Local content: How are businesses fairing?
Whereas a section of Ugandans is ready for the oil sector, many businesses are still playing catch up. PHOTO | FILE
What you need to know:
- According to Tony Otoa, the Stanbic Business Incubator chief executive, for the low-income sector, Ugandans seem to be ready. But in some sectors, which require specialised services, it is difficult to say how prepared Ugandans are.
Between 2014 and 2015, Sarah Logan, who was then a policy economist at the International Growth Centre and now the head of state fragility initiative, wrote in a paper that wholesale and retail dominated the share of domestic suppliers in Uganda’s natural resource value chain.
At 43.97 percent, she noted, wholesale and retail was the largest followed by manufacturing at 10.22 percent, mining and quarrying (7.98 percent) while water supply contributed the least at 0.41 percent.
In her paper, Logan was attempting to break down sector-by-sector contribution in terms of local content to Uganda’s oil and gas sector
She further noted that construction contributed 5.93 percent, transportation and storage (5.73 percent), professional, scientific and technical activities (5.52 percent), administrative and support activities (4.09 percent) while financial and insurance services and other services contributed 3.68 percent.
Her breakdown further indicated that information and communication contributed 3.48 percent, accommodation and food service activities (2.66 percent), electricity, air, gas steam and air conditioning supply (1.84 percent) while others contributed 4.49 percent.
Whereas Logan did not reveal the source of her data, she noted that productive linkages between domestic firms and multinationals in the oil and gas sector could drive broad-based economic growth, therefore, emphasising that for this to happen, government had to develop a feasible plan to increase domestic firm integration into the oil and gas sector value chain.
Perhaps, Logan’s paper was one of the voices that fed into a deliberate plan by both government and the private sector to drive local participation into the oil and gas sector.
Now that the Final Investment Decision (FID), which is worth more than $10b of contracts, has been signed, what remains is to see how Ugandans participate in the lucrative oil economy.
But it is also important to assess if a purposed buildup over the years has been enough for the task ahead.
Tony Otoa is the Stanbic Business Incubator chief executive. He believes, Ugandans are in between. In other wards, some are ready while others are still in catch up.
“For the low-income sector, they are pretty prepared. But in some sectors, it is difficult to say how prepared Ugandans are and these are areas where specialised services are required,” he says.
Between 2013 and 2014, he says, oil companies conducted an industry based survey in which they sought to measure the preparedness of Ugandans both in terms of manpower and provision of goods and services but “unfortunately, not much had been done to prepare businesses for specialised services.
“The train has started moving and is moving so fast. If we aren’t ready, it is now all about accelerating our readiness and the need to accelerate our readiness is going to be very crucial. This means that businesses have to think about putting systems in place to become compliant so that they can participate but also start to network and gain visibility,” Otoa says.
Ugandans, for a long time, had been uncertain of what was taking place in the oil and gas sector.
Therefore, Otoa says, many had relaxed because they had no clue when key decisions such as FID would be happening, who is doing what and how it is being done.
Over the years, there have been attempts to create platforms through which oil and gas issues are highlighted for businesses to engage as well as build for the future.
The oil and gas sector is a capital intensive industry. Therefore, there must be enough time to not only to mobilise finances but to prepare sufficiently in terms of human resource.
“If you do not have the financial muscle … it is important to think about joint ventures,” however, Otoa adds, as someone or a company that is interested in participating, you must also work on being compliant with required standards and demands.
“It is really about getting yourself involved but how you get involved is very key. Joining hands with companies that are doing this [specialised services] worldwide will be the easiest point for most Ugandan businesses,” he says.
Therefore, he concludes, on one hand Ugandans are prepared while on the other hand they are not ready but there is room for learning as the country goes through the development stage.
Sectors to tap into
Some of the areas where Ugandans can easily get in and participate are those with low value cash such as catering and security services among others. Otoa notes that other areas that are believed to be ideal for low income businesses, is furniture, manpower agencies, transportation of both goods and services and passenger services, hazardous resource management and production, operational services and food supply and work safety products and consultancy.
He notes that a lot of the time people forget about food supply yet the demand is high and will grow to about 30,000 in a single geographical area. “The amount of pressure on that area alone is [beginning to be] crazy hence making food become a very crucial item. This is where the agricultural initiative comes but also [provides] a good opportunity to buy goods and services,” he says.
Positioning oneself
According to Otoa, the most important aspect for any Ugandan or local businesses at this level, is being able to supply required goods and services, which can only be done if one certified all requirements such as health and safety.
The oil and gas sector is highly regulated, which means that one or a company has to be listed on the national supplier database.
A company can only be listed on the database if it has gone through all registration requirements with agencies such as Uganda Registration Service Bureau, Uganda Revenue Authority and National Social Security Fund, among others.
“These are the four requirements that necessitate you to be on the database which is [under] the Petroleum Authority of Uganda. Once you are in the database then opportunities can easily come to you but also people will be looking for entities that supply those services and can find you on the database,” Otoa says.
He also highlights that agriculture will be an important sector in the run up to first oil that will be carried through the export period due to an increase in demand and spending power.
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