30 November 2012

Uganda: Oil and the Fallacy of Local Content


The furor and debate of months past on the issue of oil seems to have reduced to public murmurs, boardroom chatter and the occasional parliamentary debate.

What, one may ask, has happened to all those impassioned discussions that so characterised the last quarter of the year past.

One possible reason may be that Ugandans have a tendency to hype up things and then, with the same vigour, relegate them to the fringes of insignificance.

Another reason might be that all grievances were addressed and there remains no reason for further agitation. Your guess dear readers, is as good as mine. But, despite the bliss in which we seem to find ourselves, I cannot help but wonder if the Ugandan business community and indeed the entire Ugandan population is benefitting or poised to benefit from this fabled resource.

We have heard the term 'local content' mentioned in various oil related fora. It is said that this 'local content' is going to change the fortunes of many in the business community and by extension, the Ugandan public. But, 12 years after the discovery of viable quantities of oil in the Albertine has this come to pass? I think not.

Let us dwell a little more on this 'local content'. What it basically means, I am told, is that anything within the oil sector (goods/services) that can be provided by Ugandans should indeed be provided by Ugandans. Only the extremely specialised works may be carried out by foreigners. But, even for these 'specialised' services, Ugandan participation should be encouraged in the form of JVs, MOUs and other partnerships.

This arrangement will not only empower Ugandan business but see an accelerated emergence of a Ugandan middle class and provide skills and countless jobs for Ugandans.

In a country plagued by high unemployment, a huge skills gap, and a weak middle class, this 'local content' if properly implemented, would be nothing short of a God send.

The reality however seems to be quite different. In 12 years of oil and gas, not many Ugandans or Ugandan companies have benefitted

from a resource that is ours by right of birth. Instead, many foreign owned companies are at the fore front of this sector providing services and goods that many Ugandans have the capacity, ability and competence to provide. Let us take a certain company owned by two British nationals. This company has a string of contracts with the oil companies.

The owners of this company setup two other companies; One specialising in heavy lifting and the other providing wielding services. Among them, these three companies provide a myriad of oil and gas related services. As if this is not unfair enough, these three commonly owned companies have been acquired by a French owned company which will see them venture to other bigger services like waste transportation and management.

In effect, they have setup one giant consortium aimed at monopolising the sector and sidelining possible local players and Ugandans. So, again I ask, if we can allow a few individuals to monopolise this sector so early in the game will Ugandan business and indeed Ugandan society benefit from this resource?

Let us remember that these foreign companies are paid in foreign banks. So in addition to denying Ugandan business opportunities of employment and skill acquisition there is also significant capital flight.

This capital I am sure would go a long way in infrastructural development and local investment which in turn would boost our economy.

The money paid to these companies by the way, falls under what is termed as 'recoverable costs'. This means that the Government, and by extension the Ugandan tax payer, is the one who pays for these costs.

In addition, one wonders if some of these mergers and acquisitions pay the requisite capital gains tax due to us as a country. Again, we can only guess at the answer.

Some of the oil companies in Uganda have seen their share value soar in the recent past largely on the back of their African successes of which Uganda is a big contributor.

It is only fair that they repay Ugandans by awarding contracts in a fair and transparent manner.

The Government, which has tried to uplift Ugandan business in this regard, needs to implement stricter policies that safe guard the interests of Ugandan business and the entire Ugandan population.

Precedents have been set in other countries like Kenya, Tanzania, Nigeria, Angola and Algeria which we can follow.

I applaud Soroti Woman MP Alice Alaso's amendment which seeks to provide for a 48% Ugandan ownership minimum for all companies in the O&G supply chain.

It is evident that the Government and Parliament strongly support indigenous participation in this industry and we should be proud and commend their efforts. This is the kind of action that will ensure social-economic transformation.

Especially now as we celebrate 50 years of self determination, we should stand united and take full advantage of that which is rightfully ours.

The writer is a Kampala Businessman

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