To avoid the oil curse, use revenue to develop other sectors of economy

Thursday December 13 2018

Farouk Al Kasim.

Iraq-born Norwegian geologist and petroleum engineer Farouk Al Kasim. PHOTO | COURTESY 

JONATHAN KAMOGA
By JONATHAN KAMOGA
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The Iraq-born Norwegian geologist and petroleum engineer Farouk Al Kasim played a key role in developing his country’s petroleum sector. He spoke with Jonathan Kamoga about lessons budding oil producers like Uganda and Kenya can learn from Oslo.

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As Norway was starting oil production, you formulated what are famously known as the Ten Commandments of Oil Production. What do they entail?

The most important is: Avoid harming livelihoods. This is assuming that petroleum activities impact the environment, society and the economy.

Another is establishing new livelihoods on the basis of oil. Use oil and gas as a basis for developing other industries like petrol chemicals and producing fertilisers.

Most important, you have to use the proceeds from oil to develop other sectors, say tourism or fisheries.

The objective is to not be dependent on oil. So you start the oil production and right from the start, be determined to free yourself from total dependence on it.

Because oil prices fluctuate and because your reserves are limited, you may not be able to use oil revenues efficiently.

You may still have oil after 30 years but the world could have moved on and discovered other sources of energy.

So there is no security in being rich in oil. If you are limited in your wealth, that is all the more reason you should not become entirely dependent.

What systems can be put in place for say, Kenya and Uganda to avoid the oil curse?

The oil curse happens because you become so dependent on oil and your productivity in other sectors is so low that you have no way of surviving as a country if and when the oil price falls or your oil reserves become costly and you cannot sustain oil production.

A recent example is Iraq. When the oil price falls, the whole economy falls. So there is nobody who will not be negatively affected.

You must have the discipline not to use all your petroleum revenue as soon as it begins to roll in, but reserve a good part of it for when oil prices decline.

With corruption in the mix in African nations, the oil sector’s revenue could be less than forecast. How can nations navigate this and ensure full returns?

Corruption is an inevitable economic consequence of introducing wealth abruptly.

It could mean that a lot of oil capital accumulated could be put in offshore accounts.

That money is no longer part of the income in the country if you put it in a foreign bank.

So apart from talking about it and explaining its dangers, make the people aware of the consequences, make the citizens the guardians of the revenue because it is not in their interest if there is corruption.

Public opinion at the end of the day must be part of decision making and by doing this you are achieving good governance all together.

If oil is the most powerful incentive, why not use the bad things it brings as stimulus to improve your governance? Insist on good governance and benefit from it in the long term.

On Uganda’s postponement of oil production, do you think the delays have eroded the advantages that come with the discovery?

I think you should be pleased because it has given the nation time to consider the negative aspects of moving too fast. It will help in preparing.

It has also helped the country to choose the optimum development plan for the sector.

You need everybody to think: The government, the citizens, and the oil companies. All parties need to come together, dialogue with each other and come up with an optimum solution.

This is possible only if everybody understands what they are doing, which means they need time to know the game, the rules, the pitfalls and how to become the masters in their own house. It is a question of knowing what is in the national interest.

What is your take on Uganda’s intensive borrowing ahead of the oil revenue with the view that this very revenue will pay off the loans in future?

To a certain extent, I understand it. If the money borrowed is used wisely to strengthen the foundations of other industries and sectors, maybe you can defend borrowing ahead of the oil income.

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