Economic Diversification and Growth

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Chapter 2 Table 2.4: Pre–Tax and Post–Tax Subsidies for Petroleum Products in 2011 (Percent of GDP) Country GDP per capita(US$)* Income Level*** Pre–tax Subsidies Post–tax Subsidies Refinery inside the country Year Change Subsidy Reform Algeria 5,304.2 UM 4.30 6.11 Yes Angola 5,144.0 UM 1.30 2.51 Yes Cameroon 1,230.5 LM 1.69 2.49 Yes Chad 891.7 Low 0.00 0.00 No DRC 3,713.8 LM 1.20 2.08 Yes Egypt, Arab Rep. 2,970.4 LM 6.74 8.60 Yes 2013 Partially removed oil subsidies Equatorial Guinea 14,660.8 High (non OECD) 0.28 1.88 No Gabon 10,653.7 UM 0.16 0.74 Yes 2013 Planned to Remove oil subsidies Ghana 1,528.9 LM 0.62 1.85 Yes 2013 Complete Removed oil subsidies Jordan 4,674.7 UM 2.15 5.27 Yes 2013 Complete Removed oil subsidies Libya 5,691.3 UM 6.40 8.81 Yes 2014– 16 Announced subsidies removal before 2016 Nigeria 1,490.1 LM 1.42 2.04 Yes 2012 Partially Removed oil subsidies Uganda 477.5 Low 0.00 ** 0.20** No Saudi Arabia 20,504.4 High (non OECD) 7.46 13.27 Yes South Africa 8,066.1 UM 0.01 1.06 Yes Sudan 1,982.5 LM 1.37 2.26 Yes 2013 Increased oil prices by 75 percent World 0.30 1.26 Source: Compiled by World Bank staff. Notes: GDP is expressed in current U.S.$ per person. The figures of the pre–tax and post–tax subsidies in Uganda are for 2012. UM: Upper middle; LM: Lower middle. 44 Uganda Country Economic Memorandum: Economic Diversification and Growth in the Era of Oil and Volatility
poor performance of state-owned enterprises that abuse or ignore the tax system; and (iv) weak revenue administration combined with poor governance (IMF 2011). 2.41. Belinga et al. (2014) re-examined the hydrocarbon and non-hydrocarbon revenue nexus using a panel of 30 resource-rich countries for the period 1992-2012. They found that while a rise in hydrocarbon revenues induces a decline in non-resource revenues (Figure 2.12), high quality institutions are critical to reduce the likelihood of such a crowding out to occur. c. Spending pressures (including subsidies) and revenue sharing with local governments 2.42. Many oil-rich countries subsidize gasoline, at a high cost in terms of inefficiency and associated deadweight losses (Aguinaga et al. 2014). Selling fuel at cost price at home rather than at world market prices including taxes, is equivalent to a fuel subsidy. Subsidizing fuel is inefficient since selling domestically produced fuel at a lower price than could be fetched in the world market deprives producers of revenue and reduces national income. Inexpensive fuel discourages firms and households from conserving energy and invites waste. In addition, this indirect subsidy discriminates against: (i) recipients who might have preferred other goods if a cash subsidy had replaced the fuel subsidy, and (ii) those who do not use much fuel (perhaps because they cannot afford a car). A tax on petrol that would bring fuel prices at the pump close to world market prices would raise revenue to help finance education, health care, and infrastructure. Using the proceeds of the tax to improve education means that an education subsidy replaces the fuel subsidy. 2.43. Fuel prices at the pump vary a great deal, even among oil producing countries. In 2012, the cost of gasoline at the pump was US$0.16; US$0.23 and US$0.62 in Nigeria, and US$2.53 in Norway. It can be compared with US$0.97 in the United States and US$1.23 in Botswana. Gasoline prices per liter were US$1.31 in Uganda, US$1.37 in Kenya, US$1.42 in Tanzania, and US$0.92 in Ghana (World Bank, World Development Indicators). The capacity of governments to resist the temptation to reduce energy prices at home (to impress voters) signals a strong commitment to sound natural resource management and socially efficient macroeconomic policies. 2.44. Although oil subsidies are politically popular, they have several adverse consequences for government finances, and an inefficient use of energy. Large subsidies divert public expenditures from more productive spending or contribute to unsustainable budget deficits affecting longterm growth. According to a IMF (2013), the benefits of gasoline subsidies are most regressively distributed, with over 80 percent accruing to the richest 40 percent. With respect to subsidies of diesel and liquefied petroleum gas (LPG), more than 65 to 70 percent of benefits go to the highest income groups. Although the consumption of kerosene is more evenly distributed across income groups, kerosene subsidies still benefit high-income households and, in Africa, more than 45 percent of these subsidies benefit the top two income quintiles (Coady et al., 2010). Table 2.4 presents pre-tax and posttax subsidies (in percent of GDP) for 16 major oil-exporting countries in the MENA and Sub-Saharan Africa regions, and in Uganda. Only Chad and Uganda - two low-income countries - did not subsidize petroleum products in 2011. Uganda started to subsidize petroleum products through tax exemptions in 2012. 2.45. Many resource rich-countries have grappled with the complex issue of revenue sharing with local governments. No clear, effective and field tested formula seems to be available at this stage. In addition the distribution of oil revenue to local governments should take into account macroeconomic and financial stabilization issues influencing the management of both central and local governments. Economic and financial stabilization policies will always remain one of the principal functions of central authorities. The study of the Nigerian experience may provide useful examples of what should be done and what should be avoided. Most of these issues will be addressed as the government develops a more detailed strategy aimed at optimizing the benefits to be derived from oil and other extractives. Oil-rich countries are tempted to subsidize fuel prices at their own peril 45
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Report No: 97146-UG Economic Divers
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Contents Contents List of Acronyms.
