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Last updated on October 27th, 2021 at 06:30 pm
When a resource-rich state bases its economic development solely on developing petroleum resources, it has, in some cases resulted in the “resource curse” phenomenon, also known as the “Dutch disease”.
Dutch disease refers to the difficulties experienced by the Dutch economy following the development of natural gas resources, which led to an appreciation of the real exchange rate, leading to increased domestic incomes inflation, demand for goods, and to the decline of the non-oil Dutch sectors.
As a result, the relative cost of non-natural resource-related products increased, and their exports become expensive compared to world market prices. It led to a decrease in the competitiveness of these non-natural resource products, and in the investment they attracted. Ultimately, this scenario, makes it difficult for such states to plan for their economic development.
Uganda is a nascent petroleum exploration and producing country, having confirmed commercial petroleum resources on 6th January 2006. In 2017, the total proven oil reserves from the explored fields were estimated to amount to 6.5 billion barrels of oil, and the associated natural gas estimated at 170 billion cubic feet while non-associated gas at 500 billion cubic feet.
However, Uganda is also a developing economy, with a current Gross Domestic Product of 25.89 billion US dollars as of 2017 compared 24.51 in 2012. Therefore, the development of its petroleum industry is believed to give rise to numerous potential economic benefits. Such as, creating jobs, technology transfer, infrastructure development, increased taxes, and other economic linkages such as its use for domestic purposes such as heating and cooking, fuel for vehicles, fertilizer plants and as a chemical feedstock in the manufacture of plastics among others.
However, Uganda is currently an economy heavily reliant on sectors like Agriculture 24.2% (includes fisheries, animal husbandry, dairy, and crop sub-sectors), Industry 25.5% (manufacturing, construction, and electricity supply sub-sectors), and Services 50.3% (wholesale and retail trade, telecommunications, hotels and restaurants, transport, communications and tourism sub-sectors).
Therefore, hinging its economic development on the petroleum industry might stifle development in the other sectors by increasing the monetary value of Uganda’s currency, causing inflationary pressures, and make it difficult for other sectors to compete globally to sell their goods and services.
FURTHER READING
Often, petroleum companies have independent policies on Corporate Social Responsibilities (CSR), in which they voluntarily contribute to the development of mining communities.
However, these CSRs are often independent of the communities input. Making collaborative partnerships an essential aspect in furthering the drive for sustainable development.
Therefore, in order to facilitate this collaborative effort, mining companies can enter into Community Development Agreements (CDA) with local communities setting out specific agricultural project ideas, as well as how to implement them.
For small-scale agriculture projects co-located with the petroleum development activities, the company’s project revenues could be explicitly utilised in several ways: through designing modern technologies and infrastructure that support farmers’ access to energy for their irrigation needs; through provision of synthetic fertilisers (which is a byproduct of natural gas) in order to support agriculture production; through facilitating training and workshops on sustainable agricultural practices; and finally by offering a ready market for the communities’ agricultural produce within their organisations and camps.
Oxfam IBIS created a six-step guide to be used in the implementation of the CDA. In brief, the first step is through stakeholder and community mapping to identify what community will be considered, then planning on how to engage them, for example, through conducting a sensitisation workshop on the process.
Secondly, through community capacity and organisation, that is through conducting training on a model agreement and establishing a community development committee. Thirdly community preparation of the agreement through prioritising demands by stakeholder and developing a resettlement action plan and deciding on benefit flow.
Fourthly through construction and negotiation of CDA by accessing technical and legal community assistance and ensuring CDA pays attention to women and youth. Fifthly, through the implementation of the CDA, which includes a clear work plan, indicators, activities, and timeline.
This is essential in ensuring transparency in managing resources and establishes a grievance procedure. Lastly through reviewing the CDA, that is, ensuring periodic review of the CDA, and independent facilitation for the review process.
In terms of the implementation process, where the local leadership is weak or constrained, as is often the case in “Flawed democratic governments”, it would be more effective in achieving proposed projects, if the investor remained committed and maintained direct project management oversight.
Ronnah T. Tumusiime is an Advocate, Researcher at Nottingham Trent University and PhD Candidate (Nottingham Trent University).
She has LLM in Oil & Gas Law (with Distinction) UK
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