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Oil doubles foreign investment, but where are Ugandans?

Directions to oil wells in Buliisa District

Directions to oil wells in Buliisa District

Uganda topped the region in attracting Foreign Direct Investment (FDI) last year, with most funds going into oil, gas and mining sectors, says a report released by the United Nations Conference on Trade and Development (UNCTAD).    

According to the World Investment Report 2013, Uganda’s FDI almost doubled, from 894 million dollars in 2011, to 1.721 billion dollars in 2012. Uganda was followed closely by Tanzania, which attracted slightly over one billion dollars, largely driven by the country’s massive natural gas discoveries.

Despite having the biggest economy in the region, Kenya’s FDI declined significantly to 259 million dollars.

Ugandans being left out

But economic analysts remain sceptical, arguing that this only shows that Ugandans are not investing much in their oil and gas sector.

According to Makerere University’s Professor Augustine Nuwagaba, Uganda stands to lose its oil revenue to foreign investors unless government develops laws that encourage Ugandans to invest in the oil and gas sector.

“Increased FDIs would create more opportunities for Uganda depending on the regulatory framework. If Ugandans are majority shareholders in these foreign companies, then the country would be at an advantage,” he told Oil in Uganda.

In agreement, Dr. Lawrence Bategeka, a Senior Economic Research Fellow at the Economic Policy Research Centre (EPRC), argues that investments in the extractives sector ultimately benefit the investors, not the host countries because the former stand to claim their expenses through recoverable costs.

“Most poor countries experience this. The extractive industry needs prior heavy investment and because developing countries like Uganda cannot afford, they opt for foreign investors who do so for their own benefit. And most of these costs are recoverable when the oil starts flowing,” he said.

“Their investments hardly create jobs, they are here to make money. It is not charity, it is not free money.”

Although the recently enacted Petroleum Exploration Development and Production Act 2013 provides for local businessmen to enter joint ventures with international firms servicing the oil and gas industry, questions have been raised on the capacity of Ugandan businessmen to take up such capital-intensive opportunities.

According to the Act, foreign service provision companies must have a local shareholding up to 48 percent. But this provision has attracted mixed feelings amongst the business community, with some describing it as unachievable.

Report by FN