Historically, Uganda's economy has been based on agriculture, relying heavily on coffee, tobacco and fish exports. Approximately 70-80 percent of the population is employed by the agricultural industry. Uganda's extractive industry activities have focused on commercial mining of cobalt, gold, copper, iron ore, tungsten, steel, tin and other industrial minerals such as cement, diamond, salt and vermiculite.
Mining companies with a significant stake include Kasese Cobalt Company Ltd., Busitema Mining Company Ltd. and the formerly state-owned Kilembe Mines Ltd. The Kamwenge district is known to have the country's richest mineral deposits, with significant deposits of gold, lead and limestone. In the eastern and southwestern regions of Uganda, iron ore mining suggests reserves of 100,000 million tons. Meanwhile, steel production has not been sufficient to satisfy domestic demand and much of the country's steel is imported.
In 2005, gold exports comprised nine percent of the country's total exports. Even so, an unstable supply of electricity has hindered gold mining production potential in the past. For this reason, gold production between 2004 and 2005 dropped from 1,447 kilograms to 46 kilograms. Gold exports amounted to $122 million in 2006.
Uganda's production of vermiculite accounts for one percent of worldwide production and is an ongoing source of revenue. The country has sufficient reserves to continue its 2007 production level of 3,500 metric tons for another 100 years.
The yearly growth of the mining sector depends primarily on global demand, since most mineral production in Uganda is exported. The mining sector grew by 14 percent from 2006 to 2007, compared to eight percent growth from 2005 to 2006 (USGS). An increase in construction activity in recent years helped to spur this growth.
Oil exploration in Uganda has been intermittent since the 1920s. President Yoweri Museveni has said that five days after he took office in 1986, he was approached by Shell BP regarding potential oil contracts, but he rebuffed the offer, asking the company "whether there was anybody in Uganda who understood petroleum" at the time. "Petrol has been there for millions of years and I am in no hurry," he reports having said.
However, in 2006, oil was discovered near Lake Albert along the border between Uganda and the Democratic Republic of Congo, and since that historic find leaders and advocates have proceeded with preparations to exploit the nation's oil. Estimated to be Sub-Saharan Africa's biggest onshore oil discovery in 20 years, the find raises Uganda's confirmed oil reserves to two billion barrels, of which over 800 million barrels are expected to be recoverable.
Early extraction of crude oil is projected at 4,000-5,000 barrels per day with production anticipated to begin by 2013. Experts in government and industry say Ugandan oil production will increase to 125,000 barrels per day or more after five years, and continue at the top rate for 15-20 years more. This windfall would position Uganda to accelerate growth, diversify its economy and also drastically reduce its petroleum import costs, currently at $600 million annually.
The government has negotiated initial plans with oil companies for petroleum development, but activity has not yet begun. An early production scheme slated for mid- to late-2009 was indefinitely postponed for reasons including the recent volatility of gas prices and the global financial downturn. The credit crunch has had severe economic implications for the region's extractive industries, with less financing available to sustain operations or development by smaller companies. These and other uncertainties recently led to changes in the assignment of oil blocks, with the UK's Tullow Oil using its preemption rights to take over Heritage Oil's stake in two blocks, and also exploring development partnerships with larger oil players Total and CNOOC who are reported to have acquired a third of the Tullow interest each. In addition to Tullow and Heritage, major oil companies Tower Resources and Dominion Petroleum Ltd. are also operating in Uganda.
Uganda enacted an Oil and Gas Policy in 2008 to govern the massive 2006 find, but the improved guidelines set forth in the policy have yet to be implemented. The Ministry of Energy and Mineral Development is also drafting a new oil law to regulate the petroleum sector. A draft was released in order to gather comments ahead of the law’s final revision and approval, expected before the 2011 parliamentary elections. Revenue Watch conducted an analysis of the draft and issued a series of comments and recommendations that have informed the ensuing stages of the drafting process. By the end of September 2011, the bill had not yet been tabled in the parliament.
If effective oil production in Uganda can be sustained throughout the upcoming decade, it has the potential to mitigate large energy costs throughout the country, as well as to alleviate the country's expenditures on petroleum imports, which currently amount to $600 million annually.
More importantly, Uganda's energy ministry and Tullow Oil both estimate that the current reserves alone could generate over $2 billion in annual revenue for more than 20 years. The cumulative amount earned each year from oil would exceed the funding Uganda currently receives in development assistance, which is around $1.7 billion per year. Revenues from oil can go a long way in supporting Uganda's development objectives provided that transparent, accountable and effective management systems are put in place to prevent and mitigate the most common political and socio-economic problems associated with oil extraction.
One key question in production decisions is whether Uganda wants to invest in a refinery, a pipeline or railway development for the transport of crude oil. As a landlocked country, Uganda must evaluate the financial and practical viability of each option. The refinery would be the most financially challenging and inefficient option, with estimated costs exceeding $4 billion. The World Bank and the IMF have advised against a new refinery to support national consumption needs. Oil companies favor a pipeline that could serve the international market, but a pipeline will not be profitable unless Ugandan production increases beyond national demand and current estimated production levels. The third option, export via railway, would have the additional benefit of improving overall infrastructure.
Petroleum production in the Lake Albertine region also raises concerns about environmental impact and effects on the existing tourist industry, which is currently a major source of foreign exchange. Uganda also shares the Albertine Graben reserves with the Democratic Republic of Congo, creating the potential for conflict if both countries do not live up to their joint agreement for exploration and exploitation. As a further complication, the Lord's Resistance Army, a northern rebel group, hopes to secure the newly-discovered oil as leverage, which heightens the threat of conflict.
Lastly, it is crucial to bear in mind that oil revenues will be modest in per capita terms. Revenue Watch partner expert Keith Meyers estimates an initial increase to $75-100 in per capita oil income per year. For oil revenues to have a transformational impact, they must be strategically invested in a coherent development plan that leaves Uganda with a more diversified and vibrant economy when oil reserves are eventually depleted.