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Contents Figures Figure 1: Export D
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Contents Tables Table 1: Summary of
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List of Acronyms ACD AFCE AFMUG AFR
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Contents Preface For about ten year
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Contents Acknowledgments The World
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Acknowledgements Credits Regional V
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Exuecutive Executive Summary Figure
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Uganda’s Executive Economy Summar
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Executive Summary longer term as it
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Executive Summary Contractors handl
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Executive Summary was mentioned bef
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Executive Summary 48. Excessive bor
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Executive Summary be met by 2020, w
Page 32 and 33: Executive Summary Value addition to
Page 34 and 35: Executive Summary going through the
Page 36 and 37: Executive Summary Table 1: Summary
Page 39: Part I An Economic Development and
Page 42 and 43: Chapter One 1 Key Messages and Conc
Page 44 and 45: Chapter One 1 Table 1.1: Poverty Tr
Page 46 and 47: Chapter 1 is viewed as a promising
Page 48 and 49: Chapter One 1 also claim 15-17 perc
Page 50 and 51: Chapter 1 Table 1.6: Savings-Invest
Page 52 and 53: Chapter 1 significantly by other se
Page 54 and 55: Chapter 1 Box 1.2: Country Experien
Page 56 and 57: Chapter 1 Table 1.8: Diversific tio
Page 58 and 59: Chapter 1 Box 1.3: Product Complexi
Page 60 and 61: Chapter 1 Box 1.4: A Short-term Exp
Page 62 and 63: Chapter 1 Figure 1.20: Uganda’s P
Page 65 and 66: Chapter 2 Development of Oil and Ot
Page 67 and 68: Box 2.1: Three exploration areas in
Page 69 and 70: the oil price will recover in the m
Page 71 and 72: Figure 2.7: Uganda’s Real GDP Gro
Page 73 and 74: Much of Uganda’s oil deposits are
Page 75 and 76: 2.18. The overall impact of the eme
Page 77 and 78: IV. The Macroeconomic, and Fiscal I
Page 79 and 80: Containers loaded with crude oil re
Page 81: and other financial institutions to
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Page 88 and 89: Chapter 3 Key Messages and Conclusi
Page 90 and 91: Chapter 3 can have a negative impac
Page 92 and 93: Chapter 3 Box 3.2: Financing of Oil
Page 94 and 95: Chapter 3 are required to notify su
Page 96 and 97: Chapter 3 Table 3.1: Mapping of Con
Page 98 and 99: Chapter 3 Figure 3.2: Horizontal Di
Page 100 and 101: Chapter 3 Table 3.2: Addressing Hor
Page 103 and 104: Chapter 4 Strategic Implications of
Page 105 and 106: Figure 4.1: Average Adjusted Saving
Page 107 and 108: Box 4.2: Angola Case Study When fou
Page 109 and 110: time, raising investment spending t
Page 111 and 112: Figure 4.3: Uganda’s Infrastructu
Page 113 and 114: Figure 4.7: Cumulative Spending on
Page 115 and 116: Figure 4.11: Overall Fiscal Deficit
Page 117 and 118: The efficiency of methods of tax co
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Page 124 and 125: Chapter 5 Key Messages and Conclusi
Page 126 and 127: Chapter 5 i. Highly skilled technic
Page 128 and 129: Chapter 5 Table 5.1: Summary Instit
Page 130 and 131: Chapter 5 Table 5.2: Governance Ind
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Chapter 5 PFM also creates addition
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Chapter 5 not published, creating a
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Chapter 6 Implementation of the Str
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consistent with local needs and org
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earth moving equipment and bitumen.
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Steel wire Seamless iron tubes M
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6.31. The government and Total are
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6.36. Several policy interventions-
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Chapter 7 Implementation of the Str
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Figure 7.2: Share of Intra-EAC Expo
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Table 7.1: Decomposition of Uganda
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Figure 7.8: Transit Traffic t ough
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sures aimed at reducing the time an
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to the Port of Lamu in Kenya. 4 The
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Table 7.7: Labor Migration Policies
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References: 1. Acemoglu, D., S. Joh
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September 2010, 28 (5), 553-571. Wa
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Annexes: Annex 1: Non-hydrocarbon G
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(3) • Consumption basket: composi
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(12) • International commodity pr
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Annex 3: Key Features of the Uganda
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Rural Activities: Exportable and Se
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Level of Prices • General Level:
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Total Expenditures: • Primary: NG
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Annex 4: Key Features of the Uganda
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Recursive dynamics o Following prev
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o where: is total consumption in ad
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Human Capital Formation • Schooli
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• Assuming again full depreciatio
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• Thus, an increase in the saving
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Annex 6: Econometric Results of Fir
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Table A6.3: Probit Estimates of Exp
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Economic Diversification and Growth

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