could be 8 times bigger than it is now if the oil money is invested properly.
You talked about the need for accountability and responsibility, but Uganda’s oil is shrouded in secrecy. What are the implications of this secrecy?
Let’s try and think wide about the president maintaining this secrecy. It’s a good interpretation to say that the president trusted himself on the country’s management of oil more than he trusted the people. Secrecy is not an ally of transparency but an enemy of accountability. It is your job to prove him wrong, to say ‘look we are not pressing for a consumption party here. We want the oil money to benefit the future generation and we can do that in an accountable way’. You have got to demonstrate that you are a responsible party. And that is what the president has to realize. You all have the responsibility of building the country. This is about the sort of society your children will grow up in. If the president’s vision is to transform Uganda, he has to trust Ugandans. It is your voice that can bring that trust to whoever will be president in the next 25 years. We don’t want to repeat the story of Cameroon.