Uganda oil revenues can spur EAC growth

Business Daily Africa, August 04, 2011

By Fredrick Njehu

There has been a lot of debate surrounding the oil and petroleum sector in Uganda in since the discovery of this vital natural resource.

First and foremost, it is important to appreciate the concept of international law which grants every country sovereign over its natural resources and in this case, Uganda has all the powers to extract, explore and sell any natural resource within its jurisdiction in accordance with its national laws.

Nevertheless, the discovery of oil deposits in Uganda will have a huge impact in the future for the development of the East African region. It is a fact that Uganda spends a lot of money on petroleum imports and such a trend is expected to take a reverse gear in the near future.

There are several issues that Uganda needs to address in order to address the full potential of the sector.

The enforcement of laws that is comprehensive to address the collection, management and utilisation of oil revenues would ensure equality in revenue sharing in their system of government at national and local government.

Apart from a sound legal structure that could be enforced, the production of oil is also expected to contribute to the socio-economic development and this could spill over to the rest of the East African region. The oil revenues could catalyse this, though there are key issues that the country has to address with these oil revenues.

First, Uganda’s foreign debt was cancelled by its international financial creditors back in 2006, through a foreign debt waiver. This in turn gave the country more impetus to borrow the more which again made its foreign debt grow even bigger. Once the oil revenues are realised, Uganda could do better by financing its ever growing foreign debt and save the future generation the burden of repayment.

The second allocation could be to increase its foreign reserves that have been dwindling over the last few years. Although the situation is not unique to only Uganda, the revenues present a golden opportunity to overturn this drift.

Such financing will help cover for its future imports of goods and services and build its ever depreciating shilling. Once this is achieved, its trade pattern with regional partner states of Kenya, Tanzania, South Sudan, Rwanda and Burundi will spur the realisation of the East African common market.

One of the most challenging options for Uganda in its quest for growth and development is direct financing of the national budget through the oil revenues accrued.

Most of the African countries that have used this alternative have experienced resource curse leading to corruption, absence of revenue transparency and accountability, violation of human rights, regional imbalance and economic disparities, environmental degradation which has all fuelled conflicts and wars in affected areas.

Njehu is a trade analyst at CUTS International, Nairobi

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