Danie Lukwago |
Morrison Rwakakamba
Uganda is on the verge of exploiting oil and gas
resources in the Lake Albert Rift Basin. Oil wells are being sunk and a
refinery is slated for construction, despite some occasional brushing of
shoulders between government and oil companies.
A windfall of revenues from oil
and gas is expected any time from the year 2015 onwards for the next twenty or thirty
years. Uganda government, the private sector and other stakeholders hold that non-oil
industries will sprout up and jobs will be created. The structure of the economy
will change, with oil becoming the major contributor to Gross Domestic Product
(GDP). Consequently, there is a possibility that agriculture may suffer from
neglect just like in many African oil producing countries.
The foregoing expectations
have already inspired development of policy and legal documents aimed at
ensuring that the oil and gas resources and revenues are openly and transparently
managed.
Over years, the share of agriculture in Uganda’s
GDP has declined, while those of industry and service sectors have relatively
increased. This would not be considered bad per se, if growth in service and
industrial sectors create more jobs in these sectors while releasing
unproductive labour from the agriculture sector. However, looking at Uganda Bureau
of statistics (UBOS) 2012 statistical abstract, 66% of the labour force is
still stuck in agriculture. This means that qualitative structural transformation
of Uganda’s economy is happening at a slow pace. Trends in Uganda’s budget allocation
already indicate that the agricultural sector is getting less attention from
planners at technocratic and policy levels, since the sector receives less than
4% of the entire national budget.
The fortunes of Ugandan farmers under the new ‘oil
economy’ are not very clear. The oil industry may hurt the agricultural sector
further and prove to be an anathema to farmers who are the majority of Uganda’s
population. In a new paper, http://www.agencyft.org/wp- content/uploads/2013/06/ Publication-Farmers-in- Ugandas-oil-Economy-Deal-or- no-Deal.pdf, we
argue that, if not prudently managed, the oil revenues can lead to a ‘natural resource
curse’, as is the case with many African oil producing countries. For example, oil
revenues can exert a negative impact on growth through having deleterious
impact on institutional quality through rent-seeking and corruption; exposing
the country to volatility, particularly in commodity prices; and making the
country susceptible to Dutch Disease (the tendency for the real exchange rate
to become overly appreciated in response to positive shocks), which leads to
the contraction of the tradable sector. In addition, oil resources can
considerably increase the chances of civil conflict in a country by affecting
institutional quality (Sala-i-Martin and Subramanian, 2003). There are also worries about oil spills or contamination, which could displace
populations and wildlife and damage water sources.
Like in other African oil producing nations, if
unchecked, speculative tendencies by a few corrupt elite with access to illicit
oil money may lead to huge countryside land purchases and in effect drive poor
and small holder farmers out of their lands. Optimistically, if prudently managed,
oil has the potential and vitality to spur Uganda’s economy and push the
country to higher levels of development which countries like Norway have
reached. However, this will only happen if there is strategic investment in
non-oil sectors such as agriculture – which remains a dominant sector.
Investment in agricultural modernisation, energy, education (skills
development), transport infrastructure, tourism (agro-tourism), health, and
environmental conservation is key. Through these strategic investments, farmers
will be able to produce more and sell more, and consequently increase household
incomes—therefore increasing aggregate demand, which is key in stimulating the
economy.
To counteract currency appreciation, Uganda will
have to increase domestic production (especially of foodstuffs) and demand. Uganda
will also have to leverage the Eastern Africa Community to set the common
external tariff (CET) regime for sensitive agricultural commodities like maize,
rice, fruits and other oil seeds to protect local farmers from cheaper food imports
from Pakistan, India and other countries. For example, the CET of 75% for rice needs
to be maintained in Uganda and in the region. Should Kenya, which is now the
largest importer and supplier of rice in the region, continue to stay
application then it may be prudent for Uganda to charge rice from Kenya at 75%,
which corresponds to the EAC CET rate. This is likely to benefit farmers, close
the competitiveness gap of Ugandan farmers, and increase people’s welfare and
wellbeing. However, this measure will have to be implemented within a given
time frame agreed upon with other EAC partner states. Overall, for farmers to
benefit in Uganda’s oil economy, government through relevant institutions will
have to do the following;
A: Leverage the Eastern Africa Community to set a
common external tariff regime for sensitive agricultural commodities like
maize, rice and other oil seeds to protect local farmers from cheaper food
imports. This will be a strategic deterrent against expected currency
appreciation driven by substantial amount of oil revenues.
B: Uganda joins Extractive
Industries Transparency Initiative (EITI) a globally developed initiative for revenue transparency;
accountability throughout the oil value chain. This will reduce the risk of corruption
and speculative tendencies that have potential to drive farmers out of their
lands.
C: Manage the potential effects of displacement of farmers,
unfair compensations, and land evictions.
D: Manage environmental hazards such as flaring
and venting; oil spills; land, air and water contamination; acid rain; health
risks; and climate change.
E: Use oil revenues to capitalise the Uganda
Development Bank and other local banks to push down
interest rates for small holder farmers and small scale and medium enterprises
to easily access agricultural credit.
F: Regulate local content to ensure that small
holder farmers can benefit from oil companies and their auxiliaries through marketing
of agricultural products and other value addition added agricultural products
in Uganda.
G:
Ensure that government fulfills the Maputo Declaration of allocating 10% of the national
budget to agriculture with a broader objective of achieving and
sustaining a 6% growth target.
Morrison Rwakakamba, CEO, Agency for
Transformation
Daniel Lukwago, CEO, Nonner Consult
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