The recent
discoveries of oil and gas deposits in Uganda present new opportunities through
access to energy and increased oil revenues that can be used to chart a
sustainable growth path that does not only create economic growth but also
results in economic development whereby growth is fairly well distributed to
facilitate poverty reduction. However, these discoveries come in the midst of
serious concerns and controversies that have characterized the empirical
relationship between oil rents and development, particularly in the oil
exporting African countries. The disappointing development performance of many
resource rich economies has been a topical issue among policy makers, NGOs,
civil society and academicians. Many countries have failed to leverage their
natural resource wealth into strong states. For some of these countries, oil,
gas, and mineral wealth have become associated with high poverty rates, weak
state institutions, corruption, and conflict
One concern that has
triggered a substantial amount of theoretical and empirical debate is the Dutch
disease effect of natural resource abundance. This phenomenon describes the situation
whereby the additional revenues from the natural resources put pressure on demand
for domestic goods and services in a way that consequently raises the value of
the local currency (real exchange rate appreciation) and makes tradable goods
uncompetitive. This might stifle other sectors of the economy like agriculture
and education.
The extractive
industry has considerable impacts in our countries, not least on our economies.
Its impacts are felt and seen at many levels including employment, government
revenues, expropriation of populations, population displacement, health, the
environment, education, culture, and life in general.
The case for “Dutch
Disease” and Agriculture in Uganda is even more pronounced given that Uganda primarily
depends on agriculture for survival. With over 80% of the population employed
in agricultural and coffee, until
recently the major export commodity, a negative influence on agriculture due to
oil would have dire consequences. The theory of Dutch disease is that an
increase in revenues from oil will adversely affect the tradables (manufacturing
and agriculture) of a nation’s economy by appreciating the local currency,
which in turn makes manufacturing and agriculture less competitive.
High oil revenues
raise exchange rates, promote an adverse balance of payments on the cost of
imported goods when prices fall, boost wages for skilled labor – ultimately
pricing them out of the international market - and reduce the incentive to risk
investment in non-oil sectors. In short, it kills the competitiveness of all
non-oil sectors, squeezing out vital sectors like agriculture and
manufacturing, leaving oil as the only functioning revenue source. Just one
example includes Gabon, which since initiating the export of oil has seen its
agriculture sector collapse; it is now entirely dependent on imported food.
The environmental
pollution caused by oil drilling also results in a destruction of livelihoods
in local communities making it difficult for the present and future generations
to make a living off of their land. Farming and fishing activities, the
mainstay of these economies, literally grind to a halt with the exploration of
oil.
Oil exploration and
production entails acquiring land which ultimately requires eviction of people
that were formerly in those areas. It becomes worse where the process entails
construction of refineries and pipelines. The women of Ogoniland, Nigeria who
earn their living as farmers can testify to the ways in which the execution of
oil projects compromises their livelihoods. In late April 1993, for example, farmlands
close to the Ogoni pipeline were bulldozed with no regard for the crop growing
on the land. The situation is no
different in Cameroon where the construction of the Chad-Cameroon oil pipeline
by ExxonMobil, Petronas and Chevron have had serious survival implications for
the Bagyeli (UNCTAD 2007). This is because the pipeline project left a 30 meter
wide gap through the forest, where the Bagyeli hunted, gathered and cultivated
crops. The effect of this is the loss of land and access to resources upon
which Bagyeli livelihoods have traditionally been based (Nelson 2002).
The effects of the
“Dutch Disease” are not a foregone conclusion. With foresight and careful
management of how the oil revenues get injected in the economy, this phenomenon
can be avoided.
Since majority of
Ugandans are employed in the agricultural sector, one would want to know what
would happen if most of the oil resources were used to unleash the binding
constraints to agricultural productivity. In this case, oil resources would be
used to provide, for example, fertilizers, extension services or better
technologies that would result into higher yields in the sector. A projection
study done by researchers at the Makerere University based Economic Policy
Research Center shows that appropriate
use of oil resources to increase productivity in the agricultural sector would
mitigate the adverse Dutch disease effects associated with the oil resources.
The overall growth rate would be higher than what it is today. In relation to the exports, the researchers
noted that they would be a lot higher than in the case where by the oil
resources were not spent productively. Given that a large part of the
manufacturing sector is agroprocessing, researchers further noted that the
manufacturing sector would hardly be affected given its intermediary link with
the more productive agricultural sector. The agro‐processing sector
would also grow in line with other agricultural activities.
Interestingly, the same
researchers found out that the argument that resources would be shifted to the
non‐tradables like services if most oil revenues are
invested in agriculture, would not hold in this case. Indeed, the growth rate
of the services would be much more subdued. Given that the majority of the
population which is poor is involved in agricultural activities, targeting the
oil resources at the sector would also result into considerable reduction in
poverty. The welfare of citizens increased through higher levels of consumption
– and this is determined not only by what they produce themselves, but also by
the additional consumption and investment that the oil revenue finances.
In a nutshell, the
fears for an oil industry to subdue and suffocate the agricultural sector are
founded. A deliberate effort must be made to ensure that a balanced macroeconomic
fiscal regime is put in place to ensure that key sectors like manufacturing and
Agricultural; are not outcompeted and made less competitive. At the community
level, caution must be exercised to ensure livelihoods of communities displaced
by oil extraction activities are compensated and at the national level, right
and appropriate policy decisions must be taken to ensure the co-existence of
agriculture and the oil industry.
Morrison Rwakakamba
Chief
Executive Officer
Agency
for Transformation
Re-imagining agricultural and
environmental policy
