Saving Uganda from its oil -Can the country avoid the curse?

Oil workers at the Tullow oil plant in Western Uganda. Can the country cope with the oil curse when the ‘black gold’ starts flowing at the end of this year?

Oil worth billions of dollars is set to start flowing in Uganda, but the existing framework fails to protect Uganda from being plundered by multinational corporations, Jason Hickel writes.

In 2006, Uganda confirmed the presence of enormous commercial petroleum reserves around Lake Albert along the country’s western border. Since then, geologists have proven at least two billion barrels. With only about 25 per cent of the region explored, some reports indicate that there could be as much as three times that amount – enough to make Uganda a major player in the African oil industry. The oil is set to begin flowing later this year, or perhaps in early 2012, with production targeted at around 200,000 barrels per day.

This discovery marks the beginning of a new epoch in Uganda’s history, and hopes are high across the country that the flow of oil will jump-start development and ameliorate poverty. Historically speaking, these hopes are terribly misplaced, for the discovery of oil in Africa has rarely brought about positive socio-economic outcomes. Indeed, quite the opposite is true: regions with an abundance of non-renewable sub-surface resources nearly always experience declining development and less economic growth than countries with fewer such resources.

Nigeria offers a disturbing example of this trend. Since production began in the mid-1960s, Nigeria has seen an oil bonanza worth more than $340-billion. But the economy remains in absolute tatters: more than 70 per cent of Nigerians live in conditions of intractable poverty – earning less than a dollar a day – and the infant mortality rate is among the highest in the world. Indeed, Nigerians are significantly poorer today than they were at the start of the oil boom, when only 36 per cent lived below the poverty line. Despite ballooning petroleum revenues, per capita GDP in 2000 was at around 1965 levels. Similar problems plague Africa’s other major petroleum producers, like Chad, Angola, Gabon, and Equatorial Guinea.

Economists call this paradox of poverty amid plenty the ‘resource curse’. As economies become over-reliant on extractive industries, exchange rates appreciate and make imports cheap to the point of undercutting local producers and crippling economic diversification – a scenario known as the ‘Dutch Disease’. In addition, when states rely on rents instead of taxes for the bulk of their revenue, the social contract of accountability between government and citizens gradually erodes, and administrators have no incentive to invest in human resources, encourage industry, or promote the development of a middle class that would provide a sustainable tax base. Such states tend to become heavily repressive: oil-producing countries spend three times more on military force than developed countries and ten times more than underdeveloped countries (as a proportion of GDP).

If careful controls are not put in place soon, Uganda will suffer exactly this fate. Instead of producing positive development outcomes, petroleum exploitation in Uganda (by Tullow Oil, Total, and China National Offshore Oil Corporation) is likely to deepen income inequalities, entrench poverty, contribute to economic degradation, and devastate the environment. Most importantly, the country’s robust small-scale farming sector – which accounts for around 70 per cent of employment – could be seriously undermined by the impending influx of foreign currency.

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