Uganda’s oil reserves may account for as much as four per cent of its economy annually in coming years if managed well, the International Monetary Fund’s (IMF) country chief says.
IMF Mission Chief for Uganda Axel Schimmelpfennig writes in a blog post that the country also needs some strategic infrastructure investment and better debt management.
Uganda’s economy has taken a hit over the past decade — particularly on a per capita basis — but is recovering.
According to IMF figures, growth was around 4.7 per cent in 2016, currently above average for Africa. That was up from just 2.6 per cent in 2011, but still well off its 10.4 per cent high as the global financial crisis broke.
The IMF projects gross domestic product will grow at 5.7 per cent in 2018, but Schimmelpfennig sees greater growth beyond.
“Drought in the Horn of Africa, regional conflict, and slow credit growth have contributed to (the decline), with per capita growth falling to half a per cent from an average of 5 per cent for the past 20 years,” he said in his blog post.
Per capita GDP — a closer measure of ordinary Ugandan’s conditions — has plunged in the past few years along with weakness in key exports such as tea, coffee and some minerals.
The shilling, Uganda’s currency, has also weakened, in particular during the run up to the February 2016 presidential election.
But with oil, all this could change.
“In our estimates the revenues could range on an annual basis from about half a per cent GDP initially to about 4 per cent at peak production, he says. “The challenge that many oil producers face is to manage this well.”
Uganda discovered commercial hydrocarbon deposits in the Albertine rift basin that straddles its border with the Democratic Republic of Congo in 2006. It estimates the deposits hold around 6.5 billion barrels of oil as well as commercial deposits of natural gas.
Production is due to start in 2020, after a number of years delay. An export pipeline is being developed and work is at the early stages of field development.
Schimmelpfennig said that if the government starts production as planned it could ‘reap the benefits’ for almost 30 years.

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The Bank of Uganda’s policy to lower the Central Bank Rate (CBR) of recent has not had a significant impact on commercial bank lending to the private sector, the Uganda Economic Update published this week by the World Bank, states.

The Uganda Economic Update discusses general status of the economy, with the latest, the Ninth Edition majorly focusing on how the government of Uganda can nurture public-private partnerships to address Uganda’s infrastructure deficit estimated at US$1.4 billion.
The Bank of Uganda (BOU), cut the CBR to 10 percent in June 2017, compared to 17 percent recorded in the year earlier. That reduction was meant to push commercial banks to significantly cut their prime lending rates so as to encourage the private sector borrow for production.

However, commercial banks, according to economic analysts at the World Bank, have been reducing their lending rates by only a very limited degree, with average rates declining from 23.5 percent in June 2016 to 23.1 percent in February 2017, before they were reduced to 20.5 percent in April 2017. This means, the report says, commercial bank credit in Uganda remains expensive on the side of most private sector players.

It is only Stanbic Bank, the largest in the country by capitalisation and assets, that has announced it will charge 18 percent interest on its loans starting the coming month, which is just days away. Uganda has over 20 commercial banks, many of them foreign-owned.
“The limited financial depth means that these policy actions have had only a limited impact on economic activity, with the proportion of the private sector having access to commercial loans remaining low,” the Update states in part.

The report recognises that commercial banks have been slow to reduce their lending rates for fear of foreign exchange risks, only providing most loans to transport, communications, business services, personal and household sectors.
Yet the value of credit provided to building, mortgage, construction, real estate and manufacturing sectors have continued to shrink in the financial year 2016/17, compared to the previous year.

“Commercial banks have tightened lending conditions due to the high level of volatility,” continues the report, adding that most borrowers in Uganda take loans in Ugandan currency, with the dollar dominated credit only accounting for 44 percent of the total value by April 2017.

The Update states that the increase in the level of non-performing assets (NPAs) is also responsible for the slower credit and the declining profitability of the banking sector, despite the high level of capitalisation.

The report adds that the proportion of NPAs increased to an average of 4.4 percent in financial year 2015/16 and that by December 2016, the figure had reached 10.5 percent, before decking to 6.3 percent in March 2017. The report gives high cost of credit, exchange rate volatility and government delay to pay suppliers, as some of the factors responsible for the NPAs.

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Etihad Airways has launched an ‘Early Bird’ offer with special fares to many of the airline’s destinations worldwide, according favourable rates to Ugandan travellers.

According to the Airline, the ‘Early Bird’ offer includes travel to or from Abu Dhabi/Dubai at US$410 for the Economy Class and US1, 650 for the Business Class; Mumbai (India) US$598 for economy class and US$1, 558 for the business class and, London US$946 for economy class and US$1, 982 for the business class.

The choice of cities also includes Ahmedabad, New Delhi, Hyderabad, Beijing, Bengaluru, Chennai and Shanghai, and according to the airline, the special fares in Economy Class can be booked between now and July 31, 2017 for travel from  September 17 to May 30, 2018.

‘For those wishing to experience Etihad Airways’ award-winning Business Class, special fares are also bookable immediately, up until 31 July 2017, for travel between 14 August and 30 May 2018,’ the airline says in a release.

With a fleet of over 120 Airbus and Boeing aircraft, Etihad Airways flies to over 100 passenger and cargo destinations in the Middle East, Africa, Europe, Asia, Australia and the Americas.

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