oil and gas sector research in uganda -constraints and opportunities for smes
TRANSCRIPT
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CONSTRAINTS AND OPPORTUNITIES FOR SMEs
INVESTMENT IN UGANDA’S OIL AND GAS SECTOR
DRAFT RESEARCH REPORT
GRANT TITLE TA - 10 – 093
August, 2011
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Executive Summary
This Study on “Constraints and Opportunities for SMEs in Uganda’s Oil and Gas Sector,” was undertaken under the auspices of the ICBE Trust Africa Fund to strengthen the current policy framework by proposing actions that will enhance SME investment in the Oil and Gas sector. The study thus investigated key actors in the Oil and Gas value chain, potential linkages/partnerships between the existing Large Oil companies and local Small and Medium Sized Enterprises, factors that influenced SME decisions and willingness to invest in the Oil and Gas value chain and recommended policy and non policy actions that favour local Small and Medium sized Enterprises (SMES) participation in the Oil and Gas sector. A total of 220 legally registered SMEs were purposively selected from a cross section of sectors such as Agriculture, Finance Services, Accommodation and Catering Services, Construction and Clearing and Forwarding, Wholesale and Retail Trade. These enterprises were selected from the study areas – Buliisa, Gulu, Hoima, Masindi and Kampala Districts. The study was both quantitative and qualitative in nature and utilized both participatory and questionnaire approaches. The Questionnaire was administered to SMEs and one on one interview with the SMEs were undertaken to obtain accurate responses to the Questions. A checklist of questions was also used by the Research Team to interview key government institutions, selected local domestic companies doing business with the Oil Companies as well as the existing Oil companies. Data was collected, edited and analysed using N-VIVO and the Statistical Package for Social Scientists (SPSS). In order to determine the actors in the value chain the study used the Systems Model. The Logit model was also used so as to predict SME willingness to investment in the Oil and Gas sector. The main study findings of the research are as follows: The main actors in the petroleum value chain are Government, TNCs, large scale direct service providers with minimal involvement of SMEs mainly providing indirect services such as Catering, logistics, agricultural produce supply and unskilled casual labour. Main service providers in the SME category however are mainly located in Kampala with a limited number of SMEs in the other study areas. The potential Business partnerships that can be generated include but not limited to Wholesale and Retail Trade services, Accommodation and Food services, Manufacturing, Transport and Storage services , Human Health/medical and Social Work services and the Agricultural food produce though majority of the enterprises were found to be operating on a micro scale. Results from the Chi-square test show a number of factors that are positively associated with SME willingness to invest in the oil and gas sector. These include the size of investment capital, owning fixed assets, having knowledge of the oil business; time spent in business, receiving information, access to power, access to other infrastructure such as roads, water and financial institutions, access to credit and cost of capital.
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The study therefore recommends that Business Linkages between TNCs and SMEs need to be strengthened as a strategy for upgrading local supply, production and distribution capabilities of SMEs.
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Table of Contents
List of Acronyms ........................................................................................................................................... 6
List of figures ................................................................................................................................................ 7
List of Tables ................................................................................................................................................. 8
CHAPTER ONE: INTRODUCTION ........................................................................................................ 9
1.1 Background ................................................................................................................................... 9
1.2 Problem Statement ...................................................................................................................... 11
1.3 General Objective ........................................................................................................................ 12
1.3.1 Specific Objectives .............................................................................................................. 12
1.4 Research Question ....................................................................................................................... 13
1.5 Conceptual Framework of the Study ........................................................................................... 13
Figure 1.1: Conceptual framework for SMEs’ willingness to invest in oil and gas sector ......................... 14
CHAPTER TWO: METHODOLOGY ...................................................................................................... 16
2.1 Introduction ....................................................................................................................................... 16
2.2 Study Design and Scope .................................................................................................................... 16
Figure 2.1: Map of the Albertine Graben .............................................................................................. 17
2.2.1 Research Phases .................................................................................................................. 18
Figure 2.2: Petroleum value chain ......................................................................................................... 18
2.2.2 Data collection, Processing and Analysis ................................................................................... 21
2.3 Study Limitations .............................................................................................................................. 30
CHAPTER THREE: PRESENTATION AND DISCUSSION OF FINDINGS ........................................ 32
3.1 Current Key Actors in the Oil and Gas Value Chain ................................................................. 32
3.1.1 Nature of Opportunities available and Potential Actors at the different Value Chain levels ..... 32
3.1.2 Current status of Uganda’s Oil and Gas value chain ........................................................... 34
3.2 Factors that affect SMEs decisions and willingness to invest in oil and gas value chain ........... 35
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3.2.1 SMEs Distribution and Economic Profiles .......................................................................... 35
3.2.2 Economic Profiles of the Studied SMEs ............................................................................. 37
3.2.3 Factors that hinder SMEs willingness to invest .................................................................. 38
3.3 Current Partnerships between SMEs and TNCs .......................................................................... 40
3.4. Potential Investment and Partnership areas for SMEs in the Oil and Gas Value Chain ............. 40
Figure 3.1: Services demanded in the Upstream Petroleum activities ........................................................ 41
Figure 3.2. Current actors in the Uganda oil and gas value chain and their interlinked relationships. ....... 42
3.4 Role played by Other Actors ....................................................................................................... 43
3.4.1 Credit institutions ....................................................................................................................... 43
3.4.2 Local media houses .................................................................................................................... 44
3.4.3 Administrative and Political institutions .................................................................................... 44
3.4.5 Perceived expected benefits from Oil Trade in the studied districts ................................... 44
CHAPTER FOUR: POLICY IMPLICATIONS OF THE FINDINGS ....................................................... 46
4.1 Preliminary Review of the Petroleum Bill .................................................................................. 46
4.2 Policy Implications ...................................................................................................................... 46
References ................................................................................................................................................... 48
Appendix – Research Questionnaire ........................................................................................................... 50
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List of Acronyms
UIA UGANDA INVESTMENT AUTHORITY URA UGANDA REVENUE AUTHORITY MEPD MINISTRY OF FINANCE, ECONOMIC PLANNING AND DEVELOPMENT BoU BANK OF UGANDA UBoS UGANDA BUREAU OF STATISTICS UNBS UGANDA NATIONAL BUREAU OF STANDARDS UWA UGANDA WILDLIFE AUTHORITY NEMA NATIONAL ENVIRONMENT AUTHORITY PPDA PUBLIC PROCUREMENT AND DISPOSAL AUTHORITY SMEs SMALL AND MEDIUM SIZED ENTERPRISES TNCs TRANSNATIONAL CORPORATIONS NAADS NATIONAL AGRICULTURAL ADVISORY SERVICES MEMD MINISTRY OF ENERGY AND MINERAL DEVELOPMENT
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List of figures
Figure 1.1: Conceptual framework for SMEs’ willingness to invest in oil and gas sector
Figure 2.1: Map of the Albertine Graben
Figure 2.2: Petroleum value chain
Figure 3.1: Services demanded in the Upstream Petroleum activities
Figure 3.2. Current actors in the Uganda oil and gas value chain and their interlinked
relationships.
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List of Tables
Table 2.1: Institutions identified to provide information on actors in the Petroleum value chain
Table 2.2: Primary data collected from TNCs, Private Associations, Ministries and Government
Institutions
Table 2.3: Distribution of the selected SME respondents by sector and district
Table 2.4: Key variables collected from the different respondents/SMEs in the various sectors
Table 2.5: Description of the variables and proxies used in the willingness to invest logit model
Table 3.1: Enterprise distribution per District
Table 3.2: Distribution of SMEs by sector
Table 3.3: Business profile of the sampled SMEs
Table 3.4: Association between Willingness to Invest and hypothesized internal and external factors Sector (n=193)
Table 3.5: SME responses on perceived investment hindering factors
Table 3.6: Local People’s Perceived Benefits from oil discovery and trade
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CHAPTER ONE: INTRODUCTION
1.1 Background
By end of 2010, Africa had proven oil reserves of 132.1billion barrels (9.5 % of the World's total
reserves), ranking fourth after Europe and Eurasia, South and Central America and Middle East
whose reserves were estimated at 139.7 billion barrels, 239.4 billion barrels and 752.5 billion
barrels respectively (Statistical Review of World Energy, 2011). In the same period World Oil production
stood at 82,095,000 barrels per day (bpd), with Africa producing 10,098,000 barrels (12.2
percent) of total world production. The top five Africa's Oil producers in order of decreasing
output by 2010 were Nigeria (2,402,000 bpd), Angola (1,851,000 bpd), Algeria (1,809,000 bpd),
Libya (1,659,000 bpd), and Egypt (736,000 bpd) (Statistical Review of World Energy, 2011).
Petroleum exploration activities in Uganda date back to geological mappings developed in 1925.
Thirteen years later a deep well revealed some hydrocarbons although it was not tested. Between
1940 and 1980 minimal petroleum drilling activities were carried out mainly due to the political
turmoil in the country but the efforts were rejuvenated between 1983 and 1992. In that period,
five potential sedimentary basins were identified but the Albertine Graben has since been the
most prospective.
In 2009, Uganda’s oil reserves in the Albertine Graben region were estimated at 2 billion barrels
of Oil Equivalent but the reserves were anticipated to increase in view of the fact that exploration
is on-going (National Planning Authority, 2010). Although Uganda meets all its petroleum
needs, the demand for petroleum continues to grow rapidly with the import bill in 2010 standing
at $ 917 million1 from $ 527 million in 2006. Petroleum export earnings have also recorded
growth in the last five years reaching $ 72 million in 2009 from $ 36 million in 2006 (Uganda
Bureau of Statistics, 2011). Oil discovery gives hope to Uganda, a country ranked the 21st
poorest country in the World (Aneki, 2010) and ranked 91 among 135 countries in respect to
1 Petroleum constitutes the highest import value of Uganda’s imports. In 2009 and 2010 the percentage stood at 17 and 19 per cent
respectively of the national imports
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human poverty (United Nations Development Programme, 2009). The proportion of people
living below the poverty line in 2005/06 stood at 31 percent with projections to reduce to 24.5
percent in 2014/15 (United Nations, 2007). Given the recent volatility of oil prices, it is difficult
to estimate Uganda’s likely revenues from oil. Yet whatever the oil price, if production goes
ahead without hitches, the country’s budget looks likely to receive a major windfall – potentially
doubling or even tripling the current export earnings. Such a boost to national income offers
Uganda a unique and exciting chance to alleviate poverty and create broad-based development
and improved standards of living (International Alert, 2010).
The oil resources are expected to elevate Uganda amongst the top 50 producers2 of oil in the
World, and among the foremost African oil producers. Petroleum operations have seen
emergence of various business opportunities in the upstream, mid stream and downstream and
these are expected to expand as the oil and gas sector grows. The huge business potential in the
sector has consequently attracted substantial Foreign Direct Investments from about $ 3 million
in 1998 to $ 436 million in 2009, with over $ 900 million invested in seismic and drilling of
wells. Despite positive investment trends recorded in the sector, local participation in terms of
investment is still negligible.
