Ugandan oil reserves: A blessing or a curse?

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With estimated reserves of 2bn barrels, the US and other countries have expressed interest.

Uganda's 2bn barrels of reserve oil have the potential to transform its economy. But with the civil unrest going on in northern Uganda, many question whether the oil reserves will transform into a blessing or a curse for the country.

Many sub-Saharan countries that are well endowed with natural resources, capable of turning them into middle income states have become war zones. Corruption, murder, rape and children soldiers are rife.

Nigeria's huge oil revenues have just intensified corruption and instability in the oil producing region and have not benefited the majority of the population. Nigeria had an estimated 36.2bn barrels of oil reserves as of January 2009 making it the tenth largest producer in the world.

Uganda, a country with fewer natural resources than its neighbour, Democratic Republic of Congo (DRC), has a history tainted with coup d'état and a long running civil war in the north of the country. The concern is whether the oil revenues expected will not exacerbate the current civil unrest in the north.

With an estimated reserve of 2bn, the United States and other countries have expressed interest in helping Uganda exploit the resource with Norway already training Ugandans in the oil industry. But according to analysts, the government is not bowing to international pressure and wants to exploit the resource once it is sure the country will benefit.

Another major challenge for the country is whether it is capable of building its own oil refinery or will it rely on the Kenyan refinery in the coastal town of Mombasa. Oil experts believe that building an oil refinery will be too costly for Uganda.

In addition, the cost of building an oil pipeline from Uganda to Mombasa poses a significant challenge to the country.

However, with Kenya's political scene in shambles, Uganda's government officials are sceptical about relying on the Kenyans. The 2008 post election violence that erupted in Kenya cut off supplies to most countries in East Africa that use Mombasa as a route for imports and exports.

Write to John Chombah: johnc@moneyweb.co.za