THE LAST WORD: Uganda’s real oil curse

THE LAST WORD: By Andrew M. Mwenda

How our overblown expectations of what oil is going to do for our country are likely to cause trouble

I had always thought about the “oil curse” in terms of the “Dutch Disease” and the adverse incentives it creates that foster corruption in politics. The Dutch Disease refers to the tendency of oil revenue windfalls to kill other productive sectors of the economy. This happens when oil revenues lead to the appreciation in the value of the national currency thereby making a country’s other exports less competitive.

There is also the corrupting effect of oil on national politics. For instance, all governments need money to secure their political survival. This money can be used for basic things like paying the security services to ensure law and order. It can also be used to buy off powerful elites and make them loyal to the government. Governments also need revenues pay for public services for their citizens in order to secure their loyalty.

If revenue is collected as taxes from multitudes of anonymous citizens in the marketplace, government would be driven by self-interest to govern in a more enlightened way. Such governments would be inclined to negotiate with citizens about the appropriate political institutions and public policies that can increase their productivity, a factor that would drive economic growth thereby increasing public revenues. If not handled well, citizens can withhold their productive effort and thereby cause economic decline and a sharp fall in government revenues. Governments that depend on multitudes of their citizens for tax revenue would be more inclined to value citizen consent in governing.

Now mineral windfalls (just like foreign aid) undermine these incentives. With a rich mineral, a government can sit on a hole in the earth, pump out large quantities of oil at a handsome profit and pay for its public expenditure needs. This tends to discourage such a government from forging productive arrangements with its citizens. If you look at many mineral rich countries that have come to tears, this has been a major factor.

However, I think I have always ignored a third factor. The real danger for Uganda may not only come from how government handles the oil revenues but from overblown expectations. Ugandans harbour expectations of what oil revenue will do that defy all imagination. It seems Ugandans expect that when we begin selling oil, our roads will be paved with marble, our street lamps decorated with diamonds and our sidewalks made of gold. Once oil begins to flow, these overblown expectations will drive our politics into a particular direction so that regardless of the facts, the struggles unleashed could lead this nation to disaster.

This lesson began to take shape in my mind when then youth MP for Western Uganda presented documents in parliament in October 2011 alleging ministers had been paid millions of dollars in bribes by oil companies. Parliament sat and in a charged debate, without any effort to establish the authenticity of the documents, passed 14 resolutions literary halting all activities in the oil industry. Anyone who tried to call for caution, including the First Lady, Janet Museveni, was shut down.