Oil resource: The sticky elephant in the room
Posted Tuesday, February 5 2013 at 02:00
In a single month last year, three African countries joined the prestigious club of oil and gas producers, making East Africa that has for long been synonymous with Agriculture and tourism into a potential Middle East and oil producing hub.
The discovery of oil in Kenya and Gas in Tanzania caused the share values of the companies concerned follow oil and Ophir energy to sky rocket on their respective stock markets.
The rise of China and hunger for oil and gas means that oil and gas companies are looking for the next frontier in terms of potential oil resources.
Instability in the Middle East and resource nationalism in Russia and Venezuela, also puts East Africa at the forefront of the desire to get reliable oil supplies for America and China.
The discovery of oil in Kenya and gas in Tanzania, overshadows the discovery of oil in Uganda which is well on its way to becoming an oil producer once Tullow oil and its partners sort out the question of capital gains tax and royalties as well as build the necessary infrastructure like pipelines and probably oil refineries.
What lessons, however, can Uganda learn from the oil industry in large producers like Angola so as to turn the sector into a blessing and not the curse that is synonymous with the Niger Delta.
Many oil producers in Africa conjure up images of negativity and the cliché of oil curse rather than the spick and span image of the Gulf and Middle East.
The road to oil production is thus not paved with good intentions and if not well managed can fail to elevate a country’s economy out of poverty as is evident in Nigeria.
So what can possibly go wrong with the much sought after resource and turn out to be a curse rather than a blessing.
Over dependence on oil once it begins to flow has in many other countries led to a slow but sure eroding of other vital sectors of the economy.
The euphemism, the Dutch Disease was coined to describe such a phenomenon. It is characterised by excessive dependence on a single extractive resource at the expense of other economic sectors.
Nigeria was once upon a time an exporter of sugar and rice.
It still has rich farmlands, however, the curse of over dependence on oil has led to a neglect of the agricultural sector forcing the country to become a net importer of sugar.
Eggs in single basket
Zambia too, rapidly de-industrialised after it put all its efforts into copper at the expense of agriculture.
When the price of copper fell in the 70s its economy was wrecked and the country was left in a spiral of debts.
Things can also fall apart with oil as the industry is not immune to the whims of corruption.
In fact the very word oil and gas brings up images of big money and under cover spending on white elephants projects like stadiums at the expenses of the population.
In Nigeria no one can account for the billions of dollars made during the oil crisis of the 1970s.
A lot of oil money got stashed away in Swiss accounts, a lot more was used to build white elephant projects like the Abuja capital.
Meanwhile, a visit to the Niger delta one is met with squalor, environmental pollution and insecurity as a number of locals try to siphon oil from the pipelines to sell and make a living.
The oil industry is also a threat to the fragile ecosystem and can easily lead to unrecoverable oil pollution.
The oil spill in the gulf of Mexico in 2010 led to the loss of livelihood for millions of fishermen.
The frequent oil spills in the Niger delta are a consternation to the people of that area and have rendered the water and land in that area un usable.
This is one of the ways that oil can turn from a blessing into a curse.
Because of the power that comes with oil reserves, many oil companies exacerbate tensions as a way of gaining an upper hand to get oil deals.
Thus oil majors have been known to plot coups or assassinate. Thus oil can be a cause of instability. However not all resource rich economies have had such a bad report card.
A lot of best practices for managing Uganda’s oil economy estimated at about three billion barrels have been vouched .
To avoid the Dutch disease syndrome which is the curse of many oil producing nations, Uganda would do well not to abandon and neglect other vital sectors including agriculture and manufacturing.
The United Arab Emirates, perhaps discovering that oil is a finite resource and that its price is too volatile, turned Dubai into a service hub of tourism and banking from the proceeds of oil.