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Limited Access to Credit Hindering Local Companies in Oil Sector

Valeriya Goffe, one of the authors of the report, notes that local Oil and Gas suppliers still considered risky to lend to and often, they also lack acceptable collateral if they are to borrow.
29 Jan 2015 07:46

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A World Bank report has indicated that local firms seeking to participate in Uganda\'s oil sector have a mountain to climb in accessing loans. The report “Leveraging Oil and Gas industry for the development of a competitive private sector in Uganda” released yesterday indicates that the banking system in Uganda doesn\'t favor small enterprises.

 

Valeriya Goffe, one of the authors of the report, notes that local Oil and Gas suppliers still considered risky to lend to and often, they also lack acceptable collateral if they are to borrow.

 

//Cue in: So first of all…

Cue out: …hard to verify and so it going to be quite difficult//

 

The report also highlighted that the problem is not limited to small oil and gas suppliers, but rather almost all local lenders.

 

Compared to the region, Uganda has a lower ranking compared to Kenya and Tanzania in-terms of lending to local private sector. Only 15.5% of the domestic credit is disbursed to Uganda\'s private sector as a percentage of GDP. Kenya stands at 37% and Tanzania at 18%.

 

Additionally, credit in Uganda is still considered expensive at least according to the World Economic Forum Global Competitiveness Report of 2014/15. Uganda is ranked 121 out of 144 compared to Kenya and Rwanda at 68 and 65 respectively.

 

Interest rates in Uganda are still above the 20% mark and the level of loan defaults increased in the last two years according to Bank of Uganda. This slowed credit uptake as banks slowdown on lending to people they consider risky.

 

The World Bank report points to possible solutions to this in the next 1 to 2 years, if the local oil and gas sector suppliers are to tap opportunities.

 

//Cue in: As we talk about it here…

Cue out: …capital markets reform could also provide resources//

 

However, an official from Tullow Oil at the report launch noted that even with access to credit being eased, the task for Ugandan companies is to have the ability to compete during with international companies.

 

//Cue in: Competitive tendering…

Cue out: …as a supplier in this industry//

 

For the second year running, the government is yet to come-up with the National Content Policy, aimed at guiding the sector on how Ugandans can tap opportunities in the sector. Fred Kabagambe Kaliisa, the Permanent Secretary in Ministry of Energy in a speech read by Fred Kabanda, Head of the Regulatory Unit by PEPD, made reference to the policy being fast-tracked but did not give any timeline.

 

“The National Content Policy will guide the Government, Licensees, Operators, Oil Service Companies and other key stakeholders in the identification, planning, implementation, monitoring and evaluation of National Content development in the country,” Kaliisa\'s speech reads. 

 

Credit is just one of those challenges faced by the local suppliers, with others cited in the report being the high standards set by oil companies, small companies also lack proper knowledge on how to prepare bids and inadequate infrastructure.

 

However, Emma Mugarura, the CEO Association of Uganda Oil and Gas Suppliers said that International Oil Companies are not providing information on contracts, which ends up sidelining the local suppliers.

 

//Cue in: If you say…

Cue out: …otherwise there will be a vacuum//

 

This is complaint they have had for a while, with oil companies constantly denying this favoritism.

An official from Total E&P also revealed that that by July 2015, the Industrial Enhancement Centre to develop the capacity of local suppliers will be complete and handed over to government. This was highlighted in the Industrial Baseline Survey (IBS) released in April 2014 by Total, CNOOC and Tullow as one of the ways to build the capacity of local supplier.

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