In a significant turn of events, Uganda is poised to embark on a new economic chapter with the anticipated start of oil production and strategic international partnerships. With large oil reserves discovered in 2006, the East African nation is preparing to tap into its potential as a burgeoning oil producer, which could have profound implications for its economy.
According to the International Monetary Fund (IMF), Uganda's crude oil reserves are estimated at 6.5 billion barrels, making it the fourth largest in sub-Saharan Africa, following Nigeria, Angola, and South Sudan. Of these reserves, 2.2 billion barrels are considered recoverable. The development of these reserves is progressing through the Kingfisher and Tilenga projects, with production expected to commence in late 2025.
However, the timeline for production remains uncertain, with some analysts suggesting that delays could push the start date to late 2026. Such setbacks could significantly affect the anticipated positive impacts on economic growth and the country's fiscal and external positions. Uganda's economy, which has shown resilience in the face of challenges like the COVID-19 pandemic, stands to benefit greatly from the influx of oil revenue.
Despite the promising outlook, several risks loom over Uganda's oil ambitions. Delays in the East African Crude Oil Pipeline (EACOP) project, which is designed to transport crude oil from Uganda's Lake Albert oilfields to the port of Tanga in Tanzania, could hinder progress. The EACOP has faced considerable opposition from environmental groups and financial institutions due to concerns about its environmental impact. Nevertheless, the project is expected to be completed by 2026.
Additionally, the Ugandan government has been grappling with economic challenges, including a public debt that reached approximately 54% of GDP in 2024. The public debt to public revenue ratio was above 350%, indicating a precarious fiscal situation. However, the IMF anticipates that the onset of oil production will lead to a fiscal surplus and a reduction in public debt.
Furthermore, Uganda's current account deficit remains a concern, although it is expected to improve with the advent of oil exports. The country has seen an uptick in current account receipts due to rising coffee exports, high gold prices, and recovering remittances and tourism receipts, but these factors are not sufficient to offset the increase in imported goods related to oil project investments.
In the energy sector, Uganda's largest electricity distributor, Umeme, recently declared a formal dispute with the government regarding compensation following the end of its 20-year concession agreement. The government informed Umeme in December 2022 that it would not renew the license when it expired in 2025. Umeme has asserted that the buyout amount should be around USD 234 million, significantly higher than the USD 118.38 million paid by the government for unrecovered investments.
In the realm of international relations, Uganda is keen to explore strategic ties with Sarawak, Malaysia, particularly in oil, gas, and agriculture. Dr. Betty Oyella Bigombe, Uganda’s High Commissioner to Malaysia, emphasized the importance of tapping into Sarawak’s expertise in gas separation and oil refinery development. She noted that Uganda is still in the early stages of refinery construction and is eager to learn from Sarawak's experience.
"In terms of agriculture, there are many things we can share with Sarawak. We are involved in coffee cultivation, dairy production, as well as oil palm," Bigombe stated during a recent meeting with Sarawak's Premier Datuk Patinggi Tan Sri Abang Johari Tun Openg.
Furthermore, both parties discussed opportunities in tourism, highlighting the potential for collaboration given their respective strengths in this sector. Bigombe extended an invitation to Sarawak officials for a working visit to Uganda to further strengthen bilateral relations.
Uganda's energy landscape, dominated by 86% hydroelectricity, mirrors Sarawak's energy structure, making it an ideal platform for collaboration. Datuk Dr. Hazland Abang Hipni, Sarawak's Deputy Minister for Energy and Environmental Sustainability, acknowledged the strategic potential of Uganda's oil and gas sector and indicated that state-related companies should explore opportunities in this area.
While the outlook for Uganda's economy appears positive, several challenges remain. The country faces risks such as the potential for large fluctuations in oil prices and the so-called "resource curse," where countries rich in natural resources often experience less economic growth and poorer development outcomes. Additionally, the Anti-Homosexuality Act, signed into law in 2023, has led to international repercussions, including the suspension of new public financing from the World Bank and Uganda's removal from the African Growth and Opportunity Act (AGOA).
Moreover, climate change poses a significant threat to Uganda, particularly given its reliance on agriculture. Frequent floods and droughts, combined with high poverty levels, exacerbate this vulnerability. The ongoing instability in the eastern Democratic Republic of the Congo (DRC) also presents security and humanitarian challenges, complicating Uganda's position in the region.
Despite these challenges, analysts maintain a cautiously optimistic outlook for Uganda's economy, particularly with the expected improvements driven by oil production. The country's medium-term prospects appear supported by the anticipated boost in oil revenue, which could lead to enhanced fiscal stability and economic growth.
As Uganda navigates this complex landscape, the interplay between its domestic policies, international relations, and economic development will be crucial in determining the success of its oil ambitions and overall economic trajectory.
