Oil in Uganda

As required by the course, two blogs must be about our host country. Since, I have already written about Reach Out I wanted to discuss an aspect of the country itself. Since learning that I was going to Uganda, I signed up for Google Email Alerts. Once a day, I receive an email with the top 10 news stories involving Uganda. Since I started this, there have been the many articles surrounding the 2009 oil discovery.

In 2009, a large deposit of oil was discovered by two European companies: Heritage Oil and its partner Tullow Oil. It should be noted that these companies are no longer partners and Tullow Oil has remained in Uganda. Commercial production of the oil is suspected to start around 2012. The international community and Uganda have hopes that this recent discovery of oil will allow Uganda to decrease dependency on aid. Currently, aid accounts for 30 percent of the country's revenue. If managed well, the oil revenue could transform Uganda's economy by creating thousands of jobs, industrializing the economy, and potentially doubling state's revenues.

The oil discovery was a major campaign issue in the recent 2011 elections. Candidate's platforms all discussed different plans for what should be done with the oil revenue. The re-elected President Museveni plans to use oil revenues to help the country build infrastructure, better education, and improve information technologies. He hopes that these improvements will lead to a better environment for business in Uganda.

However, there is a concern if the oil discovery is a blessing or a curse. Potential challenges that might result from this new oil discovery are suffering from the 'Dutch Disease', budgetary difficulties, and environmental concerns.

The ‘Dutch Disease’ is neglecting other sectors of the economy, such as agriculture and manufacturing, for the natural resource sector by diverting capital and labor. When this takes place, an economic dislocation occurs resulting in higher costs, reduced competitiveness, and fewer exports and balance of payment deficits.

Will this be a problem for Uganda? I am uncertain. Currently, agriculture dominates the Ugandan economy and accounts for almost all of their foreign exchange earnings. Since Uganda has an established agriculture sector, there is a possibility that they will not be as susceptible to the 'Dutch Disease'. With this said, if Uganda is aware of this, it can attempt to avoid this by maintaining their strong agricultural sector and establish the oil industry at the same time. 

Resource-rich countries also experience budgetary difficulties. Oil prices fluctuate depending on social, political, and economic situations at the time. Therefore, Uganda will need to determine how much to save and how to maintain stability with these fluctuations.

This is not impossible. Noway shows that oil does not have to be obstacle to stability and long-term growth. Norway realized that oil revenues are temporary and would eventually run out. Therefore in 1990, Norway established the Petroleum Fund of Norway. These petro-dollars are converted to stocks and bonds which ensure the equitable distribution of oil wealth across generations. Norway's solution is not the only solution, but perhaps, Uganda could establish a fund that could sequester a small amount of oil revenue to act as a cushion during these cycles. In fact, Norway is actually helping Uganda in establishing their energy sector. 

The environmental degradation is supposed to be minimal. However, the main site for the oil is located on a wildlife reserve: Kabwoya Wildlife Reserve. At this point in time, I would suspect that is more valuable for Uganda to pursue the oil than save the wildlife reserve in terms of a costs and benefits.

Time will tell what happens with oil. I sincerely hope that this oil revenue does great things for the country. I think it can and will, if Uganda plans accordingly. Museveni and the Minster of Energy are committed to bettering their country with this revenue. The most interesting part is that we will get to witness this, and see if it helps bring the country out of poverty.