Uganda’s oil wealth: Development prospects and potential dutch disease effects

Uganda’s oil wealth: Development prospects and potential dutch disease effects

By Lawrence Bategeka and John Mary Matovu

Uganda’s development prospects were greatly enhanced by the country’s discovery of oil deposits in 2006. However, the desired economic transformation can only be realized if government’s spending options of oil revenue supports exports diversification by limiting adverse effects of the dreaded “Dutch Disease”. Using a dynamic Computable General Equilibrium (CGE) Model we investigate how different spending options targeted at particular sectors of the economy would affect the competitiveness of the traded goods sector in Uganda.

 

The CGE modelling results suggest that there would indeed be winners and losers under these various scenarios depending on what the additional oil resources are used for. As expected, increased oil resources would lead to significant appreciation of the currency in all scenarios. Also, as the theory predicts, we find that the demand for non-tradables (mainly the services sector) increases.