The Oil and Gas sector has cross-cutting linkages with all sectors in the economy as it acts both
as an input in production and a facilitator of production and distribution. However, in much as all
the sectors are important, great emphasis needs to be placed on building the capacity of the Small
and Medium sized Enterprises (SME) sector that transcends all the sectoral boundaries in the
production, distribution and marketing channel. According to Ariyo (1999) and Ihua (2005)
SMEs are the backbone, key drivers, engine – room and catalyst of economic development in
several countries because they generate wealth, provide products and services, generate
employment and better standards of living (OECD, 2000). For Uganda’s economy, the SME3
2 Brian Glover, Tullow oil country manager for Uganda, quoted in ‘Tullow oil: new drilling could put Uganda in top 50 producers’ , 20th February
2009 3 A Small Enterprise is an enterprise employing maximum 50 people with an annual turnover of approximately $ 215,000; while the Medium
Enterprise is an enterprise employing more than 50 people with an annual turnover of more than approximately $ 215,000 (Business in Development (BiD) Network, 2008). SMEs are enterprises which employ fewer than 250 persons and have an annual turnover not exceeding 50 million Euros (European Commission, 2005). Although there are varied definitions of SMEs, all of them define SMEs as registered enterprises of a certain level of capital investment and headcount at a certain threshold. In this research study, SMEs will be defined as enterprises registered with the Registrar of Companies, have Capital Investment of between $ 25,000 – $ 50,000 and create at least 5 permanent jobs.
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sector clearly has no boundaries and has proved to be a major sector to reckon with in order to
address the country’s policy development and poverty eradication initiatives. SMEs play a vital
role in Uganda’s economy and are currently estimated at 800,000 in urban and rural areas
(Common Wealth Secretariat, 2007). They account for 90 percent of the private sector4 and
employ over 2.5 million people. SMEs have not only generated new jobs but also contributed to
income generation, especially for the poor. Though the Oil and Gas sector presents opportunities
for the private sector, Government policy makers in their efforts to address the development
challenges of the country, require specific interventions to ensure that local small and medium
sized enterprises usurp the opportunities ushered in by the emerging sector.
1.2 Problem Statement
Oil and Gas resources can be a source of growth and development if efficiently managed and
exploited. Since the discovery and confirmation of the Oil resource in 2006, Uganda is deemed
as Africa’s hottest inland exploration frontier (International Alert, 2009). The current oil resource
stands at 800 million barrels but is expected to increase to about 2 billion barrels with further
exploration activities (Ministry of Energy and Mineral Development, 2010). The sector has
attracted large international oil companies which have invested in exploration and production
activities that grew from US$ 46 million in 2006 to US$ 352 million in 2010 with the
accumulated values of investment standing at $ 1,128 million (Byaruhanga et al., 2011).
In line with the ongoing petroleum developments, several commendable initiatives have been
undertaken by Government to create an enabling investment environment in the sector. Transport
infrastructure connecting to exploration sites has been improved, the National Oil and Gas Policy
was developed, the draft study for the development of local content was completed and the
Petroleum Bill has also been drafted.
The sector presents numerous investment opportunities for the large, small and medium
companies but minimal efforts have been undertaken to profile potential income generating
opportunities and constraints that may deter the SMEs from investing in the sector. According to
4 Development of a National Micro, Small and Medium Enterprises (MSMEs) Policy and Strategy, Draft report 2007
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the African Development Bank and African Union (2009), Governments must ensure that all
citizens have equitable opportunities to access and use natural resources. Heum et al. (2003)
noted that there exists several opportunities in the industry, through which small firms can seek
participation and contribute to economic growth. According to Warner (2007), several Oil rich
countries have failed to translate their oil wealth into economic sustainability and higher
standards of living and literature abounds on the issues of ‘resource curse’ and ‘Dutch disease.’
Ugwushi (2010) noted that in Nigeria, the Oil and Gas industry has served as the main stay since
1950s but very little proportion of the accruable profit is available to indigenous oil firms. The
imbalance according to Aneke (2002) and Ariweriokuma (2009) is explained by the inadequate
local content and internal indigenous constraints such as lack of requisite skills, technical
expertise, manpower and production capacity. Heum et al. (2003) summarized the constraints as
low technological capacity; lack of funding from financial institutions, inadequate and incoherent
policies/legislation; inadequate infrastructure; unfavorable business climate; and lack of
partnerships between indigenous contractors and technically competent foreign companies.
In light of the above, this study sought to find out the actors, emerging opportunities with the oil
discovery, areas of potential partnership and factors likely to affect SME decisions and
willingness to invest in the oil and gas value chain with the view of identifying the constraints
and proposing possible actions for addressing them so as to facilitate SME to invest in the sector.
1.3 General Objective
The general purpose of the study was to identify opportunities in the oil and gas value chain to
enhance increased SME investment in the sector.
1.3.1 Specific Objectives
1.To find out key actors in the Oil and Gas sector value chain;
2.To determine factors likely to influence SME decisions and willingness to invest in the Oil
and Gas value chain;
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3.To find out business partnerships that would be created between SMEs, Trans National
Corporations and other actors in the Oil and Gas sector;
4.To propose actions to address the constraints hindering SMEs from exploiting the
identified opportunities in the Oil and Gas Sector.
1.4 Research Question
The research questions that guided this study were to determine
1.The potential actors in the upstream, mid stream and downstream stages of the oil and gas
value chain.
2. The factors that would influence SME decisions and willingness to invest in the oil and
gas sector.
3.The likely business partnerships with Trans National Corporations and Government in the
Oil and Gas sector.
4. The policy and non policy actions to address the challenges in the sector.
1.5 Conceptual Framework of the Study
The philosophical assumption adopted by the study was the willingness to invest model. The
model establishes the relationship between internal and external factors that influence SME
willingness to invest (Figure 1.1). The model further explains how SMEs with a certain level of
willingness to invest (WTI) decide whether to invest or not to do so (IFPRI, 2009). The model
has been successfully used by Castlepines Corporation, an International investment Company
dealing in a broad range of infrastructure assets and in India to study the carbon credits for
energy self sufficiency in rural India (Babu et al., 2009).
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Figure 1.1: Conceptual framework for SMEs’ willingness to invest in oil and gas sector
Key
Full block lines = Direct relationships Dotted lines = Indirect relationships H1, 2, 3 & 4 = Hypothesis directions
Source: Researchers
The research team critically analysed internal factors that would influence SME decisions to
invest such as capital base, volumes purchased sales trends, price trends, current size of
customers, potential size of customers and business stability. External factors such as cost of
credit, ability to meet quality standards, nature of physical infrastructure, access and reliability of
power and availability of information influenced SME willingness to invest or not to invest in
the sector. The study examined the extent to which Transnational Corporations (TNCs) involved
in Oil prospecting and exploration and intervening variables such as the Oil and Gas Policy,
H2 H1
H3 H4
SME internal factors
• Capital base
• Volumes purchased sales trends • Price trends
• Current size of customers/customer base
• Potential size of customers
• Business Stability
SME external factors • Cost and access to Capital
• Quality standards
• Physical infrastructure
• Reliability/access to Power
• Availability of information
• Transnational corporations in Oil Prospecting and Exploration activities
• Large Oil Importers and Distributors
Intervening Government Policy variables:
• Oil and Gas policy framework and petroleum legislations
• Taxation policies and tax incentive regime on Oil operations
• Inflation
• Exchange rate
• Procurement Regulations
Other actors
• Services Provision (Transportation, Logistics, Maintenance –plumbing, road construction electricians and mechanics, micro financing/foreign exchange bureaus, Catering, supply of hardware merchandise, real estate developers, consultancy services, vocational training, Health services/clinics)
Willingness of SMEs to invest in the Oil and Gas
sector
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Petroleum Bill, Tax policies, Incentive regime and Procurement legislations influenced SME
willingness to invest or not to invest in the sector.
In addition, existing SMEs that are not directly involved in the current oil and gas value chain
but are undertaking business activities such as logistics, clearing and forwarding, transport,
catering, equipment supply and servicing, micro financing, consultancy, agricultural product
supply, metal fabrication and trading were studied in order to examine their willingness to invest
or not to invest in the Oil sector.
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CHAPTER TWO: METHODOLOGY
2.1 Introduction
This study conformed to applied research that involved government and the private sector. The
study’s ultimate objective was to identify the different key actors in the upstream, mid stream
and downstream stages of the oil and gas value chain, underpinning the role and position of
SMEs investing in the oil value chain, identification of factors that influence SME decisions and
willingness to invest whilst identifying policy and non policy actions to address the challenges
and strengthening the existing oil policy/legislations to enhance SME investment. This chapter
summarises the study design used, the study areas, sampling procedure, data collection and
analysis including limitations to the study.
2.2 Study Design and Scope
To achieve the study objectives a Cross-Sectional Survey Design was used. In a survey, data is
collected at one point in time from a sample selected to represent a larger population. The cases
used were SMEs such as those in Agriculture, Hotel and Catering Services, Real Estate and
Construction, General merchandise trade, Petroleum products trade, Fabrication and Service
Provision within the 5 districts of the study. The chosen study design was appropriate to
accommodate diversity and provide enriched and refined data. Participatory Appraisal methods
were used to collect both qualitative and quantitative data for the study. Participatory approaches
conferred an added advantage of rapid but enriched data collection saving on time and monetary
resources that would have been enormous otherwise.
The research study was carried out in selected districts within Bunyoro and Acholi sub-regions
of the Albertine Graben (Figure 2.1). The districts covered are Gulu, Hoima, Masindi, Buliisa
and Kampala District. Gulu is located in the Acholi region while Buliisa, Hoima and Masindi
districts are located in Bunyoro region. Amuru5 and Buliisa are new Districts and did not have
substantial number of SMEs that fit into the SME definition of the study.
5 Although Amuru District was initially targeted in this study, on visiting the district most enterprises were micro and very few were found to fit into the definition of the study. SMES of the district therefore were excluded in the sample.
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Figure 2.1: Map of the Albertine Graben
The selection of the
Albertine as a study site
was based on the fact
that out of Uganda’s six
sedimentary basins, the
Albertine Graben is the
most prospective site
where exploration
activities by the large
oil companies namely
Tullow Oil, Dominion
Petroleum and Neptune
Petroleum are ongoing
(Ministry of Energy
and Mineral Resources,
2009).
Kampala District was added because it is the commercial hub of the country where most (over 70
percent) of the business enterprises including SMEs do their business (Uganda Investment
Authority, 2010). The study analyzed potential opportunities arising out of the emerging oil
discovery, including potential areas of partnership with the TNCs and the factors likely to impact
on the willingness of the SME to invest. Emphasis was put on understanding the internal and
external factors that may hinder and/or favour SME investment with the view to propose actions
that may overcome the hindering factors. The research was conducted in phases including
diagnostic phase, data collection, data analysis and results reporting, and dissemination that will
take place later.
