By Sam Mucunguzi
How long does oil have, how long will it be relevant? Since 2014, oil prices have continuously fallen (for both demand and supply reasons) with more and more supply coming on stream, climate change is a medium-term driver against oil. How do we break away from oil dependency? Does our local content address these challenges?
Natural resources are a large part of the wealth of many countries, and the way in which their potential contribution to government revenues is managed can have a powerful impact – for good or ill – on their prosperity and economic development.
African countries have adopted local content frameworks (LCFs) as a mechanism to transform short-term benefits of natural resource extraction into long-term development in terms of backward supply of oil and gas: workforce development (employment and training of local labor) and developing and processing supplies and services locally as is a case in Congo. Upstream diversification: the refineries, or processing of gas. All these do not necessarily lead to diversification unless we apply horizontal linkages for diversification like, logistics, Engineering, Banking and building export competitiveness.
African courtiers are in rush of backward and forward linkages, supported by multinationals, of course, this is dangerous as it creates first of all dependency on the expensive hired labour force. But also looking at Ecuador’s experience in oil and gas, the game has already changed, initially the aim was revenue generation, however, with regime change (2007), focus shifted to skills development, employment, but less on national industry participation/supply, more so, a wider agenda has been adopted of how oil and gas resources are managed to fit in a bigger approach or strategy of promoting sustainable development through diversification- horizontal diversification. President Museveni has been re-echoing this from the start if he is not frustrated oil and gas sector is on the right path of getting money and investing it in Hydropower, roads, creating an enabling environment for development
For countries that are still developing their local content frameworks like Uganda, analysis of business environment and fiscal regime are critical in building confidence among the investors.
Oil and gas are one of the most complicated and sophisticated industry; the business depends on “what you negotiate not what you deserve.” Uganda has taken credible steps in strengthening the skills development of its citizens. For instance, the litigation in the sector that saw go Uganda government win was a landmark for the first time in oil and gas sector
Let me address the question of having oil as a blessing only if the leadership regime is willing to demonstrate a clean sheet in the sector, for example, Ecuador as a country has had oil for over 40 years, it not until 2007 regime that ushered in incredible results from oil and gas money. Ecuador enjoys good spacious well-constructed roads, electricity/power generation, water supply is available to last remote person all this as a result of having a regime that was able to utilize oil money for the good of citizens. Oil and gas contribute 24% of Ecuador’s GDP, there should be more skills development to have the well-trained labour force to negotiate, supervisor and work in these mines and sector.
As laureate of oil and gas study tour in Latin America (Ecuador), and drawing on an impressive array of the most respected and experienced experts in the area, from oil-producing countries like Brazil, Venezuela, Mexico, Argentina, its visible that countries that have had political challenges, not clear local content frameworks, have had none or insignificant benefits than countries that have had clear and measurable local content frameworks like Mexico and Brazil.
Non-renewable minerals are no longer a thing of 21st century to bring about economic development in any country, the re-known oil and gas producing counties are diversifying oil revenues to more long-lasting ventures like renewable energy, environmental conservation, tourism, for instance, Ecuador is in the Amazon region which harbors as the environmental back born of the world in biodiversity and replenishing the eco-system. Much of its oil and gas was discovered in the Amazon forest, but the government took a bold step to preserve the forest and ignore oil until 2012 when parliament voted to start exploiting it, and this was after the international community dishonoured its commitment on this agenda.
(a)The Operation Generation Exploitation (OGE) a private initiative aimed at generating more power from associated gas (AG) and flared gas while conserving the environment. This is a program in Ecuador developed to, have no more flaring of gas, and use the gas to generate more power for the oil companies. More than six megawatts are being generated from petro Amazonas oil plant. (b) Re-injecting the water separated from oil underground more than three (3) kilometres than using open wells dug on the ground. These are options our government should consider putting in the negotiations with these International oil companies (IOC) as our oil reserves are found in a more fragile environment of Albertine Graben region and national park.
There are few areas of economic policymaking in which the returns to good decisions are so high – and the punishment of bad decisions so cruel – as in the management of natural resource wealth. Rich endowments of oil, gas and minerals have set some countries on courses of sustained and robust prosperity; but they have left many others riddled with corruption and persistent poverty, with little of lasting value to show for squandered wealth.