Ugandan firms eye contracts as first oil approaches

Bars to entry

New entrants face a host of challenges, from eye-watering interest rates to stringent international standards. During the exploration phase, for example, no domestic catering firms were able to meet the health, safety and quality requirements to win contracts.

An Industrial Baseline Survey of 25 sectors, commissioned by the oil companies in 2013, found that Ugandan companies were able to meet both quality and quantity requirements in only two sectors, security and cement. In transport, for example, only 200 trucks in a fleet of 2,500 met the stipulations.

A number of programmes are in place to build local capacity, from national content conferences organised by the PAU to a business incubator run by the Ugandan subsidiary of Standard Bank.

Patrick Mweheire, Standard Bank’s regional chief executive, remembers asking the first cohort of would-be oil contractors whether they had a work environment safety policy.

“Ninety-nine percent of them did not have that,” he recalls. “And guess what? The first question on the Total contract is: ‘Can you please provide your safety policy?’ So we saw a complete mismatch. The oil majors are never going to lower their standards, so we’ve got to raise our game.”

The government should do more to understand the capacity of local businesses, says Daniel Tusiime of SA Field, a company dealing in personal protective equipment. Businesses develop capacity with time, he adds. “No one goes into business to remain small.”

SA Field has set up a factory and acquired moulds from a British partner to manufacture more protective equipment locally, rather than importing it from abroad.

False starts

The years of delay between exploration and production have given local businesses time to learn about the industry and build capacity, says Emmanuel Mugarura, chief executive of the Association of Uganda Oil and Gas Service Providers (AUGOS), an industry body. But the uncertainty was costly.

“Many Ugandans lost their patience and their interest,” he says. “People had invested, they had put in money, they had recruited people, they had bought equipment, they had prepared themselves – then there were two, three, four false starts.”

One company hit hard by the delay was Threeways Shipping, a haulage and freight forwarding business which works with the oil sector.

“In order to meet the requirements of the industry – levels of service, standards of equipment, certification of personnel and equipment, and other related requirements in the sector – we had to invest a lot of money in assets so that we would gain a foothold in the activity,” says Jeff Baitwa, its managing director.

Threeways spent $20m to prepare for oil, including purchasing a fleet of brand new trucks instead of the second-hand ones which usually ply Uganda’s roads. When oil development stalled the business ran into financial trouble and Baitwa had to lay off half the workforce.

“Many of us burned our fingers,” he says.

The signing of agreements in April has now put oil development back on track. For Ugandan businesses, the next five years will be crucial: four-fifths of the jobs that oil creates will be short-term positions during the peak of construction.

Mweheire the banker thinks, optimistically, that Uganda’s GDP could double by 2027. “Don’t obsess about the first oil. Actually when oil starts flowing the party’s ended. The party is the next three to five years.”

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Source: African Business Magazine.