15 June 2017

Uganda: 'Oil Could Be Uganda's Growth Catalyst'

Photo: Daily Monitor
Oil drilling. Experts say the country can harness the huge opportunities that the oil sector presents to grow.

Kampala — Uganda has been experiencing slowing economic growth in the last three years.

The below-than-expected growth is likely to delay the country's ambition to reach middle income status by 2020.

However, according to Mr Patrick Mweheire, the chief executive officer Stanbic Bank Uganda, the next growth frontier for the country will be in the oil sector - especially the pre-production phase.

"The catalyst for growth will be oil and especially how we make the oil resource become inclusive. It will also depend on how the resources will be allocated," he said during the Stanbic Uganda post-budget dinner last week.

Uganda's slowing economic growth trend in the last five years has returned to the levels last seen when the economy had just been liberalised in the 1990's.

Growth then averaged 3.5 per cent for the period between 1990 and 1994. There was a recovery that saw the economy peak at an average growth rate of 8 per cent between 2001 and 2010, according to Mr Mweheire. Low growth often translates into less jobs created. The oil sector is expected to bring in about $10b (Shs36 trillion) worth of investment prior to the projected production phase.

From pipeline construction to road works to the refinery will bring in Foreign Direct Investment (FDI) that will, in turn, create jobs.

In the pre-production phase, a baseline survey by the oil companies in 2014 indicates that 100,000 indirect jobs alone would be created in the pre-production phase.

"It will be about how companies in Uganda ready themselves to tap the opportunities. The investment is going to be massive, nothing close to what we saw in the exploration phase," he said.

According to Dr Adam Mugume, the executive director research at Bank of Uganda, the slowing growth had been due to a combination of factors but the most consistent one he said was the reducing FDI.

This was partly oil driven FDI. The investment amounts in the oil sector started slowing down.

According to the ministry of Energy, oil related investments dropped to Shs1.5 trillion ($413m) from Shs1.95 trillion ($533m) in 2013.

"Investment has slowed down growth in the country. If you look at the numbers, you will see that investment has nearly halved from highs of about$1bn to $500m. Investment has dropped also because our competitors (other countries) have a positive picture," he said during the dinner.

He, however, sees agriculture as the next trigger for growth in the country because of the potential "quick gains" from products such as beans and maize that could alone contribute to $200m (Shs720 billion) worth of exports.

Huge oil tenders

Opportunities. Mr Jimmy Mugerwa, the managing director and chairman -Tullow Oil Uganda, said during the dfcu Bank 2017/18 post-budget breakfast in Kampala on Tuesday, there are already opportunities in the oil sector alone valued at $300m (Shs 1trillion).

Some of the tenders include providing local content support to the company hired to carry out Front End Engineering Design Study for the $2.2b (Shs7.5 trillion) export pipeline.

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