Don’t mix oil business with politics — researcher

The start of commercial oil production in Uganda, according to the World Bank, offers long-term prospects to diversify the economy and catapult it to upper middle income status by 2040. With commercial oil production at peak, the Bank estimates show that Uganda could earn up to $3b (approx. Shs7 trillion) in revenues from exports of up to 60,000 barrels of oil per day. These revenues have the potential to propel the economy between 7 and 10 per cent forecast up from the current stagnation of 4 per cent.
However, Dr Cyril Obi, a researcher on the African oil story and currently programmes director at the New York based African Peacebuilding Network, who was in Kampala last week on the US State Department tour, told Prosper Magazine’s Frederic Musisi that such expectations need to be carefully managed and Uganda needs to embark on diversifying her economy to insulate itself.

What brings you to Kampala?
Well, thank you. I’m here to share on the potential of the economic and political impacts of the oil sector, and mitigation strategies drawing on the lessons from Nigeria; essentially, the economic impacts of oil endowment, and how to mitigate the negative impacts.
Who have you met?
I met with local government officials, civil society and community based oranisations in Hoima, a cross-section of government officials, technocrats and students at Makerere University Business School.

What is your impression so far?
I think there is a lot of enthusiasm; there is a lot of interest, and expectations. Many people are asking questions about what is in for Uganda, and what they need to avoid; the mistakes done in other countries. They want to know, interestingly, life after oil; what works better in different contexts: issues of transparency, accountability, and the issue of who gets the benefits, and how the environment can be protected.

What are the downside of such high expectations?
If they are not realistic, they lead to disappointment and disillusionment. They also put government under tremendous pressure. The tendency is for people to think they were deceived, and at times also lead to speculation of all kinds of things; like I heard somewhere that all the oil in Hoima has been taken: it is that kind of thing that happens when expectations are too high and are unmet.

How can government better manage expectations?
I think that is where the relationship between government and the role of the media is very crucial. It is true, and it is not only peculiar in the Ugandan case; whenever a country discovers oil expectations are normally high, because oil is associated with providential and vast amounts of wealth, and people expect that to be distributed.
But when these expectations are not met, as I said, that is where government and media need a good working relationship; government has the information, and is the regulator, and media manages information, so the more technical aspects are explained and the payment systems. A lot of confidence building can be done through transparency and accountability.

Talk of speculation and civil society; the latter compliments the former, because they want to play gallery of the donors, while doing great work in advocacy. But when governments reins in, they are accused of stifling independent voices. How can government strike the balance?
Government means many things in this case. But local governments are key in this, and they must be involved because they are the closest to the grassroots.
The central governments should have a way of communicating things directly through them at the local level, so that they can go to their communities and spread that information. Local media also has that kind of responsibility, but that is one level.

The majority of Africans are peasants who access the same information and at times the amount of time required to make this information digestible for them is quite a lot. Yet they wallow in misery in the event that their expectations are not met. How can government deal with this problem?
If you are dealing with peasantry, there are several avenues that can work; one is local representation, and the other is media—especially community based radio.
The third would be to have specifically designed programmes for those communities.

In the African oil story, Uganda is really a baby. But can Uganda avoid repeating the past mistakes of their big brothers in Nigeria and Angola?
The first is, the issue of having very high expectations in the beginning; this has happened in many contexts.
The second is, when oil money came in, there was no clear vision and plan about how exactly that money should be used to develop an economic base for the diversification of the economy; what happened is people got into the oil economy and that dominated entirely, squeezed out other non-oil sectors, and made those economies completely vulnerable. That is a very dangerous state because oil is a very volatile product and once prices crash, the economies hit recession.
The other is wasteful spending, and sometimes borrowing money to spend on infrastructure projects which sometimes backfires when the expected oil revenues are not as high as originally anticipated.
The third mistake is mixing oil business with politics.

Uganda hasn’t received much oil revenue but government is heavily borrowing against oil money to invest in infrastructure development with hopes that this oil revenue will offset such loans. What are the main risks in that?
The main risk is the price of oil; that if for any reasons there is a crash in prices, those revenues don’t come as expected.

And the advantages?
The advantage is that in the short and medium term, the economy grows because of infrastructure. In terms of power, basic services make life easier, and it attracts foreign direct investments.

Good management is key in all this. But having researched widely on the African oil story, why is it a big problem from Nigeria, Angola, to Equatorial Guinea, and God knows where Uganda is headed?
If you don’t insulate business from politics, that is the succinct summary of everything. If political considerations overtake good business logic and sense, that is what you get. The other thing is corruption. It is worsened by weak regulatory institutions.

Oil prices plunged from $100 bill back in 2014 and are yet to pick up. Do you see that happening?
Well, it is always a cycle; it rises and falls. But you can’t predict. The answer is to keep economies diversified so that they do not rely one commodity such as oil. You must have other internationally competitive products in the economy that can engage with the global market and be a source of revenue for the economy. If you bank on oil, it can have its own problems and that is a lessons that countries like Angola and Nigeria have learnt.

What is the future of small African oil countries like Uganda and Kenya, I mean Saudi Arabia announced discovery of new 53 billion barrels the other day; the US has hoarded God knows how many barrels?
The future is in diversifying economies so oil becomes one of the many exports. If the oil reserves are small today, there is nothing that says they cannot expand tomorrow and Uganda can go to becoming from a small to big reserve country. The fundamental issue is for African countries to learn to be monoculture economies; oil monies can be a catalyst, and that is what countries like Angola missed. The advantage that new countries like Uganda and Kenya have is to learn from Nigeria.

Increasingly, there is talk of departure from fossil fuels. How soon do you see that happening and what does it mean for new oil frontiers like Uganda?
There is a short, medium and long term. In the short and medium term, that is not going to happen soon at least in the next five to 10 years; oil will be the main energy source of choice.
However, there is a lot of research into the alternatives which means countries like Uganda which are just beginning, should be investing into that research. If an alternative to oil is found, it will solve the mobility aspect; the movement from oil as a commodity.
But oil as a commodity is versatile; it has many by-products, besides petrol, diesel and kerosene, such as plastics, chemicals, and asphalt. So in the short and medium term, it won’t be completely irrelevant but this might change in the long term, which is important that countries start preparing.

Avoid past mistakes from oil giants
The first is, the issue of having very high expectations in the beginning; this has happened in many contexts.
The second is, when oil money came in, there was no clear vision and plan about how exactly that money should be used to develop an economic base for the diversification of the economy; what happened is people got into the oil economy and that dominated entirely, squeezed out other non-oil sectors, and made those economies completely vulnerable. That is a very dangerous state because oil is a very volatile product and once prices crash, the economies hit recession.
The other is wasteful spending, and sometimes borrowing money to spend on infrastructure projects which sometimes backfires when the expected oil revenues are not as high as originally anticipated.
The third mistake is mixing oil business with politics.