We need less of the oil excitement and more focus on agriculture

The discovery of oil is the kind of news that usually excites developing nations in many of which instances, the countries will focus on the prospective oil wealth as a potential trigger to the nation’s financial triumph. But for the beleaguered small-scale subsistence farmer who sits at the tail end of the social radar, such prospects mark the beginning of an uncertain future, where the farmer can easily be pushed out of the system and denied their right to survive. Tensions between mining companies and such small scale farmers are not uncommon and have been the cause of community protests and violent conflict in some instances. [1]

In principle, both are sectors that provide pathways out of poverty and potential inroads to a nation’s prosperity.

Agriculture enhances rural development and provides direct benefits to the rural folk.

Yet, even when the oil may not provide such a direct benefit to the rural people, the role that it plays in promoting overall development of the nation is beneficial to every citizen and cannot be simply brushed aside. Governments use taxes and royalties obtained from oil companies to generate revenue which they sink into infrastructural developments and other productive ventures. Oil companies may also contribute to the welfare of the communities through their Corporate Social Responsibility activities like building schools, roads and other investments.

Whereas this paper seeks to make a strong case for agriculture, it makes such a case in the spirit of mutual co-existence as opposed to killing of one sector at the expense of the other. In other words, the argument made is presented in the form of a shield other than a sword, to shield the traditional agricultural sector from the on-slaught of the nascent oil sector. It is a question of balancing the interests.

A glance at Uganda’s agricultural sector

73% of Ugandans are estimated to be dependent on agriculture and the sector employs more than 80% of Ugandans.[2] Yet, over the last 10 years real growth in the Agriculture sector is at 2%,[3] three times slower than the average National GDP growth rate of 6%. One report describes Uganda’s agricultural growth trend as erratic and driven by expansion as opposed to yield improvement. There has been a significant increase in export crop production but subsistence farming still provides the bulk of food production and accounts for almost half of the agricultural output.

The reason is not hard to guess. 9/10 Ugandan farm households live in rural areas where they use rudimentary farm technology and produce mainly for subsistence rather than the market. This translates into low productivity in the food crop subsector which is dominated by the small holder famers in rural areas.

Many of these farmers are not only poor but also powerless and will usually be at the mercy of the wealthy and powerful Oil companies when land holding battles ensue. Unfortunately, in some cases drilling concessions are awarded without due regard to their effect on the agricultural productivity of such small scale farmers.

It is pertinent to note that the state’s failure to adequately regulate the diverging and potentially conflicting interests of Oil companies and poor communities is a likely cause of local resentment, which could easily flare up into local violence that may be manipulated to cause full-scale civil unrest.

Relating the Dutch Disease to the progress of the Agricultural Sector

One of the sectors that suffer most under that curse of a disease they call the Dutch Disease effect of Natural Resource Abandance is the agricultural sector.

Therefore this paper uses the potential effect of the growth of the nascent oil and gas sub-sector on the agricultural sector, to illustrate the phenomenon of the Dutch Disease effect of Natural resource abundance and draws lessons for mutual co-existence of the two sectors that can be drawn to become applicable Uganda’s case.

Under the phenomenon additional revenue from natural resources puts pressure on demand for domestic goods in a way that subsequently raises the value of the local currency and makes tradable goods uncompetitive. Precisely, it kills the competitiveness of all non-oil sectors squeezing out vital sectors like agriculture and manufacturing leaving oil or any other abundant natural resource as the only revenue source.

To say it another way higher oil revenues raise exchange rates, promote an adverse Balance of Payments on the cost of imported goods when prices fall, boost wages for skilled labour ultimately pricing them out of the international market and in effect create a disincentive for risking investments in non-oil sectors.

Gabon and Nigeria are examples of countries that have suffered that kind of predicament. Their agricultural sectors have been sacrificed and collapsed. The countries now entirely depend on imported food despite that Nigeria has one of the highest percentages of arable land.

However the picture may be more vividly drawn by contrasting the case of Nigeria with that of Indonesia.

Oil in Nigeria constitutes 13% of the country’s GDP, provides 80% of the government’s revenue and is a source of 99% of the country’s foreign exchange earnings. Over the years that Nigeria produced its oil, the proportion of development funds spent on agriculture in Nigeria fell just below 26% as Nigeria planners chose instead to invest their oil windfall on ill conceived schemes for heavy industrial development.

On the other hand, Indonesia’s oil revenues were sunk in projects targeted at enhancing the productivity of peasant agriculture by investing in irrigation works, development and dissemination of new high-yielding rice varieties, fertilizer and pesticide subsidies and subsidized farm credit. Between 1969 and 1974, Indonesia dedicated 30% of their development budget to agriculture. (The Percentage excludes large sums also spent on rural roads, electrification, health services and education).

As a result, between 1971 and 1991, whereas real agricultural output per capital increased in Indonesia by 1.5% per capital, in Nigeria it fell by 2%. In 1965 Indonesia’s per capita GDP was lower than Nigeria’s. By 2000 Indonesia’s per capita GDP was five times higher.[4]

 Why Agriculture?

Conventionally there are two sets of measures of countering the Dutch disease effect of natural resource abundance and these are

  1. Sterilizing the exchange rate effect by reducing the net foreign exchange inflow.
  2. Direct Support to the growth and productivity and employment in traditional export sectors such as manufacturing or agriculture whose competitiveness is harmed by the appreciating real exchange rate. [5]

The first set of measures entails stimulating demand for imports through reducing the net foreign exchange inflow. This may be done by for instance lifting import tarrifs, transferring natural resource revenues back to citizens which results in an increase in their household and disposable income thus raising demand for imports or changing public spending priorities to focus on areas like infrastructure that attract more imports than other areas like education and health.

