Fall in prices may delay investment in Uganda’s oil sector - expert says

Prof Stefan Dercon, the chief economist Department for International Development.

What you need to know:

Good side. This, however, gives the country time to be more cautious

Kampala.

The fall in global oil prices is likely to cause slowdown in investment and development of the oil industry in Uganda, the chief economist of Department for International Development (DFID) has warned.

Delivering a public lecture on the theme ‘Falling Oil Prices and a Rebased Economy: Implications for Growth and Unemployment in Uganda’ in Kampala recently, Prof Stefan Dercon, who is also a professor of economics at Oxford University, said the fall in oil prices may well delay Uganda’s impending resource rents, and limit its impact.

“This is, however, not bad news as longer time will offer a better chance for the rest of the economy and the state to be more resilient, and prepare to take full advantage of it. It is an opportunity to go for a more cautious and effective rebalancing of governance and the economy to cope with oil,” he said

The economist also observed that to sustain growth and reduce poverty, Uganda’s economy needs to reallocate resources to more productive and higher return sectors, and a sustained transformation out of subsistence agriculture.

He noted that much as rapid oil production may give off huge opportunities for investment in infrastructure and other sectors, it also tends to hinder the incentives for tradable sectors to become stronger. This is in addition to providing strong incentives against good governance and political commitment for inclusion.

On the global perspective, Prof Stefan said there are plenty of lessons from the rest of the world adding that much has already been done in the country (Uganda) to avoid this, compared to some other countries in the region.

However, he said to utilise the new resource wealth, Uganda needs to take advantage of the possible delay to invest in high potential tradable sectors, including those focused on regional export.

The Governor Bank of Uganda, Mr Emmanuel Tumusiime Mutebile said: “The issue of falling global oil prices remains a double edged sword. In the short term, it has ensured that the recent depreciation has not manifested into higher inflation in the economy.

Nonetheless, in the medium to long term, low world market prices for oil have implications for the commercial oil exploration in the Albertine Graben.”

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