Expectations over Oil Revenues Worry Experts

4080 Views Kampala, Uganda

In short
For the last three years he has been working, Nickson Ayebare, a graduate from Makerere University hasn't been able to even build a house for his family.
But when Uganda starts pumping oil a few years from now, Ayebare hopes, the story will be very different.

For the last three years he has been working, Nickson Ayebare, a graduate from Makerere University hasn't been able to even build a house for his family.
But when Uganda starts pumping oil a few years from now, Ayebare hopes, the story will be very different.
He expects oil to usher in much better wages, which will see many like him cater for their needs like the house he yearns to build.
Since the first discovery in 2006, Uganda has since revised its oil reserves to 6.5 billion barrels of oil, of which only 1.4 billion barrels is recoverable and sector players expect oil to start flowing by 2018.
Ayebare falls in the same category as Vincent Ssemakula, a businessman from Kikuubo, who is also optimistic certain commodity prices will fall with a drop in fuel prices.
As for Anthony Othieno, a sales executive at The Independent magazine, life will get better for all Ugandans. Othieno expects that once Uganda starts producing its own oil, the prices at the pump will drop; Ugandans will spend less on transport and save for future investments.
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Such expectations are what officials at the Petroleum Exploration and Production Department (PEPD) like Honey Malinga, the assistant commissioner are worried about.
Malinga listed high expectations among the challenges the department faces, at recent ministry of energy annual joint sector review held at Speke Resort Munyonyo.
Malinga said that already, people are accusing them of spending oil revenues. This, he said, is because of unmanaged expectations.
Two other officials at the department also expressed concerns that Ugandans think the sector will fulfil the impossible, provide the revenues needed to solve all Uganda's problems and create all the jobs the country needs for its unemployed population.
Experts however don't see Uganda's oil reserves transforming the country that much.
A report titled, Managing a modest boom: oil revenues in Uganda, for instance shows that not much oil revenue will arrive for at least a decade after production has commenced.
Even after a decade, the report says, the oil revenues will contribute only between 3-9% of the country's Gross Domestic Product (GDP) for 20 years.
"We believe the opportunities offered by oil are reasonably good," the report says before quickly adding that the oil isn't going to transform Uganda into a petro-state.
For Sarah Prinsloo of Wildlife Conservation Society, the oil sector is not any different from other sectors. She wonders why there is excessive excitement and unrealistic expectations.
Prinsloo says that the tourism sector where government doesn't make any significant investment would fetch Uganda more than half the revenues it expects from the oil sector in 25 years.
 "At its current contribution to GDP (estimated at 7%), tourism would fetch $2.5 billion per year which makes it $30.6 billion at the end of 25 years." Prinsloo told journalists attending training on extractives at the African Centre for Media Excellence (ACME) in August.
Jeff Baitwa, the managing director, Bro Group Holdings, warns Ugandans not to laze around thinking that oil will solve all their problems.
He warns that money from the oil sector will be too little.
Each Ugandan wouldn't even get up to $2000 at the end of 25 years even if the oil cash was transferred physically to Ugandans, he says, adding that at $100 per barrel, Uganda would get about $150 billion from its estimated 1.4 billion barrels but remain with only about $60b when the oil companies deduct their share and investment costs.
Baitwa forgot to add that crude prices have recently tumbled to the lows of $75 a barrel.
"Oil won't make us billionaires," he said urging Ugandans not to abandon other important sectors for oil.
Another report titled, "Oil for Uganda or Ugandans; can cash transfers prevent the resource curse?" estimates that each Ugandan would get $50 from oil annually.
But government isn't considering direct cash transfers. President Yoweri Museveni's plan is to use the oil money to build infrastructure.
Power dams, roads and a railway network estimated to cost $8 bn are some of the projects he has lined up.
Baitwa sees a lot of sense in Museveni's plan.  The only way oil money can make sense to Ugandans, he says, is if it is used to improve the infrastructure sector to facilitate activities like agriculture, trade and tourism.
The report, which evaluates the feasibility of cash transfers, also shows that using money to improve the infrastructure would be ideal because households can't invest their money appropriately with the current severity of the infrastructure constraints.
But the report doubts the capability of Museveni's government to invest this money wisely due to the incessant corruption occurrences.
"This could no doubt have large benefits but evidence of Uganda's already deteriorating governance and mounting corruption raises questions about its capacity to wisely invest the oil revenues," the report reads in part.
Economist Fred Muhumuza, who is a former advisor to minister of finance, has also said that Uganda's problem has never been lack of resources but managing them.
"If we were managing the little we had prudently and our only problem was because we lacked enough, then oil money would come to cure that," Muhumuza said.
Even the report concurs that Uganda's problem is not the abundance of "natural capital" but the lack of complementary "governance capital" and "human capital" needed to make good use of it.
Indeed, because of these glaring concerns, even Ugandans with high expectations like Othieno have now started trying to tame them. Othieno is aware that the government tends to make empty promises.
 He adds that the government is already acting suspicious by refusing to disclose the Production Sharing Agreements (PSAs) to enable Ugandans know what will be their take.
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Julius Muyinda, another a sales person seems to have given up long time ago. He started suspecting the government of some sort of mischief, he says, because "they refused to be transparent about the sector from the start".
According to Timothy Magezi, an accountant, Ugandans lost faith in this government and will not be surprised if the oil money doesn't make any difference.
 "Ugandans already know that oil and all its proceeds will go to a handful of people in government but won't benefit ordinary Ugandans," he told URN.