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Black Gold, Texas Tea: Uganda’s Crash Course with the Resource Curse

February 22, 2012

By Ann Hollingshead

Ann Hollingshead is a Financial Transparency Coalition blog contributor, whose posts appear weekly. Formerly a Junior Economist at Global Financial Integrity, Ann is now pursuing a Master of Public Policy (MPP) from the University of California Berkeley. Follow her on Twitter: @AnnHollingshead.

Compared to some of the countries in the neighborhood, Uganda is doing pretty well. Directly to the West lies the Democratic Republic of the Congo, ranked by Foreign Policy as the world’s fourth most failed state. With a per capita GDP of $189, it is one of the poorest nations in the world. In the last ten years, it has fallen into near chaos, with many areas lacking law, order, electricity, and medicine. Directly to the North of Uganda lies South Sudan, the world’s newest nation, which despite outward promises remains in a fearsome political deadlock with its northern counterpart. Its first year of nationhood has been marked by brinksmanship over the billions of gallons of oils that lie in the south, but must be piped through the north to reach international markets. Also nearby are the Central African Republic, one of the least-developed countries in the world, and Somalia, the world’s practical synonym for failed state.

Uganda, in comparison, looks pretty good. In 2011, Uganda held its fourth presidential and parliamentary elections in 20 years, although none included a peaceful transfer of power. Its economy is also doing comparatively well—government policies have encouraged a consistent pace of growth, including 7.2% in 2009 and 5.2% in 2010, very respectable numbers given that much of the rest of the world was still in recession in those years. Much of this growth is driven by the service, manufacturing, and agriculture sectors—the latter of which contributes to 80% of the country’s employment.

Like I said, pretty good.

But then something happened in 2006 that promised to change all of this—for better or for worse. Remember when Jed from the Beverly Hillbillies shoots at game, but instead hits “Black Gold, Texas Tea”? Well that’s something like what happened to Uganda. In 2006 Uganda found massive amounts of commercially-viable quantities of oil in the Albertine Graben, located along Lake Albert and the DRC border. Some believe the Albertine Graben may hold more than 6 billion barrels of oil.

This isn’t all good news. Albertine Graben is one of Africa’s most ecologically sensitive areas, home to more endemic species than any other area on the continent, including the mountain gorilla. Environmental degradation from oil exploration and extraction can also have adverse effects on the local population, many of whom depend on the land and natural resources for their livelihood. And oil activities also carry large socio-economic impacts; in-migration of new labor, new infrastructure and businesses can push local residents to the periphery and result in loss of livelihoods and poverty.

We’ve seen some of these effects already. Residents have lost grazing grounds and harvests during oil exploration. The company that conducted these projects, Tullow, says it’s paid about 38,000 claims for damages during its exploration, but farmers complain the rates were just over $1 for each square meter of plantation—below the true cost of their losses.

Uganda’s own laws promise transparency and accountability. On one hand, Uganda’s constitution promises every citizen the right to access “information in possession of the State” except where it would threaten security, sovereignty, or privacy. Uganda’s National Oil and Gas Policy likewise aims to promote “high standards of transparency and accountability” and is consistent with the Extractive Industry Transparency Initiative.

But recent developments indicate Uganda’s government will not follow through. Public officials have employed the Official Secrets Act of 1964 to routinely withhold information, however trivial. And much of President Museveni’s Petroleum Bill, released in 2010, will allow the government to classify oil sector information as confidential. Indeed, most of the agreements between the government and the oil companies and the environmental and feasibility studies have been secret. While Uganda’s High Court is to hear a petition to halt the government from signing any oil deals, the government has proceeded with two licenses with Tullow Oil.

To avoid a collision course with the resource curse, Uganda must uphold its promise of transparency. While there isn’t much the international community can do to hold a sovereign nation to its own promises, there is much we can try to do on our own.

Section 1504 of the Dodd-Frank Act, which will require companies listed on the U.S. stock exchange to disclose payments to governments for oil, gas, and mining, is a start. But Tullow Oil is a London-based company and while it does file some reports with the SEC, it does not file annual reports, which means it will not be required to disclose payments under Section 1504. However, the European Commission has already adopted legislative proposals that are similar to Section 1504. If passed, these rules would likely cover Tullow.

Called the “resource curse,” the more an economy relies on mineral wealth, the lower its growth rate. Countries with significant natural resource endowments also tend to have an increased likelihood of experiencing war and violence and a decreased likelihood of having a democratic system of governance. This is relationship is causation, not correlation. Unfortunately, as Firger (2010) notes these problems in most natural-resource rich nations have “proven resistant to traditional development strategies.” As a result, transparency has emerged as the leading tactic among development-advocates to solve the resource curse. It’s all we’ve got. So let’s give it our best shot.

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Disclaimer: Unless specifically stated to be the views of the Financial Transparency Coalition, the opinions expressed on this blog are solely the opinions of the individual blogger and are not necessarily those of the Financial Transparency Coalition.

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