Why oil revenues will harm us

By Andrew M. Mwenda

On October 16, 2009, Oxford’s Prof. Paul Collier gave a talk at Serena Hotel in Kampala on the prospects of an oil windfall in Uganda. Unlike in most of his work, this time Collier did not focus on how the international community (read the West) can help Uganda use its oil revenues well; his entire speech, though sounding like a primary school headmaster advising his pupils, was about what we Ugandans should and should not do with our oil revenues. It was vintage Collier ‘ frank, intelligent and insightful see story here.

He made very important and obvious policy recommendations for our country: the need to search for more natural resources beneath our soil; for a good and effective tax system to maximise the returns from oil, to have transparency in oil contracts and to allocate our oil revenues in developing social overhead capital rather than short term consumption. Yet Collier was still unable to transcend the major limitation of his scholarship ‘ to integrate politics in his analysis of public policy.

His presentation assumed the allocation of oil revenues would be an entirely administrative process driven by technical considerations regarding what is economically good for the country. Hence he presented the crisis in Nigeria’s oil-rich Niger Delta as a result of ignorant decisions by its leaders. Yet the best way to understand why some countries have used their natural resources well (Botswana) and others squandered them (Nigeria, Angola, DR Congo and Sierra Leone) is to look at how power is organised, how it is exercised and how it is reproduced.

Therefore, the critical question for Uganda is: How will oil revenues affect our politics? It is here that I found Collier’s otherwise intelligent recommendations naive and lacking in context. He did not talk about governmental behaviour; and in particular how governments make choices that affect the development of their economies.

Oil policy is not being made by some single, unified and homogenous entity called ‘government’. It is a series of choices resulting from struggles among competing interests in Uganda dominated by our president and the first family. Secondly, oil policy is not being made as a result of some optimisation process i.e. what is best for Uganda. It is a product of actions by self-interested private parties ‘ local and foreign ‘ who are bringing their resources to bear on the political process.

While we cannot accurately predict the future, we can credibly speculate on what is likely to happen. We already know how our politics work in Uganda. The NRM’s strategy of holding and retaining power rests on two pillars, one political, the other economic. Politically, it retains power through electoral competition. To win elections, it relies on the support of communities largely in the south. It has also built a fairly effective security system to rig votes and repress those who resist its wishes.

How does NRM build its political support? Its main strategy has been to win over key elites ‘ traditional elders/leaders, religious clerics and opinion leaders through the distribution of state patronage ‘ state jobs and contracts, tax rebates, cash grants, land giveaways and unofficial opportunities to profit from corruption. It then leverages these influential elites to win the support of their followers.

But the followers do not walk away without anything; there are institutionally provisioned benefits; free primary and secondary education, basic healthcare and roads. They are incompetently provided; but provided nonetheless. But there are also personally provided benefits as well; elites with access to state patronage use the resources generated genuinely or corruptly to meet personal needs of their supporters ‘ paying fees, meeting funeral expenses, buying sugar, soap, alcohol etc.

This organisation of politics puts a lot of pressure on the NRM to generate revenues; for to service patronage and deliver welfare, it needs money. Money is a vital political resource used to build political constituencies. The government generates revenues from two sources; domestic taxes and foreign aid. Each of these sources of revenue imposes some limits on how NRM exercises power.

Reliance on domestic taxes demands sustained economic growth. This calls for prudent macroeconomic management and therefore listening to the concerns of the private sector, technocrats in the ministry of finance and central bank and the donors. Donors demand the three above and some level of civilised political behaviour. It is this enlightened self interest that has helped Uganda sustain robust economic growth and a fair amount of democratic government over the last two decades.

Oil revenues will give the government triple the resources it now has without having to seek growth or foreign aid and therefore free the NRM from these restraints. The constituencies that can effectively hold government to account ‘ civil society, the middleclass, the private sector, etc are still too weak to restrain its excesses.

The best way to use oil resources productively is investment in social overhead capital; dams, roads, schools and hospitals and public services like education and health. But government can do this only when such investment has high political returns in the short term (given the electoral pressures on it) or when the country has evolved societal capacity to demand and get accountability both of which are missing in Uganda.

The productive margin in government’s search for votes does not lie in building roads and dams or delivering healthcare and education. It lies in patronage. If a government can win over a community by appointing a few of its influential elites to state jobs, that is certainly a more cost effective strategy than building institutional capacity to deliver public goods and services. Therefore, it is more profitable for NRM to enlarge cabinet, increase the number of security outfits, districts, presidential advisors, etc.

Oil is therefore likely to intensify struggles over the distribution of patronage. This will not be because the political class in Uganda is stupid. It will be a result of rational choices made by highly skilled politicians seeking a cost-efficient strategy of political mobilisation.

Nations don’t often fail because their leaders are stupid or ignorant, as Collier tended to suggest. They fail because public policies and political institutions create incentives that make rulers behave in specific ways. In the specific context of Uganda’s politics, oil will most likely weaken institutions and strengthen loot.

amwenda@independent.co.ug