Country FilesEast & HornCountry Profile 2014: UGANDA


Posted on Friday, 07 February 2014 11:30

Country Profile 2014: UGANDA

Flag Uganda Museveni’s Chinese lifeline

A mid a new round of economic uncertainties, China’s willingness to take on more of the risks associated with Uganda’s resource management ambitions looks set to boost President Yoweri Museveni’s domestic and regional standing for a while longer. With the next general elections two years away, the government can be expected to design some of its political messages around China’s new commitment to fast-track the kind of major projects that promise business opportunities for Ugandans.






theafricareport-uganda-72dpiMuseveni’s Chinese lifeline

After high-level corruption pushed donors to cut aid, hopes are pinned on exports

Threats to security, whether from Somalia or DRC, have to be closely watched

A mid a new round of economic uncertainties, China’s willingness to take on more of the risks associated with Uganda’s resource management ambitions looks set to boost President Yoweri Museveni’s domestic and regional standing for a while longer. With the next general elections two years away, the government can be expected to design some of its political messages around China’s new commitment to fast-track the kind of major projects that promise business opportunities for Ugandans.

Once China gets started in earnest, sometime in 2014, on the heavy work of developing Uganda’s oil, minerals and energy industries, the scale of its involvement can be fully assessed. With the largest deals now signed, Ugandans can get a sense of just how deeply the Asian heavyweight will dig into the economy, and how this will affect the country’s political power games. Each of the schemes China has backed had previously been held up by high-stakes infighting within the corridors of power.


The two largest commitments have come from Sinohydro and China National Offshore Oil Company (CNOOC). Sinohydrohas started preparing the ground for the construction of a $2.2bn hydroelectric dam at Karuma with a capacity to produce 600MW. CNOOC, the first company to receive an oil production licence in Uganda,will spend $2bn getting Lake Albert’s Kingfisher field into production over the next four years. Some 196m barrels are recoverable and production will be at 30,000-40,000 barrels per day. The project includes a refinery and road construction where no roads currently exist.

A third project involves Tibet-Hima, a consortium of Chinese investors,which has won the bid to revive copper production at Kilembe, the country’s largest mine. The investors have promised to sink $175m into the scheme in the first three years, including putting a railway line in place to reduce the cost of transporting machinery and minerals.

Further progress on all these projects can only boost the confidence of the ruling National Resistance Movement (NRM) at a time when Museveni’s regime has lost much popularity. The government continues to be accused of failing to stamp out corruption, which has cost the public millions of dollars in budget aid support. But the growing boldness among some of its party legislators who publicly question party rules shows no signs of abating. At the same time, dissent within the army has exposed fault lines, especially after the defection of the powerful general David Sejusa Tinyefuza Munungu to London. Sejusa fled in April after exposing an alleged assassination plot against officials who opposed a plan by the President to hand power over to his son, Muhoozi Kainerugaba.


China, with its bags of cash, comes as a redeemer. Government will, however, face a delicate balancing act because these large investment projects are bound to widen the country’s current account deficit, according to the International Monetary Fund’s July 2013 country report for Uganda. Stephen Kaboyo, managing director of Alpha Capital Partners, fears that a big current account deficit will weaken the Uganda shilling.

The current account deficit still remains a challenge with potential to cause instability on the currency going forward,” he said. A weak shilling will make imports expensive, eat into the public’s savings, and ultimately contribute to the increase in inflation. The current account deficit is about 10-14% of the country’s GDP, and this figure, according to the IMF, is expected to stay around that level in the medium term.

In reducing the current account deficit, Uganda’s window of hope will be through foreign direct investment (FDI), the IMF adds. Not only is FDI expected to plug the deficit gap, it will also boost Uganda’s GDP growth to the average 7% that government is targeting in the medium term, up from the current 5%. Although FDI reached a record $1.7bn in 2012, Uganda’s ability to keep attracting such high levels is not assured. Investors are bound to keep a keen eye on how the country manages its affairs, and on the risks in the region, especially with its pockets of insurgency.