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Oi l & Gas resources
Tradi ng
Fi nanc ing
R&D
Process chem ical s
Agric &
Manufacturing
Reserves devel opment
Oi l & gas production
Transport & storage
Oil Field servic es and
Equipment
Oil ref ini ng
Petrochem ical s
Gas processing
Transport & storage
Gas
m arketing/ distribution
Transport & storage
Oil marketing & distributi on
2.2.1 Research Phases
For efficient work breakdown, the study was subdivided into three phases: The diagnostic phase,
data collection phase, and data analysis and results reporting. The fourth phase will be
dissemination of the finding to stakeholders.
Phase 1: Diagnostic phase
This phase started with identification of the key actors in the petroleum value chain as illustrated
in Figure 2.2.
Figure 2.2: Petroleum value chain
Source: World Bank, 2009
The study utilized the value chain that tends to capture the sequence of consecutive activities
required to bring a product from the conception stage through the different phases of production
and distribution up to the final consumer. Porter (1985) refers to the interlinked clusters of firms
as value systems that usually involve suppliers, distributors, sellers and customers. The oil and
gas sector is expected to create value in other sectors; as such the study considered the industry
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value chain for the oil and gas sector in identifying potential sectors. Taking advantage of these
opportunities also required identifying and addressing internal and external constraints firms
were likely to face from the upstream, midstream and downstream in case they ventured into
these areas.
From the petroleum value chain, the research team was able to identify relevant sectors and
stakeholders directly and indirectly linked to the value chain. It is from these sectors and
stakeholders that data was collected. Table 2.1 shows institutions/sources from which secondary
data was collected. The issues from the discussions held with the stakeholders translated in major
themes and subtopics in designing questionnaire. The information also contributed to
identification of respondent categories and how to reach them.
Table 2.1: Institutions identified to provide information on actors in the Petroleum value chain
Organisation Data collected
Uganda Registration Services
Bureau (URSB)
Officially registered SMEs, physical addresses and main
contacts in the study districts
Uganda Revenue Authority
(URA)
SMEs tax payers category and various business operations
they are involved in
Public Procurement and
Disposal of Public Assets
Authority (PPDA)
Enterprises registered under the PPDA
Services provision to Government and TNCS
national standards/ requirements for supplying services to
Government
Uganda Investment Authority
(UIA)
List of local enterprises by sector, investment value, year
of licensing to measure age and areas of operation business
Ministry of Energy and
Mineral Development
(MEMD)
Licensed TNCs involved in Oil prospecting and exploration
activities, large oil importers and distributors in the study
areas
National Agricultural Advisory
Services Programme
List of agricultural food suppliers in the study areas and
their operation capacity
District Administration – List of enterprises in the district to compare with
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production and commercial
section
information obtained from other sources.
Uganda Clearing and
Forwarders Agents Association
Name list of clearing agents likely to tap opportunities in
the oil sector
Uganda Hoteliers Association Name20list of caterers and restaurants likely to tap
opportunities emerging in the oil sector, standards required
to operate in the sector
Bank of Uganda Name list of registered micro financing institutions and
foreign exchange bureaus, certifications, standard
requirements necessary to operate business.
National Drug Authority
(NDA) and Uganda Medical
and Dental Practitioners
List of health providers and pharmacies in the study areas,
health/drug quality standards and certifications
National Environment
Management Authority
(NEMA)
List of environmental consultancy practitioners in study
areas, environment quality standards and certifications.
Enterprise Uganda (EUg) List of metal fabricators, plumbers, electricians and
mechanics in the study areas.
Uganda Small Scale Industry
Association
List of metal fabricators/ artisans
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Phase 2: Data collection
This phase started with development of informative research tools (questionnaire, interview
guides and checklists,) and pre-testing them. The purpose of pre-testing was to check for
accuracy, precision, consistency and adequacy of the research tool in measuring the intended
variables during data collection. After pre-testing with a smaller knowledgeable group of 25
respondents, the final questionnaire was agreed upon by the research team and used to collect
data.
Phase 3: Data analysis and results reporting
Data collection was followed by data processing and analysis in line with the study objectives. A
draft report was compiled explaining and discussing the preliminary findings. Analysis and
interpretation of results is ongoing that will enable the research team to draw logical conclusions
and recommendations.
Phase 4: Dissemination Phase
The findings of the study will be disseminated to stakeholders in workshops in November and
mid December 2011. The report will be revised based on stakeholder comments and the final
report will be re-submitted to ICBE end of December 2011.
2.2.2 Data collection, Processing and Analysis
2.2.2.1 Sample Selection
The sampling frame included all existing SMEs in various sectors in the study areas, private
sector associations, ministries and public agencies. The major assumption considered was that all
the SMEs in the area have equal chances to be attracted to invest n the oil and gas sector in the
region should opportunities emerge. For Objective 1; concerning identification of key actors in
value chain, the entire population was considered while for the other objectives stratified random
sampling was used. Stratified random sampling was considered over the non-probabilistic
methods because of its sampling error reducing power. Using this method, the entire diverse
SMEs population was reduced to clusters (strata) making sampling more representative and
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simpler. The different sectors with direct and indirect relationship to the petroleum value chain
formed the basis for stratification. These sectors included Agriculture, Hotel and Catering
Services, Real Estate and construction, Manufacturing and Fabrication were the strata. The
research team first identified the relevant strata and their actual representation in the population
after which random sampling was used to select a representative number of subjects from each
stratum.
From the selected government agencies and ministries, private sector associations and existing
TNCs investing in the Oil and Gas sector, data on general opportunities that have emerged with
the oil discovery and potential areas for business partnership with Government and TNCs were
collected to address objectives 3 and 4 of the study.
Table 2.2 shows the institutions to which the interviews were conducted and the data that were
required from them.
Table 2.2: Primary data collected from TNCs, Private Associations, Ministries and Government
Institutions
Institution Data collected Method used in
data collection
TNCs currently prospecting and carrying out exploration in the oil and gas sector
• Opportunities for SMES that have emerged with the Oil discovery
• Potential investment areas for partnership with SMEs;
• Company policy and standard requirements in the identified area of partnership;
• Perceptions on the Oil and Gas Policy and Petroleum regulation, tax/incentive regime and its effects on TNC operations and possibility of partnerships with SMEs;
• Factors that may deter SMEs from creating business partnerships with TNCs
• Propose actions to solve challenges mentioned above
Interviewed two prospecting and exploration companies – Tullow Oil and Neptune
TNCs importing and distributing Petroleum but also doing business with the prospecting
• Potential investment areas for partnership with SMEs;
• Company policy and standard requirements in the identified area of partnership;
• Perceptions on the Oil and Gas Policy and
Interviewed Total E and P
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companies Petroleum regulation, tax/incentive regime and its effects on TNC operations and possibility of partnerships with SMEs;
• Factors that may deter SMEs from creating business partnerships with TNCs
• Propose actions to solve challenges mentioned above
Ministry of Energy and Mineral Development
• Procurement regulations on local contracts for especially SMEs,
• Business opportunities and potential areas for SMEs to partner with Government in the sector
• Local Content Study, Draft Petroleum Bill
• Some of the known enterprises doing business in the sector
• Propose actions (policy/non policy) on how to promote SME investment in the sector.
Interviewed three respondents
Ministry of Finance Planning and Economic Development
• Tax policy and incentive regime for oil operations and its influence on SMEs investment,
• Proposals of how to enhance SME involvement in the sector
• Perception on the National oil and gas policy and whether it enhances SMEs investment in the sector;
Interviewed two respondents
Enterprise Uganda • Access to Oil information to enhance SME investment, Perceptions on whether SME concerns are addressed in the National Oil and Gas policy, Challenges that may affect SMEs from exploiting oil opportunities
• Policy actions/non policy actions to improve SME investment in the sector
Conducted one interview
O1 Member Uganda National Chamber of Mines and Industry
• Investment opportunities for SMEs in the Oil sector
• Perception of the current laws, policies, and programmes that support SME Investment
• Policy actions/non policy actions to improve SME investment in the sector
Conducted one interview
Uganda Investment Authority (UIA)
• Perception of the investment regime and SME investment in the oil sector
• SMEs constraints that may affect their ability to invest in the oil sector
• Policy actions/non policy actions to improve SME investment in the sector
Focused Group Discussion
24
Uganda National Bureau of Standards
• Quality specifications, certifications, procedures, and how they impact on SME investment
Conducted one interviews
Private Sector Foundation Uganda (PSFU) and Uganda Manufacturers Association
• Specific programmes that support SME investment
• Perception of impact of the Oil and gas policy on SME investment
• Policy/Non Policy action to support SME Investment
• Constraints that affect SME Investment
• Information availability on Oil and Gas opportunities
Conducted one interview
Public Procurement and Disposal of Public Assets Authority (PPDA)
• Procurement regulations, requirements and costs
• Identify procurement related constraints that may impact on SMEs investment in Oil and Gas.
Conducted one interview
2.2.2.2 Sample size
A total of 270 enterprises were identified for participation in the study from which only 220 were
actually interviewed. The criteria used for screening was based on total capital investment (assets
and working capital) which ranged from 100 million- 1 billion Uganda shillings, existence of a
permanent address for the enterprise and formal registration with municipal authorities in the
region or district. The sample was deemed representative based on available data about
enterprise registration in the sampled regions giving N
n= 0.23, where n = sample population and
N = total enterprise population in the region studied. Table 2.3 shows the distribution of the sub-
samples by sector and location (district) and the total sample size.
Table 2.3: Distribution of the selected SME respondents by sector and district
Sector No. of respondents – SMEs per District
Kampala Masindi Hoima Buliisa Gulu
Freight Forwarding 5 0 0 0 0
Transport (passenger) 3 2 3 1 3
Catering/ restaurants 8 9 7 1 8
25
Consultancy services 4 1 2 0 2
Real Estate and Accommodation
6 8 10 2 9
Micro financing and Foreign Exchange Bureaus
7 3 5 2 3
Agricultural produce
• Processed
• Fresh (Food supply, beef, milk, poultry and fish)
0 5 6 4 6
Health services 8 5 7 1 8
Vocational training 6 3 4 2
Metal Fabrication/Artisans
7 4 4 1 3
Trading (supply of hardware merchandise and equipment)
3 2 3 0 2
Maintenance (plumbers, electricians and mechanics)
10 2 3 0 3
Road construction 16 4 8 3 9
Total number of
respondents 96 45 61 11 57
2.2.2.3 Methods of data collection
In collecting primary data, the study employed two data collection methods namely; personal
interviews and Focus Group Discussions (FGDs). Interview guides and questionnaires were
used as the major data collection tools for the interviews, whereas thematic checklists were used
for the FGDs. Primary data collection mainly targeted information about key and active actors in
the Oil and Gas sector, factors that influence SMEs` decisions and willingness to invest, business
opportunities/business partnerships that have emerged in the oil sector and policy/non policy
actions that can address constraints that will hinder SMEs from investing in the Oil sector. Table
2.4 presents a summary of the key variables collected from the different respondents/SMEs.
