Public lecture: Falling oil prices and a rebased economy (Stefan Dercon)
Two issues have made headlines in Uganda in recent months: the recent rebasing of Uganda’s economy which shows that it is bigger than previously thought, but also growing more slowly and the fall in price of oil, which has implications for revenue projections. What do these two things mean for Uganda’s Economy? Now is a good time for fresh thinking on what Uganda can do to spur growth and create jobs for a population that is one of the fastest growing in the world. DFID’s Chief Economist, Stefan Dercon, gave a public lecture on the implications of these issues.
The fall in oil prices may well delay Uganda’s impending resource rents, and limit its impact. This is not bad news – a smaller shock, in slower time will offer a better chance for the rest of the economy and the state to be more resilient to it, and prepare to take full advantage of it. It is an opportunity to go for a more cautious and effective rebalancing of governance and the economy to cope with oil. To sustain growth and poverty reduction, Uganda’s economy requires a stronger reallocation to more productive and high return sectors, and a sustained transformation out of subsistence agriculture. Rapid oil may offer huge opportunities for investment in infrastructure and other sectors, but it also tends to hinder the incentives for tradable sectors to become stronger, and provides strong incentives against good governance and political commitment for inclusion.
There are plenty of lessons from the rest of the world that these negative effects do not need to materialise. Much has already been done in the country to avoid this, compared to many other countries in the region. However, to take full advantage of new resource wealth, the country needs to take advantage of the possible delay to invest in high potential tradable sectors, including those focused on regional export. It also must take the opportunity to think carefully about how to build linkages to the oil sector, not through import content rules, but measures that encourage the development of industrial and service sectors in line with firms’ existing and potential technological and managerial capabilities. The cautious approach to the oil sector can be further strengthened, with strong emphasis on transparency – and the accountability of the state.
To ensure that growth is inclusive, a strong focus on the productive opportunities offered by urbanisation (beyond the emergence of ‘consumption’ cities) will contribute to the essential need for more productive and higher earning jobs. Oil should also be seen as an opportunity to strengthen the social contract including for the poor, via provision of quality social services and social protection. Special attention to strengthen the social and political contract with the North is a key part of this and will enable the country to achieve its full peace dividend.
Slides are available below.