The central bank, the Bank of Uganda (BoU), is one of those institutions that will be watched. “BoU’s capital has deteriorated sharply over recent years, affected by continuous operating losses, which poses risks to its credibility as an inflation-targeting central bank,” reported the IMF. Government has responded to the pressures on the central bank with an unplanned recapitalisation of the bank by about 0.7% of the country’s GDP.

Another concern will be the bills to be signed into law. The Public Finance Management Bill seeks to speed up the budget approval processes, create a contingency fund for unforeseen disasters, reduce the frequency at which MPs are called to pass supplementary budgets, and enforce faster cash settlements of goods and services procured by the government. With the private sector heavily dependent on the government, the law could be welcomed.

theafricareport-uganda-72dpi-2FREEDOMS DIMINISHED

Trouble will arise, however, when Museveni finally signs into law the Public Order Management Bill, which has come under heavy criticism from civil rights groups and opposition politicians. Requiring police consent for gatherings of more than three people, the bill seems certain to narrow the space for political debate and to set opposition groups and the police on a collision course.

Such developments worry Elly Karuhanga, chairman of the Uganda Chamber of Mines and Petroleum, a body that promotes the interests of investors in the oil and minerals sectors. “Capital is a coward. If it senses any trouble, it will flee,” he said.

Another potential concern is Al- Shabaab,which has threatened to continue to hit targets in Kenya and Uganda until the forces of the two countries leave Somalia, where it has its main base. Uganda’s army commander, General Katumba Wamala, recently said more territory had been captured from Al- Shabaab while adding that the army was becoming stretched to the limit. In trying to deal with all its security issues, including within Uganda and in eastern Democratic Republic of Congo, the government is expected to allocate more financial resources for defence. Finding the money for that will not be easy.

Uganda has yet to shake off the effects of aid cuts, which were slapped on the country after as pate of corruption scandals in the prime minister’s office. The withdrawal of aid has forced the government to shoulder the biggest burden of the current national budget–up to 80%. The temptation to dip into the national reserves, just as the executive did when it bought fighter jets a couple of years back, could become over whelming. The problem is that the reserves,worth four months of imports, are limited. This leaves the country with the option of bolstering export growth. It is growth of agricultural exports that Uganda is expected to concentrate on in 2014, for it will not only be a source of foreign exchange earnings but canals on arrow the current account deficit. Major spending on new roads is a priority, not just for the efficient evacuation of crops, but even more so for bringing in the estimated 850,000tn of equipment needed to get the nascent oil industry up and running. This is an area in which China’s CNOOC may find itself committed to help beyond its expectations.


INVESTORS WILL BE KEEPING a close eye on the government’s plans for the National Oil Company and the Petroleum Authority, both of which should be set up before the end of 2014. There is avid speculation over who will head these institutions, but of greater importance will be how the country goes about the next round of licensing of blocks and speeds up its move towards oil production.

In achieving commercial viability, the government’s stated priority of installing a local refinery ahead of building a crude oil export pipeline is still to be tested. The plan is to start small with a refinery to process 20,000 barrels per day (bpd) and expand this to 60,000 bpd by the end of the decade. The government has invited its partner states in the East African Community to take a 10% equity stake in the refinery. Their participation could be decisive.

But the main issue is still the level of transparency in the industry. “With oil’s potential to become an extreme blessing or curse to Uganda, pressure remains on the government to create an auditing system that will carefully monitor oil companies,” says Revenue Watch International. “This would include making all oil and gas contracts public, setting up a parliamentary committee specifically focused on oil revenues, and hiring consultants to determine production costs.”


No companies from Uganda featured in The Africa's Report's Top 500 Companies in Africa 2013.


Rank 2012Rank 2011Bank nameCountryTotal assetsNet interest incomeLoansDeposits
138125STANBIC BANK UGANDA*UGANDA1,032,064124,349518,017791,595

Subscriptions Digital EditionSubscriptions PrintEdition










Music & Film



Keep up to date with the latest from our network :


Connect with us