Emmanuel Tumusiime-Mutebile: Oil revenue management
Remarks by Mr Emmanuel Tumusiime-Mutebile, Governor of the Bank of Uganda, at the Oil
Revenue Management Seminar, Kampala, 27 February 2012.
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Honorable Ministers,
Honorable Members of Parliament
Your Excellencies the Ambassadors
Ladies and Gentlemen
It is with great pleasure and that I welcome all of you to this important policy seminar on Oil
Revenue Management, and especially those who have travelled from abroad, who include
distinguished academics and experts from the petroleum and financial sectors. I would like
express my gratitude to the Government of Norway and Stanbic Bank for sponsoring the
seminar and to the African Economic Research Consortium for organizing it.
This seminar is motivated by the recent discovery of oil in commercially exploitable quantities
along the Albertine Graben in Uganda; discoveries which have understandably raised public
expectations as to the benefits which these resources may generate for Ugandans. Over the
medium to long term, the public revenues from oil exports could provide Uganda with an
unprecedented opportunity to step up the pace of its economic development, especially
through investments to alleviate binding constraints to growth and structural transformation.
Managing the revenues generated by a non renewable resource, whose future value is
highly uncertain, is a very complex challenge. It is a challenge which requires carefully
crafted economic policies to guide the saving and investment of these revenues, short term
macroeconomic management and public financial management, as well as the discipline to
implement good policies in the face of strong incentives to do otherwise. The undoubted
potential that the oil discovery holds for accelerated economic and social development in
Uganda will only be realized if the revenues from oil are effectively managed.
Last October, Professor Paul Collier delivered the Bank of Uganda's Josepth Mubiru
Memorial Lecture. In that lecture he gave us a salutary warning when he told us that: "the
historical record of oil discoveries in poor countries is deeply worrying. Often oil leads to the
curse of plunder: the few expropriating revenues that should benefit the many and the
present generation unsustainably consuming revenues that should benefit the future. To
avoid such a fate, this unprecedented opportunity requires distinctive and sometimes non
obvious economic policy responses". We should take these words to heart. In this seminar,
we are privileged again to have the opportunity to learn from the experience of Norway, a
country which is acclaimed world wide as a success story in translating its natural resource
endowments into social and economic benefits for its people in a sustainable manner. The
success of Norway has been built on the foundation of effective revenue management,
welldefined investment strategies, sound macroeconomic management, efficient public
institutions with well-defined domains of responsibility, accountability and transparency, good
governance and well-defined property rights.
I would like to highlight three issues which will be especially critical to the sound
management of oil revenues in Uganda, and which I am sure will receive a lot of attention in
this seminar.
First, the revenues accruing directly from oil are finite; our oil reserves will be eventually
exhausted. This means that, if the oil revenues are consumed rather than being invested,
living standards in Uganda may rise in the short term but this will not be sustainable. If the oil
revenues are to be harnessed to generate a sustainable increase in living standards, a
substantial part of them must be invested outside the resource sector in physical, human and
environmental capital, including education, health care, roads and railways. By saving and
investing the revenues from its non renewable oil resources in an optimal manner, Uganda
can expand its stock of capital and thus lay the foundations for higher output and improved
living standards over the long term.
The optimal use of oil resources requires policymakers to reach often politically difficult
decisions in response to questions such as: What is the appropriate balance between
consuming and saving resources? And how quickly should the resources which are saved be
invested in physical capital formation in Uganda? The answer to the latter question depends
on the capacities of our economy to implement investment projects efficiently; capacities
which are currently very weak, as is evident from the poor implementation record of many
donor funded projects. There are pressing demands to invest more in infrastructure,
especially in the transport and power sectors, but before we scale up public investment, we
need to invest resources in strengthening our capacities to implement public capital projects;
capacities for project evaluation, public procurement, project management, etc. If we ramp
up public investment too quickly, at a rate which outstrips our implementation capacity, we
risk wasting our precious resources on public projects which have very low or even negative
rates of return.
The second issue which I want to highlight pertains to the potential for Dutch disease. The
spending of oil revenues is likely to cause a real exchange rate appreciation, which could
damage the competitiveness of the non oil traded goods sectors of the economy, including
both exporters and manufacturing firms which compete with imports. The faster is the
expansion of public spending out of oil revenues, the more disruptive will be the consequent
Dutch disease impact. We must be very careful to try and avoid, as much as is possible,
rendering our non oil traded goods industries economically unviable, because that would be
very detrimental to long term growth and structural transformation. If Dutch disease drives up
the costs of producing traded goods in Uganda, the competitiveness of traded goods
industries can only be maintained if these industries can become more efficient, for example
by raising the productivity of labour.
Thirdly, oil prices are inherently volatile. This poses acute problems for the short term
management of fiscal policy. In particular the volatility of oil revenues often leads to
procyclical public spending which amplifies the business cycle and thus destabilises the
macroeconomy. To avoid this, it is necessary to de-link public spending from
contemporaneous oil revenue receipts, in a manner which is consistent with long term fiscal
sustainability. Again, this presents political challenges because of the need to maintain fiscal
discipline during periods of above normal oil revenue receipts, when optimal fiscal policy
dictates that Government budget balances should improve, but when pressures for more
public spending will intensify.
Good public policy decisions are more likely to be taken and implemented if they are a
product of well informed public policy debates; debates which involve public officials, the
academic community, the business sector and civil society. I hope that this seminar, which
includes participants from the Parliament, Government, the business sector, academia and
civil society, will strengthen our understanding of the critical issues relevant for oil revenue
management and will help to promote public debate about these issues.
Distinguished delegates, I would now like to invite the Honorable Minister of Finance,
Planning and Economic Development to officially open this seminar.