World Bank sees oil production supporting Uganda’s economic diversification

June 23, 2016 in Energy, Finance, Hydrocarbons, Investment, Policy, Trade & Industry by Editor

KAMPALA, June – Far from being the curse it has turned out to be for many hydrocarbon economies in Africa, oil production in Uganda could provide a springboard to a more diversified economy and a higher socio-economic status for its citizens, the World Bank says in a new Country Economic Memorandum CEM prepared in conjunction with the Ugandan government.

Released today, the CEM notes that used to support improvements in agriculture, infrastructure, and human capital development proceeds from oil production could accelerate growth, create jobs and reduce poverty.

Uganda is tentatively set to begin commercial production of oil in 2018, but the question has been whether this will be a source of socio-economic transformation or a curse as has happened in countries such as Nigeria and Angola where oil wealth has had minimal impact on the welfare of citizens.

Titled, “Economic Diversification and Growth in an Era of Oil and Volatility, the CEM draws on global experiences of oil producing countries in Africa and elsewhere to guide the country in making the right policy and fiscal choices so as to benefit fully from the oil and mineral windfall.

“Uganda has an opportunity to get the economics right. If oil resources are well managed, it could take the country a lot less time to achieve its national vision of attaining upper middle income by 2040. This requires pumping back the oil profits into sectors that will have huge economic spill-overs to the most vulnerable and poorest,” said World Bank Country Manager for Uganda Christina Malmberg-Calvo,” in comments about the report.

Uganda has since 2006 cumulatively discovered more than 6.5 billion barrles of oil in the Lake Albert basin of which 1.3 billion barrels are recoverable. Only 40 percent of the country’s potential has been explored so far, raising hopes of further oil finds.

Oil revenues could add up to $2 billion to Uganda’s annual revenues over the production phase that will start 60,000 barrels per day, peaking at 200,000 barrels depending on the recovery cycle Uganda will agree with oil companies Tullow, Total and CNOOC.

Uganda’s economic growth slowed down to 4.6 percent in fiscal 2015/16. Despite reduction in poverty to 19percent, more than one third of the Ugandan population remains poor and vulnerable to shocks.

The report highlights a number of opportunities at the various stages of the oil industry. These include drilling services, production maintenance service, geological services, engineering, fabrication and construction – all of which could generate an estimated 15000 new jobs for the country’s large unemployed youth population. Opportunities also exist in sectors such as insurance, food and beverages, transportation, health and safety, as well as banking and financial services.

On the downside, the report observes that “Experience from oil emerging economies shows oil and minerals tend to fuel conflict, corruption and widen income and poverty disparity, instead of boosting shared prosperity.”

The Memorandum reccomends policy and institutional strengthening, to regulate the sector, and ensure greater transparency as well as accountability. Stimulating manufacturing and industry, as well as private sector businesses, along with investing in health and education, would create a more skilled labour force capable of driving growth for the long term. The report also advocates a “sustainable investing approach” that combines substantial savings with investment and links the size and speed of the public investment program to progress in absorptive capacity.