The impact of oil in Uganda
Insights from CGE simulations
J.-M. Matovu*, K. Pauw+, R. Schweickert&, E. Twimukye*, M. Wiebelt&
*Economic Policy Research Center, Uganda
+International Food Policy Research Institute, Malawi
&Kiel Institute for the World Economy, Germany
The Impact of Oil Production on the Agricultural Economy of Uganda
Kampala Serena International Conference Centre
Kampala, Uganda,November 25, 2011
Recursive-dynamic computable general
equilibrium model (DCGE)
• Typical neoclassical model (IFPRI)
• Calibrated for the year 2007 SAM; no crude oil or oil refining sectors in
SAM; production cost information for mining and fuel provide
intermediate technology vectors to create negligibly small crude oil and
refining sectors
• Supply: CES value-added and Leontief intermediates
• Income accrues to representative households but microsimulation takes
full account of spatial and functional information to calculate FGT (FosterGreer-Thorbecke) poverty rates
• Imperfect substitution among goods originating from different
geographical areas
• Several macro-economic constraints
• Dynamic path strongly results from the savings-investment closure rule
Analytical framework:
general equilibrium effects of oil
Source: IFPRI
OIL
REVENUES
Oil fund
Government Budget
Revenues
Expenditures
Direct taxes
Consumption
Factor taxes
Transfers (domestic institutions)
Value-added taxes
Interest payments (domestic debt)
Resource rents
Interest payments (foreign debt)
Import tariffs
Savings abroad (FUND)
Export taxes
Domestic savings
Excise taxes
Factor income
Transfers from abroad
Interest income from abroad
(FUND)
Acticities/Commodities
Maize
Mining
Rice
Oil production
Other cereals
Meat processing
Cassava
Fish processing
Irish potato
Other food processing
Sweet potato
Grain processing
Cotton
Feed stock
Tobacco
Beverages & tobacco
Oilseeds
Textiles & clothing
Beans
Wood & paper
Vegetable
(Oil refining)
Flowers
Petrol & diesel
Coffee
Other chemicals
Tea, cocoa & vanilla
Fertilizer
Matoke
Other manufacturing
Fruits & other tree crops Machinery & equipment
Cattle & sheep
Furniture
Other livestock
Energy & water
Poultry
Construction
Forestry
Trade
Fisheries
Hotels & catering
Transport
Communications
Banking
Real estate
Other private services
Research & development
Public administration
Education
Health
Community services
Factors
Self-employed labor
Unskilled labor
Skilled labor
Capital
Cattle stock
Land
Oil capital
Households
Rural farm
Rural non-farm
Kampala metro
Urban farm
Urban non-farm
Other Actors
Government
S-I
Rest of World
Classification in the
model
Uganda’s economy in 2007
Macro SAM, Uganda 2007 (billions of Ugandan Shillings)
Act
Activities
Fac
Househ
Gov
RoW
Inc
Tax
Fac
Tax
Imp
tariff
Ind
Tax Total
33595
Commodities 12283
Factors
Com
SAVINV
33595
4210
18741
2682
3715 5152
46784
21312
21312
Households
21302 12388
-125
Government
33565
1377