But the second set of measures is the focus here. Uganda can for example empower its mass of small holder famers who constitute 96% of the farmers in Uganda to become more productive, raise their yields and sell more of their output on the market. By doing that Uganda will able to create a more dynamic sector robust enough to cushion the shock that the appreciation of the real exchange rate will cause on the economy.

Besides, by supporting farmers the country will in effect boost agro-processing industries and thus promote industrialization.

As a country Uganda can choose, like Nigeria to move directly towards industrial development as the oil money flows in but such would be a dangerous path to tread, given the overwhelmingly rural nature of the population, low levels of technical education and the infrastructural weaknesses. Yet sinking the money into agriculture is a fair deal. Agriculture is central to Uganda’s medium term future. It is a sector that has not matched the country’s impressive growth rates since the late 1980s and prudent investment of oil revenues provides a significant opportunity to address that shortfall.[6]

A given research[7] demonstrates how rapid agricultural growth achieved through yield improvement carries the potential under a Comprehensive African Agricultural Development Plan (CAADP) in Uganda to reduce poverty and contribute to overall growth. Under the model it is suggested that if countries contributed only 10% of their overall budgets to the agricultural sector, 2.9 million people would be lifted out of poverty over a space of only 8 years. With a population of about 33 million people that means an estimated 9% of Ugandans being lifted out of poverty within 8 years.

The way forward

  • The government has to commit the revenues from the oil sector to unlock the agricultural potential of small holder farmers by increasing provision and breeding of improved seeds, provision of farm inputs and investing in irrigation schemes.
  • Everyone should champion the agricultural cause. It is been suggested that if Parliament, civil society and academia were to put the energy, time and resources that they have so far put in the oil debate in other critical sectors like agriculture, manufacturing and tourism, the country would experience a radical economic transformation in record time and all inclusive development would become a reality.[8]
  • Today many parents are encouraging their children to take courses in petroleum studies and they are fast becoming the most competitive courses in public universities but one wonders why the same should not be the story for agricultural courses.
  • Ugandans should look at resource wealth as a means to an end other than an end in itself. For example, some Ugandans think that the discovery of oil will change everything about the country in the twinkle of an eye which is not true. But then perhaps we should not blame them: by now government should have come up with strategies of managing such expectations and one way to do it is to divert attention to the traditional sectors like agriculture such that they look as attractive as the emerging sectors.
  • Mining companies can contribute to this noble cause by developing Corporate Social Responsibility programs that prioritize support to agricultural activities that enhance the productivity of small- scale farmers. For example Newmont Ghana Gold’s Agribusiness Growth Initiative has provided training to 1368 farmers to increase agricultural productivity and farm business skills.[9]  Such projects should be replicated in Uganda’s mineral sector and per adventure the young men and women in this country will not abandon agriculture in the pursuit of “greener pastures” in the mineral sector because the pastures in the agricultural sector will be green enough to keep them within the vital sector.

It is only fair that these companies should give back to the communities and more so in the agricultural line because when these companies pollute the water sources, the air and take over huge chunks of land, in a way they are pushing these communities out of agricultural activity.

Besides all measures by the companies that are aimed at building programs to support agriculture should adopt a bottom up- approach where they do not just impose what the companies think will work for the communities but consult from the communities on what and how best some of those projects can be implemented in the communities.


[1] http://politicsofpoverty.oxfamamerica.org/2013/04/the-growing-battle-between-mining-and-agriculture/

[2] PELUM Uganda, ‘A Review and Analysis on Farmers’ Entrepreneurship Development’, 2010.

[3] See Article by Prof. Emmanuel Tumusiime-Mutebile The Challenges which will face agriculture in an oil economy published in Newvision on 13th November 2013

[4] Ben Shepherd. 2013. Oil in Uganda, International lessons for Success. London: Royal Institute of International Affairs

[5] M. Wiebelt, K. Pauw, J.M. Matovu, E. Twimukye and T. Benon. 2011. Managing Future Oil Revenue in Uganda for Agricultural Development and Poverty Reduction; A CGE Analysis of Challenges and Options. IFPRI Discussion Paper 01122. Washington, DC: International Food Policy Research Institute.

 

[6] Ben Shepherd. 2013. Oil in Uganda, International Lessons for Success. p.16. London: Royal Institute of International Affairs

[7] Benin, S., J. Thurlow, X. Diao, A. Kebba, and N. Ofwono. 2008. Agricultural Growth and Investment Options for Poverty Reduction in Uganda. IFPRI Discussion Paper 790. Washington, DC: International Food Policy Research Institute.

[8] See Samuel Apedel’s article Uganda’s Oil  can only buy an Ipsum per person over 25 years published in the Newvision on 12th December 2012

[9] http://www.miningfacts.org/economy/how-does-large-scale-mining-affect-agriculture/

. Oil in Uganda, International Lessons for Success. p.16. London: Royal Institute of International Affairs

[7] Benin, S., J. Thurlow, X. Diao, A. Kebba, and N. Ofwono. 2008. Agricultural Growth and Investment Options for Poverty Reduction in Uganda. IFPRI Discussion Paper 790. Washington, DC: International Food Policy Research Institute.

[8] See Samuel Apedel’s article Uganda’s Oil  can only buy an Ipsum per person over 25 years published in the Newvision on 12th December 2012

[9] http://www.miningfacts.org/economy/how-does-large-scale-mining-affect-agriculture/

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