Uganda is considered one of the fastest-growing economies in Africa, historically driven by agricultural exports including coffee, tobacco and fish. For many years, Uganda struggled with severe poverty, corruption and civil conflict, but has seen strong economic growth in recent years thanks to macroeconomic and structural reforms.
With the 2006 discovery of an oil reserve estimated at 800 million recoverable barrels, Uganda now has the potential to accelerate its growth and diversify its economy. The Oil and Gas Policy introduced in 2008 established new standards for sector management and regulation. The government disclosed a draft petroleum law to gather inputs ahead of anticipated finalization in 2011, but as of July 2011, this bill had not yet been presented in parliament for approval. The government has also committed to developing revenue management legislation, but so far it has not sought public comments on this document.
To date, Uganda's economy has been mainly agricultural. Approximately 70-80 percent of the population is employed by the agriculture industry. The country also has sizable deposits of copper, cobalt, tin and gold, among other minerals. A focus on currency reform through stable pricing and wage implementation has driven the economy forward, and annual GDP growth rates have ranged between five and 10 percent over the last two decades. Though Uganda has not committed to the Extractive Industries Transparency Initiative (EITI), the 2008 Oil and Gas Policy does make provisions for steps toward EITI implementation.
Despite some recent signs of economic progress, Uganda ranked 143rd out of 169 countries on the United Nations Development Program Human Development Index as of 2010. The per capita share of GDP is $509 (WB, 2010), and the average life expectancy is 54 years. Though GDP has grown and poverty levels have improved, much of the population still lives below the poverty line.
When the new oil production finally begins, initial extraction will be minimal: projected at 4,000-5,000 barrels per day, which is inconsequential in terms of revenue generation. However, if effective oil production in Uganda can be sustained throughout the upcoming decade, it has the potential to generate over $2 billion in annual revenue for more than 20 years. The cumulative amount earned each year from oil would exceed the funding Uganda currently receives in development assistance, which is around $1.7 billion per year. The emerging oil sector is likely to spur continued economic growth through the generation of revenues, new jobs and investment opportunities.
Revenue Transparency
Uganda has made some headway toward greater revenue transparency in the past few years. The 2008 Oil and Gas Policy (OGP) was drafted to govern the country's upstream and midstream oil sectors. It calls for the creation of a petroleum directorate (PEPD), a petroleum authority (PAU) and a national oil company (NATOIL). The OGP also makes some provisions for future EITI implementation, although the provisions stop short of a full commitment to implementation.
The legal framework governing oil and natural resource revenues continues to undergo reviews and updates. The Ugandan government circulated a draft Natural Resource Management Law in spring 2010 in order to seek comments from experts and other stakeholders. This draft was expected to arrive in the legislature during the second half of the year but had not yet been introduced as of July 2011. Other anticipated regulatory updates include a new revenue management law, a new model production sharing agreement (PSA) and a multi-year revision process for laws governing taxes, environmental impact and public finance and accountability.
Ugandan civil society has experience with transparency issues in sectors such as education and agriculture. While the nation's extractive sector is relatively young, previous transparency campaigns have yielded considerable cooperation among civil society groups. In October 2008, 62 organizations established a Publish What You Pay coalition, which has advocated extractive industry transparency through education on how Ugandans can influence policy decisions. Coalition member organizations have also led efforts to promote the EITI, pressed on environmental issues and advocated the benefits of disclosing production sharing agreements. More recently, a Civil Society Coalition on Oil was established to undertake compressive oil industry monitoring.
Expenditure Transparency
Uganda's rank of 55 in the 2010 Open Budget Survey reflects significant improvements in budget transparency achieved in recent years. But while key documents have been made public, reports about in-year spending remain inaccessible, making it extremely difficult for the public to track what the government is receiving, spending and borrowing throughout each year. A 2011 decision to purchase fighter jets and other military hardware worth $744 million—purportedly to protect oil installations from foreign threats—raises questions about the government's expenditure priorities. The first installment for this purchase was paid for central bank reserves withdrawn without parliamentary approval and in violation of established procedures.
Unsurprisingly, Uganda's domestic investment climate has suffered in the troubled global economy, slowing after exceptional growth in recent years. With the decrease in capital inflows, the national currency has been depreciating, resulting in a real decrease in the aggregate money supply. It is likely that such circumstances will warrant changes in domestic spending.
Contract Transparency/Freedom of Information
In 2005, the government instituted the Access to Information Act, giving the country's citizens the right to review government information. The act restricts disclosure of information that is deemed commercially sensitive, but this clause is superseded in instances where disclosure is demonstrated to be in the public interest. Considerable secrecy remains in the extractive industries, however. For example, licenses, production sharing agreements, environmental impact assessments, and the details of the early production scheme have been leaked to civil society but generally remain unavailable to the public. A majority of the exploration areas have been licensed out to small international oil companies based on the old licensing regulations, under which bidding took place through individual direct negotiations.
A group of journalists and civil society advocates put the Access to Information Act to the test recently, by seeking disclosure of PSAs through Uganda's courts. This effort proved unsuccessful in February 2010 when a judge said that the complaints failed to show that the release of these documents would be in the public interest. Transparency activists are now appealing this decision.
This episode also reignited the wider debate over the required level of transparency in Uganda's oil industry. In light of the pressure exerted by parliament and civil society, then Minister of Energy and Mineral Development, Hilary Onek, decided to present copies of the seven signed foreign production deals before parliament. However, the executive added a non-disclosure provision that prevents Ugandan MPs from publicly disseminating these contracts. Members of parliament remained determined to secure public dissemination of these deals and reportedly requested an opinion from the solicitor general on the legality of public disclosure, arguing that any document brought to parliament is by definition public.
With oil's potential to become an extreme blessing or curse to Uganda, pressure remains on the government to create an auditing system that will carefully monitor oil companies. This would include making all oil and gas contracts public, establishing a parliamentary committee that is specifically focused on oil revenues, and hiring consultants to determine production costs.
