What lies ahead for economy

The announcement of Final Investment Decision (FID), which is essentially the last part of the jigsaw puzzle required to produce a complete investment picture, marks the beginning of unlocking billions of dollars into the country’s economy, according to oil and gas sector players and analysts.

Investment commitments made by the two leading sector investors – Total Energies and China National Offshore Oil Corporation (Cnooc), follows the agreements signed on April 11, 2021 at State House Entebbe by President Museveni, Tanzania President Samia Suluhu and the Total chief executive officer Patrick Jean Pouyanne, which automatically set the stage for FID announcement.

Yesterday’s FID announcement by Total Energies and commitments by Cnooc at Kololo Independence Grounds in Kampala symbolises immediate launch of works for the development phase, beginning with the construction of $3.5b (about Shs12.3 trillion) East African Crude Oil Pipeline (EACOP), an undertaking that will result in creation of thousands of jobs.

From the remarks made yesterday by Mr Pouyanné, the development phase will see investment of at least $10b (about Shs35.3 trillion) injected into the country’s economy before commercial production of oil expected by 2025, something President Museveni described as a “boost to the economy and most welcome contribution.”

And irrespective of concerns over fossil fuels such as petroleum and natural gas, and the growing demand to phase it out, given its toll on the environment, President Museveni, who sought the views of the expert at the FID announcement ceremony, seems to suggest that there are more uses for the petroleum resource, including in petro-chemical industries, that are less dangerous to the environment than gas and petroleum generated emissions.

For that, he said Ugandans should not be worried about “Okudiba (lack of market) of our oil” , saying there are multiple ways it can be deployed for the benefit of the economy, which is beyond what is traditionally known for – powering motor vehicles.

In a statement issued yesterday, the Uganda Development Bank (UDB) managing director, Ms Patricia Ojangole, described the FID announcement as a turning point for the oil and gas sector as it commits substantial funds ($10b or (Shs35.3 trillion-$15b or Shs53 trillion) for the development of infrastructure for commercialisation of oil, with a potential countrywide impact on the economy.

She said:  “UDB welcomes the historic announcement of the FID between the government, and the international oil companies. This is because FID will deliver a massive boost to the economy, supporting Ugandan firms, transferring technology, creating jobs, and reinforcing the process of industrialisation.”

Employment opportunities
Various estimates indicate that the planned $10b-15b investment will push Uganda’s Gross Domestic Product (GDP) growth by 22 percent, with more than 160,000 direct and indirect jobs created.
According to Ministry of Energy, it is a requirement for all companies that would like to supply goods and services in Uganda’s oil and gas industry to register on the National Supplier Database (NSD) through the Petroleum Authority of Uganda website.

Similarly, Ugandans who would like to work in the sector are encouraged to get onto the National Oil and Gas Talent Register (NOGTR), for easy access and visibility of the jobs.

According to the information from the ministry, some of the specific benefits that will accrue to Uganda and Ugandans from the launch of the projects will, among others, include provision of employment to Ugandans –through direct employment of about 14,000 people by the companies, indirect employment of about 45,000 people by the contractors, and induced employment of about 105,000 people as a result of utilisation of other services by the oil and gas sector.

Of the direct employment, 57 percent are expected to be Ugandans, which is expected to result in an estimated $48.5m (about Shs172b) annual payment to Ugandan employees.
Economists Daily Monitor spoke to were of the view that in the next three to four years, the oil and gas sector activities resulting from the heavy investment in the development phase will expand the country’s GDP from currently $40.5b (Shs144 trillion) to about nearly $50b (Shs177 trillion).  

The Central Bank, in its November 2011 paper titled “The Future of the Oil and Gas Sector in Uganda’s Economy” argues that oil will boost the national income of Uganda; the country’s GDP will increase and, on average, the income of each Ugandan will rise.

But on whether the benefits of the increase in national income will accrue to the majority of Ugandans, BoU experts say this is less clear-cut, as it depends to a large extent on policy choices. In addition, the Central Bank says the boost that oil will provide to national income does not mean that long-term real economic growth will increase.

Another catch is how Uganda chooses to use the expected revenue from oil and how the same can impact the economy.

Ring fencing
With development phase injecting about $10b to $15b into the country’s economy before commercial production of oil and gas begins, government has by law made it clear that  goods and services that Ugandans can provide during the development phase will not be imported. 

As a result, Ugandan registered companies will have exclusive rights to provide personnel, transportation, security, foods and beverages and hotel services. This is in addition to human resources management, office supplies, customs clearance, fuel supply, land surveying, clearing and forwarding, crane hire, and locally available construction materials.

Despite ring-fencing some areas to local suppliers and producers, a Makerere University School of Economics lecturer, Mr Fred Muhumuza, in an earlier interview,  noted that the benefits resulting from the heavy investment in the development stage of the oil and gas sector will not be accrued by every Tom, Dick and Harry!

“The oil revenues that will be injected into health, education and agriculture sector will be the only way for everybody to benefit from the resource unless you are a driver, a professional welder, an engineer or an accountant and the like, it is unlikely that many people will benefit directly in this sector,” he said.  

In another interview with a senior research fellow at the Economic Policy Research Centre (EPRC), Uganda’s leading policy Think Tank, Dr Madina Guloba, it became obvious that only the organised Ugandan producers and suppliers will be part of the party.

Experts weigh in 

To spur economic growth, Joseph Mukasa Ngubwagye, a senior research fellow at Advocates Coalition for Development and Environment (Acode) argues that it is important to ensure the bigger proportion of the huge investment in the development phase of the oil and gas sector is retained in the country. 

“This can only be achieved by empowering local firms so that they match the technical and financial capabilities of international companies. Otherwise, the country stands a risk of massive economic drain, with much of the investment going to the foreign countries where the financially capable firms are based,” he says.

TotalEnergies chairperson and chief executive officer Patrick Pouyanné, in a statement released yesterday, said his company will pay particular attention to use of local skills, to develop them through training programmes, to boost the local industrial sector in order to maximise the positive local return of the project.

Mr Corti Paul Lakuma, a research fellow in the macroeconomics department at the Makerere University-based Economic Policy Research Centre, says the impact of the FID on the economy should be looked at in long-term and short-term components.  The long term, he says, is largely the capital expenditure such as purchase of machines, while the short-term involves purchase of supplies and services such as food, health services and tourism.

“We have to manage expectations. Don’t raise people’s hopes too much. We still have to work. We now have better input. We must get to work now that it has been made a little easier,” he says.