Rest of World
7273
2
SAV-INV
8
1046 660
8
1743
Income Tax
694
1219
7283
2191
5152
694
Factor Tax
3785
694
8
8
Import tariff
1046
1046
Indirect Tax
660
660
Total
33595
46784 21312 33565
3785
7283 5152 694
8
1046 660
The DCGE model captures sector detail
…in agriculture
VAshr
PRDshr
EMPshr
Maize
1.1
0.8
0.9
Rice
0.3
0.2
Other cereals
1.1
Cassava
EXPshr
20.0
IMPshr
IMP-DEMshr
0.8
21.6
0.2
0.3
26.9
0.8
0.7
2.1
35.5
2.0
1.5
1.0
Irish potato
0.4
0.5
0.3
Sweet potato
1.5
1.2
0.9
Cotton
0.0
0.0
0.0
0.0
100.0
Tobacco
0.7
0.5
0.4
3.8
92.0
Oilseeds
0.6
0.4
0.4
0.2
3.8
0.1
7.3
Beans
2.3
2.0
1.1
4.1
17.4
Vegetable
0.1
0.1
0.1
Flowers
0.3
0.4
0.2
3.9
100.0
0.9
0.4
2.4
0.2
1.2
0.3
0.2
3.8
2.9
22.6
0.8
0.3
1.6
0.1
1.1
0.2
0.2
3.4
2.0
18.1
0.5
0.4
1.2
0.1
1.4
0.3
0.1
9.6
3.3
23.2
7.1
2.8
100.0
100.0
0.2
11.6
5.4
29.2
26.1
16.7
3.5
4.5
Coffee
Tea, cocoa & vanilla
Matoke
Fruits & other tree crops
Cattle & sheep
Other livestock
Poultry
Forestry
Fisheries
TAGR
1.7
EXP-OUTshr
…and other sectors of the economy
VAshr
Mining
Oil production
Meat processing
Fish processing
Other food processing
Grain processing
Feed stock
Beverages & tobacco
Textiles & clothing
Wood & paper
Oil refining
Petrol & diesel
Other chemicals
Fertilizer
Other manufacturing
Machinery & equipment
Furniture
Energy & water
Construction
Trade
Hotels & catering
Transport
Communications
Banking
Real estate
Other private services
Research & development
Public administration
Education
Health
Community services
TOTAL-1
TAGR
TNAGR
TOTAL-2
PRDshr
EMPshr
EXPshr
0.3
0.1
0.1
0.1
1.5
0.7
0.1
1.5
0.5
0.2
0.0
0.0
0.8
0.0
1.2
0.7
0.4
4.7
14.6
12.2
4.5
4.1
2.1
1.1
9.0
2.2
0.2
0.0
1.0
0.7
4.2
1.6
0.3
3.1
0.7
0.4
0.1
0.1
1.4
0.0
1.7
1.4
0.6
3.3
14.4
12.3
3.6
3.7
2.7
1.1
7.0
1.6
0.2
0.0
0.0
0.1
1.9
0.2
0.1
1.3
0.4
0.1
0.0
0.0
0.4
0.0
0.6
0.5
0.3
2.6
4.7
9.3
2.2
2.2
2.9
3.3
0.2
1.2
0.0
4.2
7.7
1.7
1.4
100.0
22.6
77.4
100.0
0.0
4.4
7.1
2.0
1.3
100.0
18.1
81.9
100.0
0.0
13.2
22.3
3.8
2.4
100.0
23.2
76.8
100.0
0.7
EXP-OUTshr
24.0
0.7
5.6
9.8
IMPshr
0.9
IMP-DEMshr
51.3
5.8
60.0
20.1
0.8
0.6
4.3
1.1
13.7
26.9
21.8
13.1
0.6
1.9
1.4
17.7
1.0
3.7
1.3
6.9
48.6
46.5
0.5
100.0
1.2
6.9
1.5
4.6
8.9
32.4
8.3
9.2
2.0
7.3
29.8
0.4
96.1
57.0
89.1
54.0
86.7
15.1
1.5
4.9
28.9
11.5
0.9
0.6
89.6
34.2
3.7
6.4
20.3
0.4
1.8
64.1
3.1
27.3
0.3
2.3
3.4
32.1
100.0
29.2
70.8
100.0
10.2
16.7
8.7
10.2
100.0
3.5
96.5
100.0
21.7
4.5
24.7
21.7
What the model can and can’t do
• Can do:
– Capture the impacts of oil revenue on growth, government
budget, sectors, trade and income distribution
– Analyze trade-offs between spending, saving and any
combination of the two
– Dynamics: consider any amount of years in a recursive
dynamic way
• Can’t do:
– Inflation analysis
– Model does not capture interest rate endogenously
– Predict oil price volatility
Simulations
Business as usual
 calibrated to reproduce average yearly GDP growth of nearly
