Oil to Catalyse Billions in Investment in East Africa

Somalia oil
Oil rig prospecting in Somalia

Recent oil discoveries will trigger billions of dollars in investment into Uganda, a new report says. However, it warns that oil discoveries in neighbouring Kenya may cause a rethink in regional investment priorities.

Commercially viable quantities of oil were established in western Uganda in the last five years with production set for 2013 at the earliest. Uganda’s oil reserves are estimated at two billion barrels after exploration of less than half of the potential oil fields.

“Investment is expected to pick up in the years ahead, with the country needing $10b – more than half the current value of the nation’s nominal GDP – over the next few years to produce the infrastructure to produce, transport, refine and export oil,” said Kenneth Kitariko, the African Alliance Uganda’s CEO, in a new report to the firm’s clients.

In addition to the investments in oil, the report points out the possibilities for billions of dollars of more investment in collaboration with the Government in infrastructure and the provision of other public goods.

Among the potential large scale Public-Private Partnership (PPP) projects are the planned oil refinery, power generation facilities, major highways, railway lines and health facilities.

The report says in addition, continued and resilient economic growth in the face of the global economic slowdown makes Uganda a prime investment destination in east Africa.

A youthful and rapidly urbanizing population, increasing regional integration and a largely untapped natural resource potential will be the key drivers of growth in coming years.

Also, the growing national and regional demand can provide a good launchpad for oil exports out of the region.

“For Uganda, the discovery of hydrocarbons and its potential exploitation augurs well not only from a trade balance perspective, but also by providing a solid energy base for fast transforming the economy,” the report said.

In 2010, regional demand stood at 136,000 barrels a day and yet Uganda sees a peak production by 2016 of 200,000 barrels a day. ”

That means that in the short term, Uganda will be refining crude oil locally to satisfy domestic consumption and exporting the surplus to neighbouring countries through pipelines,” the report said.

The report also suggests that at peak production, Uganda will be earning $2b (sh5,000b) annually.

A raft of laws are being prepared to regulate the sector and ensure the oil is exploited to the benefit of all Ugandans.

The report makes mention of the recent oil find in Kenya and calls for caution. It is pointed out that Kenya’s oil and gas sector infrastructure is more advanced with a working refinery and pipeline.

“If the recently discovered oil in Kenya is found to be commercially viable, it will significantly raise the investment profile of the country. This is bound to have implications for Uganda’s oil industry, as it will then have to compete with its neighbour for investments.”