Secondary data was collected mainly for triangulation with the primary data and these mainly
26
targeted potential actors in the oil and Gas value chain, anticipated benefits of oil and gas
discovery, related policies and legislation.
Table 2.4: Key variables collected from the different respondents/SMEs in the various
sectors
Sector Data collected
Freight Forwarding Capital base, price trends, current size of customers, availability of physical infrastructure, age of business, access/availability of oil information, awareness of the oil and gas policy/petroleum law, access and cost of capital, willingness to partner/link with large TNCs and government to explore opportunities emerging in the oil sector, awareness of the public procurement regulations
Transport (passenger)
Capital base, price trends, current size of customers, physical infrastructure, age of business, access/availability of oil information, awareness of the oil and gas policy/petroleum law, access and cost of capital, willingness to partner/link with large TNCs to explore opportunities emerging in the oil sector,
Catering/restaurants Capital base, volumes purchased, price trends, current size and potential size of customers, quality standards, infrastructure availability age of business/stability, access/availability of oil information and the oil regulation, access and cost of capital, willingness to expand the business if opportunities in the oil and gas sector emerge, willingness to supply services to TNCs in the event that opportunities emerge
Consultancy services
Capital base, current size and potential size of customers, age of business/stability, access/availability of oil information and the oil regulation, access and cost of capital, willingness to expand the business if opportunities in the oil and gas sector emerge, willingness to provide consultancy services to TNCs and government in the event that opportunities emerge, awareness of the public procurement regulations
Real Estate and Accommodation
Capital base, volumes sold price trends, current size an$ potential size of customers, quality standards, infrastructural issues, age of business/stability, access/availability of oil information and the oil regulation, access and cost of capital, willingness to supply equipment with TNCs engaged in oil prospecting and exploration activities.
Micro financing and Foreign Exchange Bureaus
Capital base, current size and potential size of customers, infrastructural issues, age of business/stability, foreign exchange variations, access/availability of oil information and the oil regulation, access and cost of capital willingness to expand the business to explore emerging opportunities in the oil sector
Agricultural produce Capital base, sales trends, price trends, current size and potential size
27
• Processed
• Fresh (Food supply, beef, milk, poultry and fish)
of customers, quality standards, infrastructural issues, age of business/stability, access/availability of oil information and the oil regulation, access and cost of capital, awareness of the opportunities emerging with the oil discovery
Health services Capital base, sales trends, price trends, current size and potential size of customers, quality standards, quality standards, infrastructural issues, age of business/stability, access/availability of oil information and the oil regulation, access and cost of capital, awareness of the opportunities emerging with the oil discovery, willingness to partner with large TNCs in the oil sector to do business/provide health services.
Vocational training Capital base, sales trends, price trends, current size and potential size of customers, quality standards, quality standards, infrastructural issues, age of business/stability, access/availability of oil information and the oil regulation, access and cost of capital, awareness of the opportunities emerging with the oil discovery, willingness to partner with large TNCs in the oil sector to do business/provide health services
Metal Fabrication/Artisans
Capital base, sales trends, current size and potential size of customers, quality standards, infrastructural issues, age of business/stability, access/availability of oil information and the oil regulation, access and cost of capital, awareness of the opportunities emerging with the oil discovery, willingness to partner with large TNCs in the oil sector to do business/provide health services
Trading (supply of hardware merchandise and equipment)
Capital base, sales trends, price trends, current size and potential size of customers, quality standards, infrastructural issues, age of business/stability, access/availability of oil information and the oil regulation, access and cost of capital, awareness of the opportunities emerging with the oil discovery, willingness to partner with large TNCs in the oil sector to do business/provide health services
Maintenance (plumbers, electricians and mechanics)
Capital base, sales trends, price trends, current size and potential size of customers, quality standards, infrastructural issues, age of business/stability, access/availability of oil information and the oil regulation, access and cost of capital, awareness of the opportunities emerging with the oil discovery, willingness to partner with large TNCs in the oil sector to do business/provide health services
Road construction Capital base, current size and potential size of customers, , Certification, contract/procurement standards, age of business, access to credit, awareness of opportunities in the oil sector, willingness to partner with TNCs or Government
28
2.2.2.4 Data Processing and Analysis
The collected data was cleaned to ensure that only complete interviews are considered for
analysis. After cleaning, the open responses were coded and entered into appropriate software for
analysis. Both qualitative and quantitative methods of data analysis were used to generate
descriptive statistics and econometric results. Qualitative data was analysed using N-VIVO
software, while quantitative data was analysed using Statistical Package for Social Scientists
(SPSS) to obtain the descriptive statistics and econometric estimation of the Logit model.
2.2.2.5 Reliability and validity measure
Reliability tests were undertaken using the Cronbach’s Alpha coefficient to ensure that the
instrument and its variable measurement items are consistent. This measurement has been used
by similar studies such as (Rousson et al., 2002). The items that scored 0.65 and below (only
14% of the total) were excluded based on the list wise deletion criteria and some were replaced
where possible.
To identify the potential actors in the value chain, the Systems Model was used. There are two
choices available for the SMEs to make concerning investment in the oil sector: - to invest or not
to invest. The decision to invest or not to invest by the SMEs is the major question to be
addressed (the dependent variable) and this depends on several factors (independent/exogenous
factors). Since to invest or not is dichotomous, discrete choice econometric models are best
suited for this analysis (Guerre and Moon, 2005). The Logit and Probit models particularly cater
for dichotomous and categorical variables (Payne et al., 2003). The models focus on association
of categorical or grouped data, looking at all levels of positive interaction effects (Goodwin and
Schroeder, 1994). Generally results from both models are simila2 unless the samples are very
large and many observations fall in the tails (Nzomoi et al., 2007). The Logit model is, however,
preferred because it is easier to compute and also it is preferred when repeated observations are
available (Judge et al., 1980). The Logit is as well suited for observational data whereas the
Probit is well suited for experimental data (Mburu et al., 2007). The Logit model was therefore
used in this research study. In this case, the study focused on SMEs/actors that were doing
29
business in other sectors but would be willing to invest in the oil sector because of the emerging
investment opportunities. A reduced form of a Logit model can be expressed as:
Y = α +βi’s +Xi +ε
where Y is dependent variable (Willingness of SMEs To invest il 4he oil and gas sector =1, or
not =0);
α is a constant;
Xi’s are the explanatory variables;
βi’s are a vector of explanatory variable coefficients; and
ε is error term.
For this study, independent variables entered in the model and their hypothesised signs are
shown in Table 2.5. The variables include a set of SMEs characteristics such as capital base
(value of fixed assets), volumes purchased, sales, price trends, current size of customers (number
of customers), potential size of customers (no. of big customers) and business stability (age of
the business). Others are external factors such as access to credit, cost of capital (interest rates),
quality standards (UNBS, NEMA, PPDA and NDA Certifications) physical infrastructure,
(distance to the main road), reliability and availability of power (availability/distance to
power/meter lines). Availability of supportive government policies and regulations (petroleum
regulations, taxation policy and incentive regime) on oil operations, procurement regulations and
contracts were also considered as key variables that could affect a company’s willingness to
invest in the oil and gas sector.
Table 2.5: Description of the variables and proxies used in the willingness to invest logit model
Variable label Variable description Variable Data
form
Hypothesised effect
Cap Capital base (value of fixed assets owned by the company (in Uganda shillings)
Categorical +
Vps volumes purchased and sold Dichotomous +
30
Info. Access to information about contracts and procedure
Dichotomous +
Cred. Access to credit Dichotomous +
Cost. Cost of credit and capital (interest rate) Categorical -
Cust. Size of customers (number of regular customers for the company’s goods)
Categorical +
Pol. Policy awareness Dichotomous +
Infr, Available supporting physical infrastructure
Categorical +
Bus Business stability(number of years of business operation)
Categorical +
Reinv. Percent of profit re-invested annually Categorical +
The coefficients in the logistic regression were estimated using the maximum likelihood
estimation method (Judge et al., 1980) using SPSS. The estimated coefficients (βs) do not
directly indica4e the effect of change in the corresponding explanatory variables on probability
of the outcome occurring but they reflect the effect of individual explanatory variables on its Log
of odds, To this end, a positive coefficient means that the log of odds increases as the
corresponding independent variable increases. It is also right to say that bigger the coefficient
regardless of whether its positive or negative, the bigger the effect of the independent variable on
the dependent.
Prior to running a logit model, a Chi-square test was carried out to examine factors (internal and
external) that are associated to SME willingness to invest in the Oil and Gas value chain which
in this case was treated as the dependent variable. The chi-square test result would then be used
for the first level testing of our hypothesis (in Table 2.5) that SME willingness to invest would
depend on some of these factors. Furthermore, the X2 associations will help in selecting the
explanatory variables that are not correlated to enter into the Logit model. For confirmation of
significant association between the covariate factors and the dependent variable, the Cramer’s V
static and p<0.05 level of confidence was used.
2.3 Study Limitations
The generalisation of the study findings are restricted by a number of limitations in the design,
methods used and geographical coverage. In this study we chose the survey design which is a
one-point kind of measurement meaning it did not consider the time line changes in preferences
31
and perceptions. Probably longitudinal approaches would have been more covering especially
that this study has been carried out prior to full participation by the enterprises. Second, the study
was restricted to only enterprises in the Albertine Graben and Kampala District therefore due to
enterprise diversity else in Uganda, the findings are only interpretable with generalisation only
valid for only the sample areas.
32
CHAPTER THREE: PRESENTATION AND DISCUSSION OF FINDINGS
In this chapter we report preliminary findings of the study based on the collected data through
interviews, Focus Group Discussions (FDGs) and Field Observations. The presentation of the
report is based on the objectives and major study themes or research questions laid out in chapter
one.
3.1 Current Key Actors in the Oil and Gas Value Chain
A Systems Model was used to analyze key potential actors in the value chain. In the analysis,
bias was on the generic Oil and Gas value chain of the World Bank Oil, Gas and Mining
Division (World Bank, 2009). Based on the World Bank model and triangulation with other
sources, for example Nigeria, we divided the value chain into three major stages namely; the
upstream, the middle stream and the downstream.
The upstream level includes Research and Development (R&D), Strategic Planning and
Procurements for oil reserve exploration and development. The middle stream activities largely
include; Oil and Gas production, processing and refining into Petrochemicals, Natural gas,
including packaging and storage. The downstream activities are mainly dominated with products
(Oil, Gas and Petrochemicals) transportation, temporary storage, marketing and distribution to
the middle and final consumers.
