Uganda expects increased foreign investment fuelled by oil

Bloomberg reports that Uganda licensed investment projects worth US$122 million last month, said Maggie Kigozi, the executive director of the Uganda Investment Authority.

The agency licensed 29 projects, which are expected to create 2,590 jobs. The growth in investment was driven by interest in the agriculture, finance, real estate and manufacturing industries, she said. Kenya was the biggest source of planned investments, with an estimated $55 million, followed by Mauritius with $14 million and South African companies, which aim to invest $10.7 million, the agency said. The government will probably license $3 billion worth of projects this year, $1 billion of which will be made by foreign investors, on growth in the petroleum and mining industries, Kigozi said. The East African nation approved $1.7 billion in projects in 2010.

Uganda is pinning a lot of hope on the domino effect to other parts of the economy that the discovery of oil could have. The major player in Uganda’s oil sector, Tullow Oil, says Uganda has 2.5 billion barrels of commercially viable oil. It has however been forced to delay production from the earlier anticipated 2012 date. Tullow’s Uganda manager Brian Glover told an investors’ conference that the firm’s exploration has been “phenomenally successful” but that poor infrastructure in the region meant a delay in production. “The rail network could be pivotal, but it’s not in great shape,” Glover said, adding that the lack of infrastructure meant it would be “quite challenging” to begin production in 2012 as earlier planned. Glover made clear that the problem of infrastructure extends well beyond Uganda, and is a regional issue – as is the firm’s oil development. “This is not a Ugandan project. This is an East African project,” Glover said, adding that “without the supply chain in place, we are not going to be able to get this done.” Tullow has been looking to construct a pipeline to carry Uganda’s oil to Kenya’s Port of Mombasa, while Uganda has proposed construction of a refinery instead that would serve the region’s need for oil products.

The IMF says in the medium-term, Uganda’s outlook remains favourable due to the prospect of substantial oil revenues coming on stream, which offers an opportunity to raise growth and eliminate poverty. However, it also cautions that the development poses important policy challenges. “Uganda will need robust fiscal and financial institutions, a supportive business environment and scaled-up infrastructure to prepare for this event. “The fiscal policy framework must also be further bolstered in preparation for the establishment of the East African Monetary Union,” it said. The World Bank estimated real GDP growth was 6.3% in 2010, and should improve to 6.5% in 2011 and 8.6% in 2012.

Article written by the Imara Africa Securities team. Imara is an investment banking and asset management group renowned for its knowledge of African markets.