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How SMEs can tap into oil and gas as first oil nears

Local firms need to enhance their capital base and strengthen corporate governance to benefit from the nascent sector

Kampala, Uganda | JULIUS BUSINGE | Small and medium-sized enterprises need to enhance their capital base, embrace partnerships and adhere to high corporate governance standards to reap from the upcoming oil and gas sector, sector players said.

Patrick Mweheire, the Chief Executive at Standard Bank Group, Eastern Africa and Chairman of Uganda Chamber of Mines and Petroleum said during the 2-day East African SMEs Oil and Gas conference held at the Kampala Serena Hotel from November 18-19 that SMEs continue to face big challenges especially in record keeping which among others limits lenders’ ability to support them financially.

“With the oil and gas industry’s steady growth, sufficient capital for SMEs is required to keep a business afloat,” he said.

Mweheire said, reversing challenges faced by SMEs into strengths would see them reap big opportunities and help put the economy back to its growth curve.

“Investing a million dollars in Stanbic Bank may create 20 jobs, but investing a million dollars in 1000 SMEs will create thousands of jobs,” he said.

Mweheire cited the Stanbic Business Incubator where SMEs are being supported to bridge their gaps to enable them participate in the oil and gas sector. The Incubator allows small and medium-sized businesses interested in and/or engaged in the oil and gas industry to skill and train in order to address prevalent business challenges in Uganda.

Uganda’s oil and gas sector is expected to benefit SMEs in more than 16 sectors including; transport, security, foods and beverages, hotel accommodation and catering, human resource management, office supplies, fuel supply, land surveying, clearing and forwarding, crane hire, locally available construction materials, civil works, supply of locally available drilling and production materials, environment studies and impact assessment, communications and information technology services and waste management.

Peter Lokeris, the state minister for minerals in the ministry of energy and mineral development said, the expected beneficiary sectors are directly linked to the oil and gas value chain, but a section of SMEs can still get indirect and induced contracts along the chain like electronic money services and recreation services.

He said, the government intends to establish a fund for local content development in order to finance the performance of sector contracts.  The fund will provide low-interest loans to SMEs in order to facilitate their entry into the market.

John Walugembe, the Executive Director of the Federation of Small and Medium Enterprises said, the new “investors present an opportunity for the local firms to build a strong and viable business relationships, and as a result, strengthen their entrepreneurial bases.

Statistics from the Uganda Investment Authority shows that Small and Medium Enterprises in Uganda account for more than 70% of the entire private sector and employ over 2 million Ugandans, but many are yet to benefit from the oil and gas sector.  For instance, of the US$3.5billion international oil companies spent in the exploration phase, local companies only got an estimated 28%.

“But we cannot keep lamenting,” Tony Otoa, the chief executive of Stanbic Business Incubator said, “the exploration phase is behind us and bigger opportunities are here.”

Last April, Uganda, Tanzania and oil firms Total and CNOOC signed agreements that will kickstart the construction of a $3.5 billion crude pipeline to help ship crude from fields in western part of the country to international markets.

The Uganda National Oil Company, which is mandated to hold 15% participating interest as the government’s nominee in the petroleum production licenses is already providing leadership on project stakeholder engagement, securing government pre-investment in some enabling infrastructure, providing technical expertise in upstream and refinery operations, and national content leadership.

The Petroleum Authority of Uganda, which is also the oil sector regulator, notes that the signing unlocks new investment into Uganda’s economy, which includes the implementation of the Tilenga Project (approx.US$4billion), the Kingfisher Project (approx.US$1.5billion); and, the EACOP (approx. US$3.6bn).

This is in addition to the ongoing investment into the Hoima International Airport (over US$500m) and 700 kilometres of oil roads (approx. US$900m).

So far, contracts worth US$167 million out of the US$ 1.362 billion for the Tilenga and Kingfisher projects have been earmarked for the Ugandan companies.

Overall, at least 28% or $4.2billion of the $15billion investment during the development and construction will go to Ugandan companies through provision of various goods, services and works.

“…that is why the Stanbic Business Incubator has over the last few years been training SMEs in a range of business skills to further bolster them and turn them into thriving and sustainable businesses,” Otoa said.

Lokeris has a special message to SMEs: “Most contracts are advertised in the newspapers, yet SMEs ignore reading newspapers, thus missing out on an opportunity for participation,” he said, “SMEs also need to become information technology savvy to search and send information online since many bidding processes and training are happening online.”

This year’s conference was convened by Stanbic Business Incubator, supported by Stanbic Bank, CNOOC, Petroleum Authority of Uganda, Uganda National Oil Company and Uganda Investment Authority, themed ‘Exploring Opportunities for SMEs in the Oil and Gas Sector.’

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