3.1.1 Nature of Opportunities available and Potential Actors at the different Value Chain
levels
1. Upstream: There are quite a number of auxiliary services demanded at this level which
include; seismic surveys, well drilling, equipment supply and engineering works (World
Bank, 2009; Tullow Oil Ltd- Local Content Report, 2009)
Opportunity: Supply of services such as contracting engineering projects, consultancy
services and provision of key equipment.
33
Potential players: National engineering/construction and consultancy firms, individuals
who are petroleum experts and skilled professionals.
Nature of the opportunity: High quality is demanded, high professional skills and high
capital (finance) requirements.
2. Middle stream: Auxiliary activities include; transportation infrastructure e.g. bulk
haulage and storage of crude oil, oil pipe line networks, including the links between
production and processing facilities, oil refining, gas and petrochemical processing.
Potential opportunities: oil refining6, gas and petrochemical processing, transportation
and storage services.
Nature of the opportunity: In many Oil and Gas producing nations, refining has been
highly developed into a clinical business in which profitability is sensitive to marginal
changes in product quality and quantity supplied. To this end, oil refining has become
globally competitive implying high initial upfront investments in machinery and
technology. The high cost in R&D, plant and machinery, legal requirements and quality
certification present a huge barrier to entry for the small actors.
Potential players: Given its complexity, many local players may not have the potential,
however with strategic partnership with TNCs and Government support especially on
infrastructural development some companies may participate. But by far we expect this
stage to be dominated by bilateral trade TNCs.
3. Down Stream: It is at this value chain level that we envisage more local involvement by
the domestic firms and capable business individuals particularly SMEs. The wide range
of activities include; transportation, marketing and distribution to wholesalers, retailers
and directly to industrial, institutional and individual final consumers.
Potential opportunities are enormous – Transportation of fuel oil, kerosene and
petrochemicals, direct trade in form of wholesale and retail of fuel oil, gas and
petrochemicals, direction and marketing as distributers, bulk suppliers and brokering of
fuel oil, kerosene, LPG, fuel gas, gasoline and many other petrochemicals.
6 Oil refining is defined as the process of separating the hydrocarbons molecules present in the crude oil and their
conversion into more valuable finished petroleum products major; product categories being fuel oil, gas oil, jet/kerosene, gasoline, and naphtha and Liquefied Petroleum Gas (LPG).
34
Potential players: Majority SMEs such as local companies involved in marketing, fuel
retailers (local fuel and stations), automobile companies, general traders and suppliers.
We note that as go down the value chain, massive participation is encouraged due to lessening
of the initial capital investment and other entry barriers.
3.1.2 Current status of Uganda’s Oil and Gas value chain
Notwithstanding the potential (prospective) opportunities presented above, apparently, the oil
value chain in Uganda is still at the infantry stage, that is, Oil Reserve Development and
Exploration Phase. At this stage, major business taking place is between the large oil companies
such as Tullow Oil, Neptune and Dominion as well as Government through its functional arms
such as Uganda Revenue Authority, Ministry of Finance, Planning and Economic Development,
Ministry of Energy and Mineral Development, Uganda Investment Authority, Uganda National
Bureau of Standards, National Environment Management Authority, Ministry of Trade, Tourism
and Industry and limited involvement of the private sector that is largely dominated by foreign
medium scale service providers/suppliers and logistics corporations. Also informally, some local
SMEs located in the studied districts excluding Kampala are indirectly (not under permanent
contracts) involved in supplying a wide range of boundary services from causal labour to food
stuffs and utility merchandise. Most services are mainly provided by the medium sized
enterprises located in Kampala. Several reasons have been established as to why there is limited
involvement of SMEs. These include;
1. The current oil and gas value chain for Uganda is not open to offer many opportunities
given that actual production is yet to start.
2. SMEs still appear fragmented majority being sole proprietorships and thus lack ability to
supply in bulk quantity, and the desired quality based on international standards. Many of
them do not qualify in the main stream procurement criteria and so are not prequalified
suppliers or service providers
3. The main activities such as exploration, construction, surveying, and preliminary drilling
etcetera are knowledge based and capacity is lacking for professional service and skill
provision from local SME firms
35
4. Lack of awareness of what is going on and how exactly to usurp potential opportunities
to participate, how to get into contract agreements and required legislation. We note,
however, that some efforts have been made by TNCs such as Tullow Oil and Neptune to
create awareness through radio programs and media prints but still a wide audience is still
uninformed.
Preliminary conclusion: Whether the value chain will develop to the level depicted by the
World Bank will depend on such factors as;
1. The quantity and quality of the resource
2. Commitment of government (custodian), mainly in terms of putting in place favorable
investment climate, and other stakeholders to invest and develop the oil and gas industry
3.2 Factors that affect SMEs decisions and willingness to invest in oil and gas value chain
3.2.1 SMEs Distribution and Economic Profiles
3.2.1.1 SME Distribution
Table 3.1 gives a summary of their distribution. From the results sampling was intensive in
Hoima, Gulu and Kampala districts. The three districts had more concentration of SMEs than
Masindi and Buliisa districts.
Table 3.1: Enterprise distribution per District
District Frequency Percent
Hoima 59 30.6 Masindi 25 13.0 Buliisa 8 4.10 Gulu 51 26.0 Kampala 50 25.9 Total 193 100.0
3.2.1.2 Business Classification of the Studied SMEs -What they are currently doing?
Table 3.2 gives a summary of the SME distribution per sector.The sector categorization was
based on International Standard Industrial Classification of economic activities
36
Table 3.2: Distribution of SMEs by sector
Sector Frequency Percent
1 Agric, Forestry and fisheries 14 7.3
2 Accommodation and food services 20 10.4
3 Information and communication 4 2.1
4 Finance and insurance 6 3.1
5 Real estates 1 .5
6 Administrative and support services 3 1.6
7 Education 4 2.1
8 Petrol and Oil Business 11 5.7
9 Human Health and social work services 15 7.8
10 Mining and quarrying 1 .5
11 Agro inputs and vet facilities 2 1.0
12 Distribution business 1 .5
13 Animal production 5 2.6
14 Furniture and other wood fittings 2 1.0
15 Office and Stationary supply 7 3.6
16 Hardware supplies 4 2.1
17 Dry Cleaning 1 .5
18 Manufacture and repair of machinery and equipment 2 1.0
19 Civil engineering 3 1.6
20 Manufacturing 15 7.8
21 Warehousing 1 .5
22 Fire Fighting 1 .5
23 Consultancy 5 2.6
24 Waste Management 1 .5
25 Clearing and forwarding 1 .5
26 Advertising and Market Research 1 .5
27 Repair and installation of machines and equipment 2 1.0
28 Electricity, gas and air conditioning supply 3 1.6
29 Water supply and sewage management 2 1.0
30 Construction 8 4.1
31 Wholesale and retail 21 10.9
32 Repairs of motor vehicles and bikes 10 5.2
33 Transport and storage 15 7.8
Total 192* 100 *N =192 due to Non-Response
From table 3.2, the Wholesale and Retail sector reported the highest presence (10.9%), followed
by Accommodation and Food services (10.4%), followed by the Manufacturing Sector (7.8%),
Transport and Storage sector (7.8%), and the Human Health and Social Work Sector (7.8%). The
implication of the findings is that Wholesale and Retail Trade, Accommodation and Food
37
services, Human Health and Social Work as well as the Transport and Storage and;
Manufacturing sectors are among the promising avenues through which the SMEs can partner
with the TNCs/Large Oil companies. However, the agricultural sector though a primary sector of
Uganda is not well represented (7.3%) because majority of the enterprises were found to be
operating on a micro scale.
3.2.2 Economic Profiles of the Studied SMEs
We operationally7 defined SMEs as any legally registered business entity that has a permanent
physical address, owning fixed assets at least worth 50 million Uganda shillings (UGX) and total
capital investment ( fixed assets + liquidity) worth between UGX100- 1billion. A summary of
the profile is presented in Table 3.3.
Table 3.3: Business profile of the sampled SMEs
Variable Frequency Percent
(n=193)
Business registration Status
• Registered 193 100.0
• Unregistered 0 0
Business ownership
Partnership 66 34.2
Sole Proprietorship 112 58.0
Limited Company 10 5.2
Communal ownership 1 0.5
Owned by the church diocese 3 1.6
Business age*
1-10 years 96 49.7
>10-20 years 58 30.0
> 20 years 39 20.2
Value of Fixed Assetsb (UGX)
None 136 70.5
7 The Uganda Investment Authority criteria for defining SMEs states that a Small Scale Enterprise is one that
employs a maximum of 50 people, with maximum annual sales turn over of UGX 360 million and Maximum value in Total Assets of UGX 360 Million where as a Medium scale Enterprise is one that employs a more than 50 people, with minimum annual sales turn over of UGX 360 million and Minimum value in Total Assets of UGX 360 Million. On reaching the field, the qualification with this criteria caused mixed results with some entities qualifying on the number of employees, but not fixed assets, while some that qualified on fixed assets and sales turn over did not employ up to 50 persons. To sort the case, the research team resolved to adopt an operational definition such that many entities would qualify. The most affected places where Hoima, Gulu, Masindi and Buliisa.
38
<10 million 7 3.6
10-100 million 20 10.4
>100-500 million 22 11.4
>500-1000,000,000 million 4 2.1
> 1000,000,000 million 4 2.1
Investment Capitalc (UGX)
<100 million 43 22.5
100-200 million 66 34.6
>200-300 million 13 6.8
>300-600million 31 16.2
>600-1000,000,000 21 11
> 1000,000,000 million 17 8.9
Main Market
Export 8 4.2
Local 185 95.9
*Business age refers to the period of business survival from first registration bValue of fixed refers to summated value of owned land, buildings, machinery, vehicles and furniture cInvestment capital refers to Total fixed assets + liquidity
Table 3.3 illustrates that all of the studied SMEs were legally registered with permanent (or
semi-permanent) physical addresses. However, the majority (70.5%) had no fixed assets, which
could be a sign of economic instability of the enterprise. Fifty eight percent of the SMEs are
managed as sole proprietorships. This is a common characteristic of SMEs in Uganda, and it
explains the meagre worth of their fixed assets base, and therefore the limited capacity to invest
in large ventures.
3.2.3 Factors that hinder SMEs willingness to invest
Results from the Chi-square test (Table 3.4) show a number of factors that are positively
associated with SME willingness to invest in the oil and gas sector in Uganda. From Table 3.4, it
is shown that the size of investment capital, owning fixed assets, having knowledge of the oil
business; time spent in business, receiving information, access to power, access to other
infrastructure such as roads, water and financial institutions, access to credit and cost of capital
(interest charge for credit acquisition) are strongly associated (or affect) the willingness of SMEs
to invest in the oil and gas sector. The direction of association and contribution of each to the
dependent variable will be measured by the logit model, which is yet to be done.
