In just 15 years – in 2040 – Uganda will be a transformed economy, according to technocrats at the ministry of Finance, Planning and Economic Development (MOFPED).
The Ugandan economy, they say, is set to expand ten- fold, from approximately $50 billion in financial year (FY) 2023/24 to $500 billion in 2040. This is very ambitious for a country not known to meet its targets. Nonetheless, the story of Uganda’s transformation cannot be told without factoring in the role the oil and gas sector.
The sector has preoccupied many of our discussions in the last 20 years and raised our expectations. Can it serve as a springboard for growth? Will it spark growth in other sectors? And can it push us to the $500bn economy dream? There is no straight answer to these questions.
The country’s oil potential is immense, with reserves estimated at 6.5 billion barrels and about 1.7 billion barrels recoverable. The announcement of the Final Investment Decision in 2022 by the joint venture partners —CNOOC Uganda Limited, Total Energies E&P, and Uganda National Oil Company (UNOC) – kicked off a flurry of activities in the sector.
The development of Tilenga and Kingfisher blocks, the East African Crude Oil Pipeline (EACOP), and the Uganda refinery are ongoing, and could collectively inject more than $20 billion into the economy. The sector seems to be attracting the much-needed Foreign Direct Investment (FDI).
The annual macroeconomic and Fiscal Performance Report for FY 2023/24 observed that FDI inflows recorded an all-time high of $3.034 billion, of which a bigger share targeted the oil sector. MOFPED says this “highlights Uganda’s progress towards commercial oil production and increased investor confidence.”
Partnerships with international companies are expected to bring much-needed capital, modern infrastructure, technology and expertise. Significant investment in upgrading existing physical infrastructure and building new facilities has bolstered not just the oil industry, the numerous “oil roads” are also key to sectors such as tourism.
These developments also enhance domestic connectivity and stimulate local economic activities. The sector is expected to generate thousands of jobs. Statistics from the Petroleum Authority of Uganda indicate that the sector directly employs more than 15,000 individuals, of whom 90 per cent are Ugandans.
Strict implementation of the National Content Policy can further amplify this impact. Training programs should equip Ugandans with necessary oil sector-related skills. This not only enhances employability for Ugandans but also reduces the reliance on foreign expertise, ensuring that a larger share of the sector’s benefits remains within the economy.
Beyond jobs, the sector can serve as a spark for industrialization and technology transfer. The establishment of downstream industries, such as manufacturing fertilisers, plastics and pharmaceuticals, would generate more economic impact.
Furthermore, the development of associated gas reserves for power generation could lower energy costs, making Ugandan industries more competitive and boosting economic productivity. Local businesses can thrive by supplying goods and services to industry – from construction materials to catering services, the ripple effect on small and medium enterprises (SMEs) could be massive.
Despite the optimism, the path to achieving tenfold economic expansion driven by the oil sector is not without challenges. The first is the uncertainty that comes with the long delays to realise first oil. No one knows for sure when Uganda will start producing the hydrocarbons. The target date has been shifted many times that even the most optimistic Ugandans are doubting.
The global energy transition campaign towards renewable sources poses a risk of long-term reliance on oil revenues. This calls for a strategic approach to diversify revenue streams and reinvest oil proceeds into sectors that drive sustainable economic growth, such as agriculture, tourism, manufacturing and technology development.
Furthermore, much of Uganda’s public debt has been pegged on the promise that the country will start producing oil soon. This means that the receipts from the sector may not actually go into growing the economy but into paying back already consumed debt.
Uganda must undertake prudent fiscal management, and a strong commitment to good governance and transparency to optimise the benefits of its oil wealth. Lessons from other resource-rich nations highlight the pitfalls of a ‘resource curse.’ Inequitable utilisation or distribution of oil revenues can breed social inequality, conflicts and economic distortions.
Balancing environmental sustainability with economic ambitions is vital. The EACOP construction has already faced criticism from environmentalists globally, such as the “Stop EACOP” campaign, on account of its potential impact on ecosystems, natural climate, and social costs in the Albertine region.
Addressing these concerns through stringent environmental safeguards and community engagement will be key to maintaining public trust and achieving the desired growth sustainably.
The writer is a research associate at EPRC, Makerere University.
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