6 percent
Crude oil exportation versus refining
 Compare crude oil production and exportation with crude oil
refining and exportation: All government revenue are spent in
oil fund abroad, isolates the direct and indirect effects of
refining vs crude production
Spending options
 Invest 50 percent in oil stabilization fund; withdrawals from
oil fund to keep government revenues constant at year 2025
levels, i.e after the ending of peak production years
 Spend all oil revenues on investment; no oil fund
 Transferring rents to citizens; no oil fund
Oil Revenues (percent of GDP)
9.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
2045
2043
NoFund
2041
2039
2037
StabShare
2035
2033
2031
2029
StabRev
2027
2025
2023
2021
2019
2017
2015
2013
2011
2009
2007
AccuFund
Oil Fund (percent of GDP)
120.00
100.00
80.00
60.00
40.00
20.00
AccuFund
StabRev
StabShare
2045
2043
2041
2039
2037
2035
2033
2031
2029
2027
2025
2023
2021
2019
2017
2015
2013
2011
2009
2007
0.00
Simulation Results
INITIAL
BASE
CRUDE OIL
REFINING
Absorption
26575.3
5.89800
5.89500
5.88900
Private Consumption
18742.2
6.26000
6.25700
6.25100
5005.7
5.44700
5.44400
5.43700
Fixed Investment
Stock Changes
138.4
Gov. Consumtion
2689.0
3.00000
3.00000
3.00000
Exports
3699.2
8.73000
8.72500
8.71600
Imports
-7256.9
7.09300
7.08900
7.08200
GDP at Market Prices
23017.6
6.19600
6.19300
6.18700
1703.7
4.35700
4.35700
4.35800
21313.9
6.30200
6.29800
6.29300
Net Indir. Tax
GDP at Factor Cost
Refining makes no difference to macro result
… nor does crude oil production with 100 percent sterilization
Low generation of domestic value added
Simulation Results
INITIAL
BASE
ABSORP
PRVCON
FIXINV
GOVCON
EXPORTS
IMPORTS
GDPMP
26575.3
18742.2
5005.7
2689.0
3699.2
-7256.9
23017.6
62.9
71.2
49.2
34.4
129.8
76.6
69.4
ABSORP
PRVCON
FIXINV
GOVCON
EXPORTS
IMPORTS
GDPMP
26575.3
18742.2
5005.7
2689.0
3699.2
-7256.9
23017.6
149.9
171.2
116.9
70.2
340.5
194.8
166.3
ABSORP
PRVCON
FIXINV
GOVCON
EXPORTS
IMPORTS
GDPMP
26575.3
18742.2
5005.7
2689.0
3699.2
-7256.9
23017.6
770.6
893.2
635.3
207.5
2288.4
1229.3
869.9
FND100
WTHDRW
2007-17
1.0
1.1
1.0
1.0
1.0
1.4
1.0
1.0
1.7
1.6
1.1
1.2
1.2
1.2
2007-25
1.0
1.1
1.0
1.0
1.0
1.2
1.0
1.0
1.2
1.2
1.0
1.1
1.1
1.1
2007-46
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
FND-100
REDSTR
1.2
1.0
1.9
1.0
1.4
1.3
1.2
1.1
1.2
0.9
1.0
1.4
1.3
1.2
1.1
1.1
1.4
1.0
1.2
1.1
1.1
1.0
1.1
0.7
1.0
1.1
1.1
1.0
1.1
1.1
1.1
1.0
1.1
1.1
1.1
0.9
0.9
0.5
1.0
0.9
0.9
0.9
Agriculture at best not affected but export oriented sectors are hurt
Maize
Rice
Other cereals
Cassava
Irish potato
Sweet potato
Cotton
Tobacco
Oilseeds
Beans
Vegetable
Flowers
Coffee
Tea, cocoa & vanilla
Matoke
Fruits & other tree
crops
Cattle & sheep
Other livestock
Poultry
Forestry
Fisheries
INITIAL
118.5
12.9
105.6
264.7
55.4
257.1
9.2
0.8
27.3
80.4
55.5
203.6
16.6
17.1
950.5
BASE
56.5
66.3
54.3
68.9
66.2
72.1
56.4
49.4
77.0
