Tuesday, July 13, 2010

THE DUTCH DISEASE IS REAL

During a tour of the oil fields of western Uganda it was announced that Uganda could be seating on as much 2 billion barrels in oil reserves. Previous reports, given the confirmed finds suggested that there were an estimated 700 million barrels. The Government always
put a qualifier on those figures explaining that only about 30% of the known oil producing areas had been explored.

So maybe it should not have come as a surprise.

But were does not have to be divinely inspired to know that there is a very real risk of this newfound wealth being squandered.

I like Robert Kiyosaki, author of “Rich Dad, Poor Dad”, one of his more enduring lessons for me is plan for the money before you get it because if you have no plan when you get it you will squander it. Buying a copy of “Rich Dad, Poor Dad” for all our bureaucrats and political class would be money well spent, if only they learn this one lesson.

Of course my more cynical friends will tell me later tonight that the plan is there but it is in the heads of a few and not for the benefit of all, and it is at that point that I may start crying into my beer, me who always believe in the goodness of humanity.

And the government officials will assure us there is a plan and the money will not go to waste but remember the early production scheme was supposed to start earlier this year – before it was shelved. So it would not be unfair to expect that we would have had some sort of plan out by now for the previously expected revenues.

There is a phenomenon called the Dutch Disease also called the paradox of plenty or the resource curse, this refers to the paradox that countries and regions with an abundance of natural resources, specifically non-renewable resources like minerals and fuels, tend to have less economic growth and worse development outcomes than countries with fewer natural resources.

The reasons for this are many but the phenomenon is not an inevitable certainty as Norway, a country that has managed its oil receipts for the benefit of everyone has shown.

One effect of mismanagement of the oil finds may be a collapse of other export sectors as the increased foreign currency from oil strengthens the shilling and makes our exports uncompetitive.

We could also see a shift in labour to support the new oil industry at the expense of agriculture threatening our food security.

Kiyosaki also says that money does not make one a bad person it just magnifies what you already are. Going by that alone one shudders to think what corruption will look like post commercial oil production.

Going by our last bonanza – CHOGM, one can not help but feel that this apparent lack of planning – or at least publicising the plans if there are any, is not a function of government incompetence but a deliberate attempt to leave the whole process opaque and unfathomable so that a few can become disprotionately wealthy at the expense of the many.

DO I indulge in hyperbole? Let’s take Equatorial Guinea as a case study. In 1996 this small west African nation of half a million struck oil. It moved quickly to exploit this resource pumping out about 360,000 barrels a day worth about $27m. But despite having a per capita GDP of about $30,000 it is ranked as one of the poorest countries in the world judging by the UN Human Development Index.

How can this be? Well Equatorial Guinea is more renown for the lavish lifestyles of president Teodoro Obiang and his family than for anything else. A recent documentary followed his son on a recent shopping trip to France where he wheezed around in Lamborghini, casually spent tens on thousands of Euro on clothing, threw lavish parties at his chateau on the Riviera and generally living large. This is against a backdrop where less than a third of his countries population has access to clean drinking water.

The Dutch Disease is not a myth or an abstraction in A-level economics. It is real and at the rate at which we are going Uganda may serve as a case study in future lecture theaters of how not to use oil revenues.


Published August 2009, New Vision

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