Economic Diversification and Growth

Chapter 4
Strategic Implications of Oil and
Mineral Sector Development:
Long-Term Objective and Sustainability
Key Messages/Conclusions:
Chapter 4 discusses the long term objective of
ensuring the sustainability of benefits for future
generations. The goal is to offset the gradual
depletion of non-renewable resources, by investing
into other forms of capital capable of generating a
sustainable stream of income.
A wealth analysis is the appropriate instrument to
assess progress towards sustainability. It measures
produced capital (equipment, urban land), natural
capital (agricultural land, forests, and minerals)
and intangible capital (human and social). Some
resource-rich countries were able to invest rents
from non-renewable resources in physical/human
capital and foreign assets. Botswana which
adopted a Sustainable Budget Index limiting public
spending to less than recurrent non-mineral revenue
(excluding investment, education and health
expenditures), was able to expand its physical and
human capital and increase its wealth, but a wealth
analysis would show that that the net savings of fast
growing Nigeria and Angola during the last decade
were in fact negative if the depletion of natural
resources is taken into account.
Newly constructed road to the Mputa exploration site
I. Measuring the Growth of Long-term Capital – A Wealth Analysis
4.1. The discovery of oil and gas improved the prospect for accelerated economic transformation of the country.
However, the exploitation of oil and gas will not automatically make Uganda’s people richer, if the new resources are
not invested in other forms of wealth that will generate a sustainable stream of income in the medium and long-term.
Natural resources are a finite source of revenue which cannot sustain high levels of income for a very long period of time.
In resource-rich countries the ultimate policy goal must be to find ways of transforming the temporary increase in revenue
The case of Uganda. So far, GDP growth was driven
by investment in produced capital. The development
of the oil industry will change the situation. Oil
revenue should be used to build up long-term
capital. Accelerating public investment, however,
is not necessarily the most appropriate response.
In Angola, a sharp increase in public investment
created inefficiencies due to absorptive capacity
constraints. Uganda should increase investment
levels gradually and some of its oil revenue should
be saved and invested abroad.
The report discusses the merits of alternative
saving and investing approaches. The Sustainable-
Investing approach combines savings and
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