LAST week, oil exploration firm Heritage announced that there was probably a reserve of a few billion barrels in the fields in western Uganda. This is many times above the initial estimates. According to newspaper reports, the reserves are about $7b (sh11,200b) or almost as large as Uganda’s economy.
With oil hitting 10-month highs on international markets, last week’s further exploration work in western Uganda makes economic sense.
For better or for worse, the oil find and its eventual exploitation will bring earth-shaking changes for Uganda.
By leveraging the oil revenues, we could see dramatic improvements in our roads, railways, electricity and telecommunications, easing the flow of goods and services and lowering the costs of doing business. Improvements in our education and health systems would also see dramatic improvements in our standard of living. This is the best case scenario.
In the worst case scenario, we can look forward to a collapse of all other productive sectors of the economy as a stronger shilling makes production unprofitable, making it cheaper to import rather than produce locally. We may see widening income gaps with a small percentage of the population growing exponentially richer, while the majority descends into dehumaninsing poverty.
Whether we go down the first or second road will be determined by how much planning we put into preparing for this windfall.
On a macro scale, we are like a poor man who wins the lottery. Most lottery winners are unable to hold on to their new-found wealth for long – squandering it on the fast life and questionable assets.
The common denominator among these hapless losers is that whereas there was a plan for how to win the money – buying the lottery ticket, there was no thought placed on how to sustain the bonanza. Naturally-endowed nations more often than not suffer the fate of the lottery winner.
They squander it on white elephants and high living by a small number of the elite while the rest waste away as they watch the party rolling by.
Despite what our superstitious minds tell us, there is a choice between being Norway or Botswana – the benchmarks of efficient resource utilisation for the benefit of their people and Nigeria or Sierra Leone, examples of how not to manage your natural resources.
Attempts have already been made to think about how to apply the windfall that will come when oil exploitation begins. But in private, senior government officials worry that little planning is being done around the subject, noting that if commercial exploitation is to begin in 2009, we are way behind schedule.
A major problem with exploitation of natural resources, especially oil, is that little manpower is required. However, the income from the new endowment strengthens the currency, stifling production in other sectors and putting more people out of work than the new industry can absorb.
Meanwhile, a privileged elite benefit from the new boom, triggering a vicious cycle that manifests as widespread poverty in a sea of plenty.
It is urgent that we start planning how to exploit the oil for the benefit of the majority as we have had little success in managing recent windfalls.
The coffee boom of the early 90s comes to mind as does the donor largesse we have enjoyed for the last 20 years.
But most recently, the circus that has surrounded preparations for the Commonwealth meeting highlights why we need planning and institutions outside the political structures to manage the process.
We are not ready for the oil. And if nothing changes by 2009, we will go the way of Equatorial Guinea.
In 1996, oil was discovered in this tiny country. It produces about 360,000 barrels a day and boasts of a per capita income of more than $30,000 (sh48m), which was the second highest in the world in 2006 after Luxembourg.
However, Equatorial Guinea ranks 121st out of 177 countries in the United Nations Human Development Index – with some of lowest literacy and access to clean water indicators in the world.
Meanwhile, President Toedoro Obiang Nguema Mbasogo and family patronise the European holiday retreats of the rich and famous, while splurging thousands of dollars in London, Paris and New York shopping sprees.