79.9
71.1
74.1
95.5
98.1
60.6
FND100
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
WTHDRW
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
FND-100
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
REDSTR
1.0
1.0
1.0
1.0
1.0
1.0
0.9
0.9
1.0
1.0
1.1
0.9
1.0
0.9
1.0
66.9
380.3
63.4
74.3
1151.0
675.8
65.5
59.8
79.3
59.7
63.3
36.8
1.0
1.0
1.0
1.0
0.8
0.7
1.0
1.0
1.0
1.0
0.8
0.6
1.0
1.0
1.0
1.0
0.9
0.6
1.0
1.0
1.0
1.0
1.0
0.8
Nontradables and import substitutes contract relatively
INITIAL
BASE
FND100
WTHDRW
FND-100
REDSTR
80.1
30.0
1.0
1.2
1.5
1.0
339.3
57.6
1.0
1.0
1.0
1.0
1403.4
65.0
0.9
0.9
0.9
1.0
Grain processing
550.1
67.6
1.0
1.0
1.0
1.1
Feed stock
101.6
60.0
1.0
1.0
1.0
1.0
1035.6
67.7
1.0
1.0
1.0
1.2
Textiles & clothing
245.1
25.2
1.0
0.9
0.9
1.2
Wood & paper
127.4
26.9
0.6
0.7
0.8
0.5
Petrol & diesel
24.5
35.6
0.9
0.9
0.9
1.1
479.3
38.0
1.1
1.1
1.1
1.2
3.0
28.3
0.9
0.8
0.7
0.7
Other manufacturing
561.5
10.7
1.2
1.8
2.2
1.0
Machinery & equipment
475.5
25.2
1.1
1.4
1.5
0.8
Furniture
186.5
52.3
1.0
1.1
1.3
1.1
Energy & water
1113.1
67.4
1.2
1.2
1.2
1.4
Construction
4842.3
51.2
1.0
1.4
1.7
1.0
Mining
Meat processing
Other food processing
Beverages & tobacco
Other chemicals
Fertilizer
… same holds true for services
INITIAL
BASE
FND-100
REDSTR
Trade
4124.2
60.7
1.0
1.0
1.0
1.1
Hotels & catering
1204.1
348.8
0.7
0.5
0.3
0.3
Transport
1253.3
36.6
1.0
1.0
0.9
1.1
Communications
896.6
68.2
1.1
1.1
1.1
1.2
Banking
369.4
72.9
1.2
1.2
1.1
1.1
2337.5
59.2
1.2
1.2
1.2
1.4
534.7
50.1
0.9
0.9
0.9
0.9
2.5
34.4
1.0
1.0
1.0
1.0
Public administration
1476.0
34.4
1.0
1.0
1.0
1.0
Education
2394.5
58.4
0.9
0.9
0.9
1.0
Health
666.9
57.6
1.0
1.0
1.0
1.0
Community services
447.5
69.4
0.9
1.0
1.0
1.1
Real estate
Other private services
Research &
development
FND100 WTHDRW
No significant contribution to poverty reduction
Year
2007
2017
2007
2017
2007
2017
BASE
31.1
18.2
FND100 WTHDRW FND-100
Poverty headcount
31.1
31.1
31.1
18.2
17.9
17.7
REDSTR
31.1
16.0
8.8
4.4
Poverty gap
8.8
8.8
4.4
4.4
8.8
4.3
8.8
3.8
3.6
1.6
Poverty severity
3.6
3.6
1.6
1.6
3.6
1.6
3.6
1.4
… except if oil wealth is distributed to citizens
Implications
 Refining does not create significant domestic labor value
added
 Oil wealth leads to higher growth; is „trade driven“ from
the demand side in the case of full sterilization, investment
driven if all government oil revenues are invested
domestically or abroad, and consumption driven in the case
rent distribution
 …and driven by production of less tradable goods from the
supply side
 Agriculture is largely bypassed: benefits from additional
demand but is hurt by lower domestic terms of trade
 Redistributing rents to citizens accelerates poverty
reduction but at the expense of lower investment
 Simulations neglect productivity effects of private
investment and productivity spillovers from provision of
public infrastructure