Prime
Oil: We need sectoral linkages for economic development
Peninah Aheebwa
What you need to know:
- An awareness of the potential sectoral links is expected to lead to policy decisions and investments that will ensure the linkages are exploited.
The oil and gas sector in Uganda has progressed to the development phase with an expected total investment of $20b before the production of the first oil due next year. This investment is being made mainly in developing infrastructure for producing petroleum from the discovered fields and putting in place the facilities required to commercialise the petroleum to be produced (refining and pipelines) together with the requisite support infrastructure like the roads and the second international airport.
These investments present opportunities to the country through first, the participation of Ugandans and Ugandan enterprises in the provision of the required goods and services (what is known as national content). Secondly, the participation of other sectors of the economy through sectoral linkages.
National content is at the project level, and its target objective is based on how much of the expenditure on the projects ought to be retained in the country. Sectoral linkages on the other hand, are wider, and the development of these linkages would enable the maximisation of national content in the oil and gas sector. It would also contribute to the diversification of the economy and ensure the infrastructure set up for the oil and gas projects is sustained during the decline of activities in the sector. Several countries, including the UAE and Norway, leveraged the oil and gas sector to develop their other sectors.
There are many expected indirect effects of the oil investments on the mainstream (non-oil) Gross Domestic Product (GDP) through the creation of linkages with other sectors of the economy such as agriculture, health, tourism, housing and transport, among others. Studies have shown that every $1 (about Shs3,900) directly invested in the oil and gas sector is expected to yield indirect GDP growth of $0.6 (about Shs2,300). Therefore, out of the $20b, a direct investment of $14b (29 percent of Uganda’s current GDP estimated at $48b) in the three projects for which the Final Investment Decision has been undertaken is expected to yield indirect growth of the GDP by $8.5b (18 percent of GDP) by the time the first oil is achieved. This will be in addition to close to $5.6b (40 percent of $14b) which is expected through the fulfillment of national content requirements.
It is, therefore, important to create linkages between the oil and gas sector and other sectors of the economy to maximise and ensure broad-based economic growth and development. Instead of viewing the oil and gas industry in isolation from the rest of the economy, an awareness of the potential sectoral links is expected to lead to policy decisions and investments that will ensure the linkages are exploited.
The writer is the director of Economic and National Content Monitoring at the Petroleum Authority of Uganda
