New-found oil reserves could double Uganda's GDP, but at what cost?by Ben Simon / September 21, 2009 / Leave a comment
Life in Uganda is full of uncertainties. But one thing is clear: the country has far more oil than anyone initially expected. Since the British-owned Tullow Oil drilled its first successful well in 2006, the company has found double the amount it expected. The latest estimates suggest total deposits may exceed 1.5 billion barrels. Once production starts, oil revenues could feasibly double Uganda’s current GDP. Perhaps not surprisingly, this anticipated influx of petro-dollars has created a few complications—not least that President Yoweri Museveni, Uganda’s leader of 23 years, may view it as his ticket to a lifelong grip on power.
The problem is that most of the oil lies underneath land that for centuries belonged to the Bunyoro monarchy, one of Uganda’s oldest and most powerful tribal kingdoms. In the 1890s, the kingdom mounted one of the bloodiest rebellions in colonial east Africa. The uprising was ultimately crushed, but the surviving monarch insisted the British share any profits earned from Bunyoro’s mineral rich land. Two agreements were signed with the colonial government, in 1933 and 1955, guaranteeing the kingdom a cut of any mineral or oil related profits. Today, King Solomon Iguru insists that these treaties are still valid—unsurprisingly, the government does not agree and the kingdom is not mentioned in any of the revenue sharing agreements signed with the oil companies. The king’s private secretary, Yolamu Nsamba, has warned that if the government doesn’t give the monarchy a share of the oil revenue it “will be a breach of trust, and that would be very unfortunate.” The huge riots that gripped Kampala in mid September, which led to 14 deaths dead and 600 arrests, might be an indication of what “unfortunate” just might mean. Although this time the clash involved supporters of a different monarchy, it underlines the fact that, for many Ugandans, tribal allegiance continues to outweigh loyalty to the president or the so-called “national interest.”
Indeed, if Uganda’s oil programme does go ahead, the tribes will not be the only ones up in arms. As one might expect, the government’s decision to allow drilling in protected wildlife reserves has not gone down well with environmental groups.
But the question likely to cause most discord is what Uganda should do with the oil that sits waiting beneath its soil. During a speech in July, President Museveni acknowledged that when oil was first discovered he was pressured to construct a pipeline to Mombasa in Kenya with the aim of exporting crude oil to international markets. However Museveni, a self-described pan-Africanist and long-time proponent of east African unity, now says he wants to build a refinery in Uganda itself and sell a refined product to Uganda’s neighbours.
While Tullow publicly supports Museveni’s preference, there is speculation the British and Canadian companies involved have reservations about the plan. Generating steady profits requires at least some stability in a part of the world infamous for persistent conflict. Neighbouring eastern Congo remains one of the world’s most volatile stretches of earth. South Sudan has stabilised somewhat since a 2005 peace agreement ended a brutal civil war with the Khartoum government, but there is no guarantee that the country won’t descend back into conflict following a 2011 referendum where the south may vote to permanently secede from the north. True, 15 years after the genocide Rwanda is conflict free and continues to impress investors with steady economic growth, but over the border Burundi is still emerging from more than a decade of civil war and the country’s last active rebel group only agreed to disarm in April. In short, the regional market is fraught with enormous risk.
The Ugandan government is eyeing a refinery capable of handling 150,000 barrels a day, which would require an initial investment of at least $2bn. To pull it off, Uganda will need outside help—and Museveni has already approached some non-traditional allies. “I recently visited Iran, that bad place, according to the BBC,” he said in his July speech, detailing how Tehran had offered support and guidance for his refinery scheme. And at the end of August he travelled to Russia, where, according to a statement from his office, he met with various investors to discuss how “to reverse the colonial approach of exporting raw materials.”
During the first years of his regime, western donors hailed Museveni as “a new kind of African leader,” one who represented a welcome change from Uganda’s turbulent past. But anti-colonial, anti-west and anti-donor rhetoric has become an increasingly common refrain in his public speeches. His relationship with the west was tested when he decided to run for president again in 2006, which required a scrapping of the constitutional provision on term limits. During those elections, which were widely condemned by local and international observers, Museveni’s only legitimate opponent was arrested on rape charges that even the president’s handpicked judiciary considered ridiculous. Allegations of widespread corruption, too, have become increasingly difficult to ignore in recent years. And Museveni now seems intent on extending his rule another five years by contesting in presidential elections scheduled for 2011. If the vote itself is as bloody as many observers have predicted it will be, it will become increasingly difficult to avoid comparisons with figures like Robert Mugabe.
But with Uganda’s new-found oil, there may be little to disincetivise Museveni from doing what he pleases. Crude revenues could make the country much less reliant on a donor community that currently provides roughly 30 per cent of the national budget, and could give the government the freedom to invest in things the donors are unlikely to fund—like a “super weapons” programme, which the president called for in December, or a space exploration programme, which he voiced support for in May.
Museveni never talks publicly about succession. For him, he says, running Uganda is not a job to retire from, but a project of struggle and sacrifice. Backed by oil money, that struggle could continue indefinitely.