The value of the 3.5 billion barrels proven oil assets is not yet known –at least the public does not know yet. But rough estimates, according to industrial players, put the finds to over and above $400b in monetary terms.
An aerial view of an oil exploration site in Bulisa district
For a nation –with almost one person in five living in a situation of extreme poverty and surviving on the equivalent of less than a dollar a day- this figure is a dream jackpot. No wonder public expectations are riding too high.
Local people expect free money for every households and poverty will be history.
Indeed, if $400b is distributed to the 38 million Ugandans today, each of them would get $11,000. This is 22 times higher than the average income per person of $500 per year The majority would go for this option, although it does not make economic and political sense at all.
The reasonable way is to milk the resources for a number of years until the reserves are depleted. At the highest level there is talk of Uganda catapulting into a medium-income economy in the next three years before becoming a first world economy in the next five decades with the anticipated oil revenues.
It is clear that the confirmed reserves (at $400b) are 21 times bigger than Uganda’s current gross domestic product –at $19b (2012 figures). When the oil production starts in full scale (hopefully in a decade), the World Bank, estimates that that revenue minus recoverable costs will be at least $3b per year subject to world oil prices.
This is almost the entire budget –the current expenditure is estimated at $4b. The oil agreements were designed in a way that the oil companies will recover their costs over period of time. So the recoverable costs are capped and will not have huge impact on revenue inflows. This explains why there is a lot of talk that the oil money will be invested in power supply, industries, health, roads, education, science, research and development and farming.
However, before the oil revenues start flowing into the treasury, there are a lot of infrastructure bottlenecks needed to monetise the oil assets. At least $25b will be needed for investment in building the oil refinery, roads, railways, airport, pipelines and a port on Lake Albert.
Oil revenues will move directly to the treasury and they offer public officials good opportunity to divert them for selfish interest. Such manipulations will derail Uganda’s progress to middle-income or first world economy.
Dealing with corruption –now -is what will make the public benefit from the oil windfalls. A corrupt ion free administration will allow the oil money to be spent on improving the capacity to manage investment programmes and provide key public goods and services.
What experts say
“I will not ask for super savings now because I know how our leaders have mismanaged public funds. Investments should be in things that are tangible and the majority should see, feel and touch the benefits,” Catherine Asiimwe, an economist says.
“Effective roads, power supply, railways and prudent regulation and conducive business climate are what we need to thrive.”
In fact, Edward Mubiru, an economist and entrepreneur, said the money should be invested in “things that will have long-term returns even when oil is depleted.” “They could also create a fund that could be invested so that the country has high returns in form of interest.” But priority should also go to soft infrastructure like the teachers in schools, the political parties that drive electoral process, the judges that decide the cases, the police on the streets and the doctors in the health clinics.
Such soft infrastructure contributes to the general rule of law and provision of a decent standard of living. With poor governance, both the public and private sectors fail to thrive. As public funds go missing, services are compromised, individuals do not feel secure in starting businesses, and outside investors stay away.
“One thing we should avoid is the Dutch disease. You cannot get that money and put in the economy because the economy will overheat, the shilling will appreciate and become un-competitive,” Nicholas Musoke, an economist, warned.
“It is not wise to invest all that money in infrastructure. Some of it should be used to build our reserves. This will be a buffer and a fallback position in case of a crisis.”
By Ibrahim Kasita, The New Vision