39
Table 3.4: Association between Willingness to Invest and hypothesized internal and
external factors Sector (n=193)
Factor ϕϕϕϕChi square(X2) value Df P value
Investment Capital 19.57 6 0.003* Fixed Assets 14.50 5 0.013* Age of the business 12.27 2 0.043* Knowledge of oil business 28.17 4 0.000* Information Flow 15.18 1 0.000* Access to Power 6.56 2 0.038* Access to other Infrastructure 8.801 6 0.0185* Policy awareness 4.78 1 0.779 Cost of Capital 10.856 5 0.054** Access to credit 7.122 1 0.009* Quality standards 9.953 8 0.268 Price trends 4.59 2 0.101 Volume of sales 8.87 5 0.114 Number of customers 4.80 4 0.308 ϕϕϕϕbased on Pearson test for association
*significant at 95% (p=0.05)
**significant at 90 %( p=0.1)
Additional factors apart from the hypothesized were solicited from the Focus Group Discussions
using an open ended guiding question “In your opinion what are the factors that may hinder you
from active participation in the oil and gas value chain?’ Table 3.5 gives a summary of the
responses.
Table 3.5: SME responses on perceived investment hindering factors
Factor Frequency Percent (n=256)
Competition from foreign companies
Lack of awareness and information
Corruption among officials
Lack of Capital to invest competitively
Lack of capacity especially training and skills
61 23.8
49 19.1
38 14.9
45 17.6
63 24.6
*n>193 due to Multiple Response
Table 3.5 shows the main perceived hindering factors as lack of capacity especially skills and
competition from foreign companies. This implies, providing relevant training that offers the
necessary skills would be the immediate intervention to promote the SMEs investment in the
sector.
40
3.3 Current Partnerships between SMEs and TNCs
The survey assessed strength of vertical partnerships, that is, supplier/buyer and horizontal
relations between the participating SMEs. The dimensions used for vertical relationships were
whether there are formal agreements (contracts and MoUs) between the suppliers (SMEs) and
the TNCs. Likewise, for horizontal relations the study sought mutual understanding in form of
partnerships to trade and formation of associations amongst participating SMEs. The findings
show that majority (90%) of the participating SMEs were not in permanent contractual terms to
supply neither had they signed Memoranda of Understanding (MoUs). It is rather a situation of
everyone on their own pushing their lack. The solitary nature of operations explains why
majority are sole proprietorships and few partnerships.
3.4. Potential Investment and Partnership areas for SMEs in the Oil and Gas Value
Chain
We used the literature compiled by Tullow Oil Limited which is one of the most engaged TNC
in the oil exploration in Uganda. Figure 3.1, shows the services demanded in upstream petroleum
activities.
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Figure 3.1: Services demanded in the Upstream Petroleum activities
Source: Tullow Oil Ltd, 2009
Figure 3.1 is an illustration of various activities and services which at the same time present
investment and business opportunities demanded in the Oil and Gas Sector. These services are
broadly classified into three namely; specialized/ core/ professional services, direct services and
indirect services. The specialized services occupying the innermost circle include Seismic
surveys and well drilling. These require sophisticated technology and are therefore high
knowledge based skills most of which are currently provided by large international oil
companies. These specialized services are complemented by direct services which are also
relatively specialized such as infield services, inspections, international freight services, civil,
electrical and mechanical engineering, environmental services, infield transport and specialist
trades.
The specialized and direct services are further supported by a wider range of indirect services
which include catering, human resource, custom clearance, training, hotel/accommodation,
emergency services, information and communication technology services, medical services,
security, crane hire, waste management, office supplies and freight forwarding. Since Uganda is
still in the exploration stage where the demand for core and specialized services is intense, it
possibly explains the minimal involvement of SMEs who lack the technology, skilled manpower
and required level of finance to provide the relevant services. The sector, however, provides
more indirect and less specialized opportunities especially during field development and oil
production stages implying that Uganda whose Oil was discovered about 5 years ago needs to
develop a targeted and comprehensive policy approach to ensure that the SMES are prepared to
usurp these opportunities.
42
Figure 3.2. Current actors in the Uganda oil and gas value chain and their interlinked
relationships.
From figure 4.1, it can be shown that the oil and gas chain is at the upstream level with no existing middle
and down yet. At the upstream level four main actors are identified namely;
1. The Government through it respective arms does;
• Strategic planning and management • Business Licensing
• Policy and regulation
Indirect services (SMEs)
Direct services
(Large scale
players)
Government
Ministry of Energy and Mineral Development, Petroleum Exploration & Production Department, Ministry of Works, Uganda Investment Authority, Uganda Revenue Authority, Ministry of Finance and Economic Planning, Ministry of Lands and Environment, NEMA, UWA
Transnational Corporations (TNCs)
• Neptune Petroleum (U) Ltd
• Tullow Oil
• Dominion
• Total E &P
• CNOOC
Oil appraisal Oil exploration Oil drilling Oil Seismic surveys Specialized
services
(TNCs)
43
• Infrastructure development
• Security
• Revenue collection and management
• Environmental protection and regulation.
2. The Transnational Corporations (TNCs)
They include;
• Neptune Petroleum (U) Ltd
• Tullow Oil (U) Ltd
• Dominion (U) Ltd
• Total E &P
• China North Offshore Oil Company (CNOOC)
The TNCs are involved in specialized services mainly in the four core areas namely; Oil appraisal,
exploration, seismic surveys and well drilling.
3. Medium scale enterprises (both national and international)
The medium foreign and national enterprises are mainly supplying direct services. Some of the
direct services provided include equipment supply, Civil and Engineering works, Environment
Services, Professional consultancy services and International Freight services
4. SMEs are mainly providing the indirect services such as Agricultural food supply, Customs
clearing, Logistics supply and casual labour contracting
3.4 Role played by Other Actors
3.4.1 Credit institutions
The findings shade light on the role played by other actors. Among which are credit institutions
that is commercial banks, SACCOs, and MDFs these control access to credit and thus have
potential to enhance or limit the investment capital available for a willing enterprise. In
particular, the cost of borrowing which is by far in the region of 15-25% is perceived as high by
the target clients. In fact responses to the question whether the enterprise could choose an option
of acquiring a loan to boost its investment capital?, majority high the deterring high interest
rates. In the same way the high collateral qualification that is reported to be over 150% of the
amount accessible as a loan was also another deterring factor from borrowing. There is need still
to make credit access more affordable may through long term leasing and bonds issuance such
44
that enterprises willing to invest over long periods can be helped because for now they can not fit
in the short term loan scheme with interest rate, they just can not stand the pressure.
3.4.2 Local media houses
By local media houses we mean local air waves radios and municipal public address systems. In
some areas these are missing whereas were they exist a lot still has to be done to improve
audience coverage and awareness creation. The findings highlight lack of information about the
existing opportunities and benefits as one of the major factors that has slowed SMEs
participation.
3.4.3 Administrative and Political institutions
At the centre of awareness creation should the administration and political institutions of the area
however the study finding s revealed that these units have not yet done enough to create
awareness through education and spreading information to the communities. This probably can
also explain the lagging behind of many entrepreneurs. Likewise, the local government of the
regions were pointed out as not proactive enough in lobbying for government funding to support
infrastructure development with Buliisa District being the worst hit where a lot of basic
infrastructures are missing, an aspect that is hinder settlement of many entrepreneurs in the area.
3.4.5 Perceived expected benefits from Oil Trade in the studied districts
Preliminary findings of the study indicate that the respondents thought that in general the Oil discovery
would bring in benefits to their communities and the country as a whole (Table 3.6). The majority
(26.1%) thought that employment opportunities would be generated while, 22.8% and 20.1%,
respectively, expected improvement in the infrastructure and service/utility extensions services to the
local population.
Table 3.6: Local People’s Perceived Benefits from oil discovery and trade
Perceived benefit Frequency Percent (n=333)*
1 Employment opportunity 87 26.1 2 Improvement in infrastructure 76 22.8 3 Growth of other sectors 57 17.1 4 Increase in revenue for local government 46 13.9 5 Service extension to people 67 20.1
45
*N > 193 due to multiple responses
46
CHAPTER FOUR: POLICY IMPLICATIONS OF THE FINDINGS
4.1 Preliminary Review of the Petroleum Bill
The Petroleum Bill provides for national content. The Bill specifically points out the need to
prioritize registered entities owned by Ugandans in the provision of Goods and Services. The
entities, however, must have substantial resources and capacity to add value to petroleum
operations carried out by the licensee and be approved by the Petroleum Authority of Uganda (to
be established) in accordance with the criteria prescribed by the Minister by regulations.
In addition, the bill states that the licensee and the contractors and sub contractors of the
licensees must give priority to the purchase of local products and services from Ugandans
wherever they are competitive in terms of price, quality and timely availability.
Notwithstanding the provisions provided by the law, it should be noted that SMEs remain
challenged by lack of substantial operating and fixed capital to engage in several business
activities on a large scale and yet they are considered a major source of employment in many
developing countries. The lack of finance also impacts on their ability to increase their capacity –
in technology terms and the ability to employ skilled/professional manpower. Much as the Bill
favors domestic participation in the value chain if the internal and external factors affecting
SMEs Investment remain, minimal benefits will be achieved by the sector.
4.2 Policy Implications
• Expedite the development of the Local Content Policy and Act to provide the enabling
legal and institutional framework, the Policy needs to provide for SME participation in
the sector. Private sector associations catering for the needs of SMEs should be involved
in the development of the policy
• Lack of information was highlighted as a major factor impending SME investment in the
sector. Uganda has however developed a communication strategy for the sector. The
strategy needs to include deliberate efforts at the national level through district systems
and structures targeted at sensitizing the local population of the emerging opportunities.
Several measures could be used by partnering with the existing SME private sector
bodies such as Enterprise Uganda, USSIA and UWEAL to undertake capacity building
on requirements to access services in different sectors.
47
• Large Oil Companies have international requirements to supply services and goods in
respective sector – these need to be documented and disseminated to local SMEs – A
training programme targeted at this specific activity could be beneficial to the SMEs
• The Oil companies could be encouraged to lessen the pre-qualification requirements for
tenders and bids provided by SMEs.
• Government/UIA should assist SMEs to form cooperatives or clusters to be able to
supply adequate agricultural produce and other supplies required by all the Oil
Companies
• Larger Domestic companies that are already doing business with Oil companies should
be given incentives to encourage then to sub contract SMEs in the provision and supply
of various goods and services
• Government requires strategic investments in infrastructure (transport, energy, ICT,
Research and Development), to attract more private sector investment in the sector
• A programme for SMEs informing them on upcoming plans and developments, and
unlashing packing ways /strategies that the sector needs to put in place to invest in
various lines of businesses are instituted.
• Government could also consider identifying specific sectors that should be left to SME
investment. The Investors could then be supported in various aspects such as provision of
venture capital, land leases, financial guarantees and training to start of the business
• Investment incentives could also be availed to SMEs willing to invest in the sector
especially those that are willing to locate in upcountry or rural areas.
