Give oil money to Ugandans in cash, say US researchers

Government should distribute expected oil revenue to citizens through direct cash transfers but tax the stipend, a US think tank has suggested. “Redistributing oil rents to Ugandan citizens and forcing the government to rely on taxes — both corporate and personal income taxes, ties the fortune of government revenue to the broader welfare of the Ugandan economy,” argues the Centre for Global Development.

It says Uganda’s preference to invest petro-dollars into infrastructure could spur economic development, but weak institutional capacity and political patronage will likely result in skewed domestic choices and corruption.

Corruption/kick backs
“Construction as a sector is notoriously susceptible to corruption, increasing the likelihood that programmes will be promoted for their expected kickbacks rather than their effectiveness,” wrote senior fellow Alan Gelb and Research assistant Stephanie Majerowicz.

They added: “Countries that start off from weak institutional capacity and poor governance prior to the discovery of oil or large mineral resources are likely to fall victim to the curse. Oil revenues are likely to exacerbate these institutional weaknesses, leading to greater corruption and poor overall governance….

“Oil rents, if unchecked, could simply turn into additional sources of patronage to perpetuate the (NRM) regime.” President Museveni has articulated that oil money will finance development of road, rail and electricity infrastructure - but not subsidising consumption. His views find home in Uganda’s new National Oil and Gas Policy which assigns the expected windfall to; bankroll new economic and social infrastructure, increase power-generating capacity and enhance energy security through localised oil production and processing.

Neither Energy Minister Irene Muloni nor her Information counterpart, Ms Mary Karooro Okurut, was available to say if government would accommodate the latest proposal. The confirmation of about 2.5 billion barrels of oil reserves in the Albertine region drives Uganda to maximise internal revenue generation but fears linger over the possibility that the windfall might be siphoned by bureaucrats for self-enrichment.

Pricing subsidy or equal electronic oil cash transfers through communities or directly to individuals’ bank accounts (as done in Iran) would flatten income disproportions and scale up private enterprise for wealth creation, argue the American scholars.
They propose the scheme could extend each individual some modest $50 (Shs132,000), or even $25 (Shs66,000), annually. Already Uganda is in final stages of piloting a social protection scheme, probably beginning early next month, where each citizen above 65 years and orphaned family heads gets Shs22, 000 monthly - an equivalent Shs733 daily pay-out.

Critics of oil cash transfers say imperfect citizenship documentation in Uganda makes sorting of genuine beneficiaries difficult and handouts engender citizens’ dependence on the state yet if broken infrastructure is not fixed, movement of skilled labour and market access for farmers remain constrained.

The Centre for Global Development says the cash distribution scheme provides incentives for informal workers presently outside the tax system to register to receive their cash transfers, expanding government’s tax base. “The experience of other countries suggests that oil revenue, if not distributed, will further reduce political will to improve the tax system.”

Resource curse
According to the report authors, perception that the poor are not well-informed and are likely to misuse state stipend is “paternalistic” because the scheme has facilitated labour migration/job searches; improved health, lowered the burden of child welfare and reduced household poverty in countries where it has succeeded.

The report titled, Oil for Uganda – or Ugandans? Can cash transfers prevent the resource curse?, says a section of Ugandan elites find the scheme unpalatable because they want to “be able to use the patronage from oil rents to cling onto power.”