Global Policy Forum

Uganda's Oil: Lessons on Governance and the Resource Curse

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As Uganda contemplates commercial production of its vast quantities of oil in the coming years, there is intense debate over how best to avoid the “resource curse” of its neighbors. The question is not one of knowledge; there is no shortage of literature covering resource management for Uganda to draw on. The problem lies in management challenges and governance. Sound legislation and Ugandan specific frameworks are futile unless corruption is curtailed and there is a transparent public involvement in the management of future resource revenue. The political concentration of power and lack of civil society involvement in politics may prevent effective oil and wealth management. However, there are broadly shared aspirations towards peaceful development, which may prompt the government to use the revenue for human development. 

By Ben Shepard

March 20, 2013

As fresh column inches are written about Uganda's oil resources (some exposing corruption allegations, others claiming that the government scarcely has enough money to begin refining) it is clear that managing a natural resource is a daunting challenge. Uganda, anticipating commercial production in the next few years, has itself been gripped by intense debate. [link] Waste, corruption, environmental catastrophe and conflict in a country like Nigeria are a stark warning. The spectre of the "resource curse" looms large.

What can a state like Uganda learn from resource-producing states elsewhere? The problem is not a lack of information – there is a vast specialist literature, covering everything from local content to macro-economic stabilisation mechanisms. There is also a flourishing industry of experts and advisers, both state and non-state. Uganda, for example, has benefited from a multi-million dollar partnership with the Norwegian government, and has some high-quality local and international NGOs working on various aspects of the oil question.

But technical expertise will only get you so far. There is growing consensus that getting the management challenges right – financial control, licensing and so on – is immaterial if the rules are not respected. Good legislation can be rapidly undermined by bad governance. Chad provides an example: a state-of-the-art legal framework for its oil industry, developed in partnership with the World Bank, collapsed within a few years.

So governance is key. But it is a slippery term. Though indices such as those produced by the World Bank or Mo Ibrahim Foundation are useful, they don't capture the unique dynamic of politics and power in any given state. This presents a serious challenge in identifying lessons for Uganda. No two places are alike, and policies cannot simply be imported wholesale; what worked in Norway may not help in Nigeria. We also need to acknowledge what might be called the governance Catch 22: it is those places where governance is weakest that external advice is least likely to be heeded.

Expanding the idea of governance away from arid technicalities towards a broader and deeper understanding is essential. Recent work has begun to flesh out this perspective. In Indonesia, Botswana, Chile and Norway – very different countries with very different histories – research has uncovered four long-term factors that seem to have been critical in successful long-term resource management. These are: broadly shared aspirations for peaceful development, strong apolitical constituencies able to counsel and restrain government, significant technical expertise, and popular buy-in to plans for spending the resulting revenues.

These four factors offer a framework to understand long-term social and political processes. Uganda, for instance, is fortunate in that its violent past has resulted in a widely shared commitment to peace and development, despite latent divisions. Likewise, the slow pace of oil exploration has allowed technical expertise to be built, though there are risks that centralised decision-making will marginalise it. Conversely, the domination of Ugandan politics by a single party, and increasingly by president Museveni himself, has undermined civil society. No commercial class has yet developed to take up the slack. And the concentration of power in the president – particularly over big issues such as oil – has left a lot of Ugandans, already remote and rural, further disconnected from politics.

This framework then allows the options open to Uganda to be assessed in context. Transparency is a good example. Uganda is relatively cohesive, but toxic rumours, notably over corruption, are already circulating. The Ugandan government has rejected an oversight mechanism and refused to release production sharing agreements, in part because transparency is seen as an attack on government. But if access to reliable information is instead understood as preventing rumours, misinformation and speculation, thus maintaining Uganda's long-term social cohesion, then it is not a threat to government but rather in the interest of all. Ghana's public interest and accountability committee is perhaps a good model.

Another is the question of how to manage spending. Many advocate a sovereign wealth fund, or saving a fixed percentage of revenues. Draft legislation would allow everything to be spent immediately – understandable, given Uganda's development needs. But it is possible that this would undermine the development of an agricultural commercial class, able to moderate government in the long term – agriculture is export-led, and so is vulnerable to currency appreciation. And currency appreciation can happen if too much is spent too quickly – hence why a sovereign wealth fund or limit on spending might be vital, for population and government alike.

Public consultation as carried out in Trinidad and Tobago may generate popular buy-in to spending plans. Separating government from industry through an independent petroleum authority and national oil company – as Norway has done – might protect technical expertise from political influence. There is much Uganda can learn from around the world. But there are no quick fixes and no right answers, beyond the overriding imperative of political cohesion. The resource curse can be overcome if Ugandans work together and look to the long term.


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