48
References
African Development Bank and the African Union (2009). “Oil and Gas in Africa.”
Ariweriokuma, S. (2009). The Political Economy of Oil and Gas in Africa: The Case of Nigeria. New York: Routledge.
Aneke, P. (2002). The role of major operators in the development of local content in the Nigerian oil and gas industry. A paper delivered during the national seminar on the dynamics of equipment leasing and contract financing for local contractors in the Oil and Gas sector, Port Harcourt, Nigeria.
Aneki, 2010 “Poorest countries in the World.” http://www.aneki.com/index.html
Babu, B.V., Humbad, A. and Kumar, S. 2009. Carbon credits for energy self sufficiency in rural India. A case study. Energy Education, science and Technology part A: Energy, Science and Research.
Business in Development Network, 2008, “Investing in Small and Medium Sized Enterprises in Uganda”
BP Statistical Review of World Energy, (2009) “Statistical Review of World Energy Report.” http://www.bp.com.
Energy Intelligence, (2008). “Uganda: Testing threshold.” European Commission, 2005, “The new SME definition – User guide and Model declaration, Enterprise and Industry Publications.
Goodwin, B. and Schroeder, T. (1994). Human capital, producer education programs, and the adoption of forward- pricing methods. American Journal of Agricultural Economics 76: 936- 947.
Guerre, E. and Moon, H. R. (2005). “A study of a Semi parametric Binary choice model with integrated covariates.” IEPR Working Paper No. 05-.37
Heum, P., Quale, C., karlsen, J.E., Kragha, M. and Osahon G., (2003). Enhancement of Local Content in the Upstream Oil and gas Industry in Nigeria: A comprehensive and viable policy approach; joint study by SNF-Institute for Research in Economics and Business Administration, Bergen, Norway SNF Report No. 25/03 (August)
H.U. Nwosu, I.N. Nwacu, S.O.T Ogaji and S.D. Probert (2006). “Local Involvement in Harnessing Crude Oil and Natural Gas in Nigeria.”
Internal Food Policy Research Institute (2009). “Transaction costs and investment in irrigation pumps: evidence from Nigeria.”
International Alert (2009). “Harnessing Oil for Peace and development in Uganda,” Judge, G., Griffiths, W. and Hill, R. C. (1980). “The theory and practice of econometrics”. John Wiley and Co, New York
Ministry of Energy and Mineral Development (2008). “National Oil and Gas Policy for Uganda.”
Mburu, L. M., Wakhungu, J. W. and Gitu, K. W. (2007). “Determinants of small holder dairy farmers’ adoption of various milk marketing channels in Kenya highlands”. Livestock Research for Rural Development. 19: 34.
National Planning Authority (2010). “Uganda’s National Development Plan 2010/11 – 2014/15.”
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Nzomoi, J.N., Byaruhanga, J. K.and Maritin, H. K. (2007). ”Determinants of technology adoption in the production of horticultural export produce in Kenya”. African Journal of Business Management 1: 129-135.
Oladele, O.R. (2001). “Opportunities for Indigenous Participation.” Paper presented at the NNPC workshop on Improvement of Local Content.
Organisation for Economic Co-operation and Development (OECD). (2000). “Small and medium sized Enterprises: Local strength, global reach, OECD Policy Review.”
Ogiemwonyi, C.O. (2001). “Alliancing as a tool to increase Local Content in the Nigerian Oil industry.” Paper Presented at the Offshore Petroleum conference, Houston. April/may, pp 1- 6.
Olurunfemi, M. A. (2001). “The Role of Financial Institutions in promoting Local Content and Indigenous participation in the Oil industry.” Paper presented at the NNPC national Workshop on Local Content. August 2 – 3, pp. 1 – 10
Uganda Bureau of Statistics (2011). “Statistical Abstract.” Uganda Bureau of Statistics
Uganda Investment Authority (2010) “National Investment Database.”
Ugwushi Bellema Ihua (2010). “Local Content Policy and SMEs Sector Promotion: The Nigerian Oil Industry Experience.”
United Nations, (2009). “Human Development Index Report”, Secretariat of the. United Nations, New York and Geneva
United Nations, (2007). “Millennium Development Goals: Uganda’s Progress Report 2007.”
Payne, J., Fernandez- Cornejo, J. and Daberkow, S. (2003). “Factors affecting the likelihood of corn rootworm Bt seed adoption.” AgBioForum, 6: 79-86. Available on the World Wide Web: http://www.agbioforum.org/
Porter, M.E. (1985) Competitive Advantage, Free Press, New York, 1985. World Bank, (2009). “Study on National Oil Companies and Value Creation.” The World Bank Oil, Gas and Mining Policy Division.
50
Appendix – Research Questionnaire
UGANDA INVESTMENT AUTHORITY
In collaboration with
TRUST AFRICA/INTERNATIONAL DEVELOPMENT RESEARCH CENTRE
Enterprise Code
Confidentiality
Uganda Investment Authority (UIA) is a Government agency that was established to promote, facilitate, and advocate for private sector investment in Uganda. UIA is also mandated to do research that identifies opportunities and constraints to guide national planning and implementation of relevant policy reforms favorable for investment in the country. In that context, UIA under the auspices of Trust Africa is undertaking a study to identify opportunities and constraints to facilitate SMEs to invest in the Oil and Gas Sector. The study will identify key actors; potential backward and forward linkages as well as internal and external factors likely to affect the willingness of SMEs to invest in the sector. Other intervening factors such as policies and the general investment climate will also be considered in the study. The results of the study will be posted and accessed on the UIA and other relevant websites. The Expected Impact of the Study is:
1) Increased SME Investments; 2) Increased business partnerships and linkages between SMEs, Transnational Corporations
and Government; 3) Increased employment opportunities and income generating activities;
Constraints and Opportunities for Small and Medium sized Enterprises (SMEs) in
Uganda’s Oil and Gas Sector: A Case of the Albertine Graben region and Kampala
District
51
4) Improvement of the current Oil and Gas Policy and input into the development of the Local Content Policy.
This study is therefore seeking for your participation. The information provided will remain anonymous and any gathered information will be treated with confidentiality.
PART ONE: ENTERPRISE CHARACTERISTICS
1.0 Geographical/Location of the Business
1.1 District
1.2 Sub County
1.3 Parish
1.4 Name of Enterprise
1.5 Physical Address
1.6 Telephone
1.7 Name of Respondent
1.8 Designation
Interview date:
Month (mm): Day (dd): Start Time: End Time:
Enumerator………………………. Supervisor………………… Date proof read:
PART TWO: KEY ACTORS IN THE OIL AND GAS SECTOR
2.0 Mention the type of goods/service in which the enterprise is engaged (Read all options and tick what is applicable)
Industrial Classification
Tick
sector
Specify
Product/Service
provided
1. Agriculture, forestry and fishing 1.1. Crop and animal production, hunting and related activities 1.11 Growing of non-perennial crops 1.12 Growing of perennial crops 1.13 Plant propagation 1.14 Animal production 1.15 Mixed farming 1.16 Support activities to agriculture and post harvest 1.2. Forestry and logging 1.3. Fishing and aquaculture 2. Mining and quarrying 2.1. Mining of coal and lignite 2.2. Extraction of crude petroleum and natural gas 2.3. Mining of metal ores 2.4. Other mining and quarrying 2.5. Mining support service activities 3. Manufacturing 3.1. Manufacturing of food products
52
3.2. Manufacture of beverages 3.3. Manufacture of tobacco products 3.4 Manufacture of textiles 3.5. Manufacture of wearing apparel 3.6. Manufacture of leather and related products 3.7. Manufacture of wood and of products of wood and cork 3.8. Manufacture of paper and paper products 3.9. Printing and reproduction of recorded media 3.10. Manufacture of coke and refined petroleum products 3.11. Manufacture of chemical and chemical products 3.12. Manufacture of pharmaceuticals, medicinal chemical and 3.13. Manufacture of rubber and plastic products 3.14. Manufacture of other non-metallic mineral products 3.15. Manufacture of basic metals 3.16. Manufacture of fabricated metal products, except 3.17. Manufacture of computer, electronic and optical products 3.18. Manufacture of electrical equipment 3.19. Manufacture of machinery and equipment 3.20. Manufacture of motor vehicles, trailers and semi-trailers 3.21. Manufacture of other transport equipment 3.22. Manufacture of furniture 3.23. Other manufacturing 3.24. Repairs and installation of machinery and equipment 4. Electricity, gas and air conditioning supply 4.1. Electric power generation, transmission and 4.2. Manufacture of gas; distribution of gaseous fuels through 4.3. Steam and air conditioning supply 5. Water supply; sewerage, waste management and remediation activities 5.1. Water collection, treatment and supply 5.2. Sewerage 5.3. Waste collection, treatment and disposal activities 5.4. Remediation activities and other waste management 6. Construction 6.1.Construction of buildings 6.2. Civil engineering 6.3. Specialized construction activities Construction 7. Wholesale & retail trade; repair of motor vehicles and motorcycles services 7.1. Trade and repair of motor vehicles and motorcycles 7.2. Whole sale trade 7.3. Retail trade 7.4. Accommodation services 8. Transportation and Storage 8.1. Land transport and transport via pipeline 8.2. Water transport 8.3. Air transport 8.4. Warehousing and support activities for transportation 8.5. Postal and courier activities 9. Accommodation and food service activities services 9.1 Accommodation 9.2 Food and beverage service activities 10. Information and communication 10.1. Publishing activities
53
10.2. Motion picture, videos and television programme 10.3. Programming and broadcasting activities 10.4. Telecommunications 10.5. Computer programming, consultancy and related
10.6 . Information service activities 11. Finance and Insurance activities covered above
11.1. Financial service activities 11.2. Insurance, reinsurance and pension funds 11.3. Activities auxiliary to financial service and insurance 12. Real estate activities 12.1. Real estate activities 13. Professional, scientific and technical activities 13.1. Legal and accounting activities 13.2. Activities of head office; management consultancy 13.3. Architectural and engineering activities 13.4. Science research and development 13.5. Advertising and market research 13.6. Other professional, scientific and technical activities 13.7. Veterinary activities 14. Administrative and support service activities
14.1. Rental and leasing activities 14.2. Employment activities 14.3. Travel agency and tour operator activities 14.4. Security and investigation activities 16. Education
16.1. Education 17. Human Health and Social work activities
17.1. Human health activities 17.2. Residential care activities 18. Arts, entertainment and recreation
18.1. Creative, art and entertainment activities 18.2. Libraries, archives, museum and other cultural activities 18.3. Gambling and betting activities 18.4. Sports, amusement and recreation activities 19. Others 19.1. Others (specify)
PART THREE: SME DECISIONS AND WILLINGNESS TO INVEST
A: INTERNAL FACTORS
3.1 Please state the year in which your business started operations…………………………………………………………
3.2 State the shareholding/ownership of the Business Entity
Nationality Country of Residence Shareholding (%)
54
3.3 State the capital investment of the business (UGX / U.S Dollars)
Total capital investment (working capital and assets)
Annual capital Investment
3.4 Please indicate the value of the total assets owned in the business since its inception (
million Ugx)
Asset Value in Ugx by 31st
December 2009
Value in Ugx by 31st December
2010
Land
Building and Civil Works
Plant and Machinery
Vehicles
Computers and accessories
Furniture and Fittings
Other (specify)
Total
3.5 What is the main market for your products?
1 = Local ( ) 2 = Export ( )
3.6 Who are your customers?
Name of
company/Customer
Form of
Business
Consumption category ( Tick the
applicable)
Small Medium Bulk
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3.7 What are the volumes of the oil and related goods purchased in the last business cycle?
