Economic Diversification and Growth

Chapter 5
Key Messages and Conclusions:
ceilings for MDAs will strengthen cash management.
So far, only 77 percent of public expenditures go
through the Integrated Financial Management System.
The PFM reform program will complete the roll-out of
the IFMS to all entities.
Improved management of the public investment
program is essential for a productive use of future oil
revenue. Uganda’s performance in that area is weak.
Sector strategies should be better coordinated with
NDP objectives and plans. Introduction of projects in
the PIP are not based on adequate project appraisals
and feasibility studies. Poor project selection affects
implementation.
The development and implementation of an effective
nationwide communication strategy for oil and gas
sector is a high priority.
Conclusions:
• Completing the creation of the institutions
envisaged in the National Oil and Gas Policy and
building the capacity of all the agencies involved
in implementing the government strategy.
• Improving the performance of audit and other
anti-corruption institutions.
• Strengthening cash management systems and
extending the IFMS to all the government bodies.
• Better preparation of projects before introduction
in the PIP.
ative impact of the Dutch Disease and the volatility of oil
resources were exacerbated by greed. The oil boom of the
1960-70s triggered an increase in demand for direct transfers
to Nigerian elites. The increase in central government
public expenditures created rigidities which made it difficult
to lower public spending when oil prices began to fall.
This led to an accumulation of public debt that had disastrous
consequences for the Nigerian economy (Budina al.
2007). 1 It is argued that about two-thirds of Nigeria’s public
investment during the 1965-2000 period was hijacked by a
corrupt elite (Sala-i-Martin and Subramanian, 2003). Similar
predatory behavior was found in Cameroon where only
46 percent of total oil-related government revenue between
1977 and 2006 was transferred to the national budget, while
the rest remained unaccounted for (Zeufack and Gauthier
2011).
5.2. Comparing the recent performance of Botswana
and Cameroon – two countries where similar conditions
prevailed before oil/mineral production began – shows
the importance of sound public sector management.
When Botswana became independent in 1966, its real GDP
per capita (constant 2005 prices) was US$468, that is, much
lower than in Cameroon (US$734.7). Cameroon, however,
was unable to use its oil wealth to improve living standards,
while Botswana leveraged diamond-related revenue windfalls
and achieved remarkable results. The diamond boom
of the 1970s enabled Botswana to stimulate economic
1. According to Sala-i-Martin and Subramanian (2003), Nigeria should have
earned US$350 billion in terms of cumulative net income over the period 1965-
2000. However, Nigeria per capita GDP increased from US$336 in 1965 to only
US$440, in 2006 (WDI 2008). Nigeria, therefore, is viewed in the literature as a
good illustration of the failure of countries with natural resources (Van der Ploeg,
2007).
growth and improve living standards. The country’s GDP
per capita became higher than that of Cameroon. Despite
an oil boom experienced by Cameroon in 1979-1985, the
income gap between the two countries widened, and nowadays
Botswana’s GDP per capita (US$7028) is far superior
to that of Cameroon (US$991.6). The rapid transformation
of Botswana is attributed to the strong quality of its institutions,
which is better than the Sub-Saharan Africa average
(Acemoglu et al. 2001).
5.3. To improve the performance of its public sector,
Uganda should act on two fronts: (i) strengthening public
institutions, and (ii) improving managerial practices
(both public finance and public investment management).
This section will discuss public institutions strength
while the following section will elaborate on the issues of
managerial practices in the public sector.
5.4. The Oil and Gas Policy (NOGP) of 2006 defines
Uganda’s legal and institutional framework for the management
of oil and gas resources. According to the NOGP,
the government should update the regulatory framework
by enacting three new oil laws: (i) the Petroleum (Exploration,
Development and Production) Act, now called the
Upstream Act, which was approved by the Parliament in
December 2013 and regulates the licensing and participation
of commercial entities in the oil sector; (ii) the Petroleum
(Refining, Conversion, Transmission and Mid-Stream
Storage) Act, now called the Mid-Stream Act, which was
approved in February 2013; and (iii) the Public Finance Act,
which was approved by Parliament in November 2015 , and
deals with the management of oil sector revenue.
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Uganda Country Economic Memorandum: Economic Diversification and Growth in the Era of Oil and Volatility