Diversify from oil, Uganda advised by World Bank

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The World Bank Uganda Country Economic Memorandum titled “Economic diversification and growth in the era of oil and volatility,” cautions the government not to neglect other sectors of the economy, as has often been the case with countries that discover oil.

Uganda discovered commercial quantities of petroleum in the Albertine region in 2006, but the timetable for production has been pushed forward.

“Before oil prices started declining heavily in mid-2014, the price of one barrel of oil had hovered around the $100 mark for several years. At this level, oil revenue for the government would have averaged $2.5 billion a year between 2017/18 and 2044/45. Assuming an international price of oil of $50 per barrel, average oil revenue will only amount to about $800 million a year,” states the report.

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Bigger investments in the manufacturing and agricultural sectors could yield high diversification levels within Uganda’s economy. However, projections of lower oil revenues and a rising debt burden have provoked worries over the country’s ability to finance other ventures.

The recommendations are based on concerns over significant growth registered in the services and manufacturing sectors that is not matched by a corresponding increase in high wage jobs. This trend has led to with high rates of ignorance and poverty, with many Ugandans being trapped in low wage jobs in the agricultural sector.

Coffee and cotton account for about 39 per cent of Uganda’s exports, and notable growth in other export items has contributed to the current 24 per cent share of exports of manufactured products, World Bank data shows.

Growth in the services sector saw its share of local output rise to nearly 50 per cent, while the share attributed to the agricultural sector has fallen to 30 per cent over the past ten years.

“We agree with the World Bank and government position on diversification of the economy. But investments in infrastructure deserve top priority in order to boost competitiveness in the agriculture and manufacturing sectors that stand to benefit significantly from oil and gas revenues. Developing a highly skilled oil and gas industry workforce requires a specialised training model similar to that adopted by India so as to achieve good results,” said Elly Karuhanga, the chairman of the Uganda Chamber of Mines and Petroleum.

Investments in the education and health sectors could help plug skills gaps in the oil and gas industry and other areas of the economy, while raising individual productivity levels, World Bank experts say.

Only about 20 per cent of Uganda’s labour force has completed secondary education, compared with Ghana’s 50 per cent. While the government favours higher spending in these two sectors, mining industry players prefer a specialised education model that focuses on value chains coupled with certification systems.

“Diversification of the economy has become inevitable in an era of rapidly fluctuating oil prices. Looking at Uganda’s situation, priorities for diversification lie in the agricultural and healthcare sectors. Deployment of oil and gas resources would significantly boost the agricultural value chain, while investments in the health sector could lead to improvements in quality of services and also create a wide pool of specialised professionals who can serve both local and foreign patients.

“However, Uganda’s ability to invest sufficiently in other sectors will be constrained by heavy future debt obligations tied to recent infrastructure projects,” said Fred Muhumuza, an economist at Makerere University’s School of Economics

Source: The East African

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