Year Items purchased Volumes Purchased
(kgs/tonnes)
Give reasons for change
2010
2009
2008
2007
2006
3.8 What are the volumes ( in sales) of the oil and related goods in the last business cycle
Year Items Sold Volumes Sales
(kgs/tonnes)
Give reasons for change
2010
2009
2008
2007
2006
3.9 Indicate how the sales in your enterprise have changed over the last five business years
Year Volumes sold (kgs/tonnes)
Value (Ugx) Give reasons for change
2010
2009
2008
2007
2006
3.10 Who mainly does marketing for your products? 1 = Self ( ) 2 = Employees within my Business ( ) 3 = Contracted somebody/distributors
from outside ( ) 4 = Other specify ( )
3.11 How have the prices been changing in the last three business years
Year 1) Increasing 2) Decreasing 3) Did Not Change Reason for Change
2010
2009
2008
3.12 Has the number of customers been increasing in the last 3 years of your business operation? ( ) 1=Yes, 2=No, 3=Did not Change
Year 1) Yes 2) No 3) Did Not Change Reason for Change
2010
2009
2008
56
3.13 Are there any specific quality standards and related licenses required for your business operations ( ) 1=Yes, 0=No 3.14 If yes, list them …………………………………………………………………........................................................ 3.15 Do you have any means of ensuring quality standards for your good/services supplied ( ) 1=Yes, 0=No 3.16 If yes, list the standards that you have put in place to ensure quality of your goods/services ……………………………………………………………………………………………
B: EXTERNAL FACTORS THAT AFFECT OPERATIONS OF SMEs
3.17 Do you save in any of the following financial institutions? ( ) 1=Yes, 0=No If so, specify the specific institution in the table below.
Financial Institution Tick as appropriate
1 Commercial Bank
2 Microfinance institution
3 Co operative (SACCO)
4 Others (Specify)
3.18 Within the past 5 years, have you attempted to borrow for purposes of investing in your business? ( ) 1=Yes, 0=No 3.19 If yes, what was the source of this capital for investment in the enterprise? Codes: 1= Commercial Banks, 2= Private organizations,
3=Money lenders, 4= SACCOs 5= Donor partners, 6=Others
(specify…………………………………………………………………….)
3.20 If yes, what was the interest rate of accessing this capital.............................................................................. ………………..…. 3.21 Apart from the interest rate, did the financial institution where you borrowed from require collateral security ( ) 1=Yes, 0=No
If No, go to 3.23. 3.22 If yes, which of the following assets/collateral security were required?
1 Land, Buildings
2 Machinery and Equipment including movables
3 Accounts receivable and inventories
4 Personal assets of owner (house, etc)
57
5 Other (Specify)
6 What was the approximate value of the collateral required as a percentage of the amount of the loan or line of credit
%
3.23 If you attempted to borrow and did not succeed, what were the main reasons given by the lender?
1 Collateral unacceptable
2 Insufficient profitability
3 Problems with credit history
4 Incompleteness of loan application
5 Concerns about level of debt already incurred
6 Others (specify)
3.24 If your enterprise did not apply for credit or a loan what were the main reasons
1 Collateral unacceptable
2 Insufficient profitability
3 Problems with credit history
4 Incompleteness of loan application
5 Concerns about level of debt already incurred
6 Others (Specify)
3.25 Have you ever reinvested in the business in the past 3 years? ( ) 1=Yes, 0=No
3.26 If yes, out of your total net profit, specify the percentage re – invested
Percent Reinvestment 2008 2009 2010
If your answer No in 3.26 above state reasons for not reinvesting …………………………………………………………………………………………………… 3.27 Is it easy to access the main road from the location of your business ( ) 1=Yes, 0=No i) If yes, what is the distance………………………………………………kms ii) If no, what is the distance………………………………………………kms 3.28 Other than roads, is there any other developed infrastructure in the area ( ) 1=Yes, 0=No 3.29 If yes, specify which of the following utilities available (Tick as appropriate) are
1 Water
2 Internet Access/Email facilities
3 Telephone (land line)
4 Post Office Services
5 Waste Disposal
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6 Mobile phone coverage
7. Electric Power stations
8. Health Centres
9. Financial Institutions
10 Security (Police, Village Tribunals, Prisons)
3.30 Do you have access to power (hydro or any other type) in your area ( ) 1=Yes, 0=No 3.31 If yes, for what purposes is it used?
1= lighting, 2= cooking, 3= value addition specify……………………………………………….…….) 4= Other (specify………………………………………………………..)
PART FOUR: VALUE CHAIN ANALYSIS
4.0 Have you ever participated in the petroleum and gas value chain?
1 = Yes 2 = No
4.1 If yes, please mention the year when you participated in this chain…………………………………………………………………………………………. 4.2 How did you participate? ........................................................................................................................................................... 4.3. Are you still participating? 1= Yes, 2 = No 4.4. If no, what made you drop out? ……………………………………………………………………………………………………………………………………………………………… 4.5. Have you thought about participating in the petroleum and gas value chain?
1 = Yes 2 = No 4.6. If yes, at what value chain level do you think you would participate?…………………………………………………………………………………………................................................. 4.7 What strategies/mechanisms have you put in place in the chain when an opportunity arises? ……………………………………………………………………………………………………………………………………………………… 4.8 If there are opportunities to partner with any of the above companies in 4.4 above and/or
Government in the Oil and Gas sector, would you be willing to participate in supplying goods and services? ( ) 1= Yes, 0 = No
4.9 If yes in 4.8 above, what goods and services would you be willing to supply?
59
Partnership Area Specify activity
1 Transportation services ( Trucks, Cars, loading vans and trucks)
2 Logistics services (Fuel supply, in-house fleet management, Freight management, Custom Clearance and Cargo handling)
3 Technical Services (Telecommunications, Plumbing, Metal Fabrication, Electrical and Mechanics, road maintenance, civil works and repairs, Crane services, Loaders and fork lifters)
4 Micro financing/foreign exchange bureaus
5 Lodging, Hotel and Catering Services
6 Trade in Goods (e.g. spares parts, field gears, construction materials and other Consumables )
7 Real estate, Camps and Accommodation
8 Consultancy services (IT, Environmental Management, Human Resource Management, procurement and financial management, quality assurance, project monitoring and evaluation)
9 Community and Social Services e.g. Education and Vocational training, Health services/clinics, Pharmacies, etc)
10 Waste management
11 Ambulance and Emergency Services
12 Security
13 Warehousing and facilities management
14 Labour contracting (Casual and semi skilled) e.g. painters, carpenters, and cleaners
15 Office Supplies
4.9.1. If there was a direct opportunity to trade in oil and oil related products, would you be willing to participate?
1 = Yes 2 = No 4.9.2. If yes, at what level of trade or partnership would you participate in; 1 = Fuel retailing. 2 = Fuel Transportation. 3 = bulk fuel trading. 4 = brokering (middleman ship). 5. Other please specify…………………………………………………………………… 4.9.3. Incase of fuel retailing business, please mention what capacity in litres would you manage to stock? 1 = ≤500 Litres. 2 = >500 – 1000. 3 = >1000-5000, 4 = >5000 – 10,000. 5 = >10,000 6 = Not sure
60
4.9.4. Incase of bulk fuel trade, please mention what capacity in litres would you manage to stock?”
1 = ……………………………………..Litres. 2. Not sure 4.9.5. If No in 4.9.1, please explain why? ……………………………………………………………………………………………………… 4.9.6 For the kind of business partnership mentioned in 4.8 above, are there licenses you should
have to operate the business and which institutions are responsible for issuing them?
Specify name of License Institution Issuing the License
4.9.7 Among the licenses you have listed above are there some that you do not have and
constrain you from partnering with either Government or the Oil Company?
Specify name of License Reason
PART FIVE: AWARENESS ON POLICIES OF USE, EXPLOITATION,
PARTICIPATION AND BENEFITS FROM THE SECTOR.
5.0 Do you receive any information on oil prospects and exploration activities such as Oil
companies involved, potential oil outputs expected (barrels per day), sharing of revenues, benefits by locals ( ) 1=Yes, 0=No
5.1 If yes, from where do you receive the information?
1 = Media, 2 = District Authorities, 3 = other business friends, 4 = NGO
(specify…………………...), 5 = Government Petroleum and Exploration Department,
6 = Exploration companies, 7 = Other (specify………………………………)
5.2 Do you know of any Oil exploration companies operating in your area ( ) 1=Yes, 0=No
5.3 If yes, please tick one that applies to your knowledge 1 = Tullow oil, 2 = Neptune Petroleum (U) Ltd/Tower Resources, 3= Dominion
Petroleum (U) Ltd,
5.4 Do you know of any policies put in place by the government in ensuring efficient oil & gas management as well as addressing issues of transparency and accountability so as to create lasting benefits to society ( ) 1= Yes, 0 = No
61
5.5 If yes, mention some of these policies that you know in this sector
……………………………………………………………………………………………………… Codes 1=policies on efficient resource mgt (revenues to boost balanced growth &sustainable devt 2= ensuring that
the resource benefits of today are long lasting for future generations to enjoy 3= policies addressing issues of
transparency & accountability, 3=Protection of the environment and conservation of biodiversity, 4= Capacity
&institutional building, 5= Competitiveness &productivity(create efficiency),
5.6 As communities and business enterprises, do you think you will benefit more from the oil
and gas returns than these multinational companies that are involved in exploration and its eventual production? ( ) 1=Yes, 0=No
5.7 If yes, what are some of the expected benefits from the oil and gas sector? ……………………………………………………………………………………………………… Codes: 1= employment, 2= Improvement in infrastructure (roads, health facilities, power
generation, schools) 3= growth of other sectors (service & agric sector)
Others specify………………………………………………………………………
5.8 If your answer in 4.12 above is NO, what factors do you think will deter your enterprise
from benefiting from the oil and gas sector opportunities? ……………………………………………………………………………………………............... 5.9 Do you have any other suggestions as to how the Government can improve the oil and
gas sector so as to avoid the “oil curse” and create long lasting benefits to the National Economy?
…………………………………………………………………………………………...............