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CONSTRAINTS AND OPPORTUNITIES FOR SMEs INVESTMENT IN UGANDAS OIL AND GAS SECTOR

DRAFT RESEARCH REPORT

GRANT TITLE TA - 10 093

August, 2011

Executive Summary
This Study on Constraints and Opportunities for SMEs in Ugandas 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.

Table of Contents
List of Acronyms ........................................................................................................................................... 6 List of figures ................................................................................................................................................ 7 List of Tables................................................................................................................................................. 8 CHAPTER ONE: INTRODUCTION ........................................................................................................ 9 1.1 1.2 1.3 1.3.1 1.4 1.5 Background ................................................................................................................................... 9 Problem Statement ......................................................................................................................11 General Objective ........................................................................................................................12 Specific Objectives ..............................................................................................................12 Research Question .......................................................................................................................13 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: 2.2.1 Figure 2.2: Map of the Albertine Graben..............................................................................................17 Research Phases ..................................................................................................................18 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 3.2 Current status of Ugandas Oil and Gas value chain ...........................................................34 Factors that affect SMEs decisions and willingness to invest in oil and gas value chain ...........35 4

3.2.1 3.2.2 3.2.3 3.3 3.4.

SMEs Distribution and Economic Profiles..........................................................................35 Economic Profiles of the Studied SMEs .............................................................................37 Factors that hinder SMEs willingness to invest ..................................................................38 Current Partnerships between SMEs and TNCs..........................................................................40 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 4.2 Preliminary Review of the Petroleum Bill ..................................................................................46 Policy Implications ......................................................................................................................46

References ...................................................................................................................................................48 Appendix Research Questionnaire ...........................................................................................................50

List of Acronyms UIA URA MEPD BoU UBoS UNBS UWA NEMA PPDA SMEs TNCs NAADS MEMD UGANDA INVESTMENT AUTHORITY UGANDA REVENUE AUTHORITY MINISTRY OF FINANCE, ECONOMIC PLANNING AND DEVELOPMENT BANK OF UGANDA UGANDA BUREAU OF STATISTICS UGANDA NATIONAL BUREAU OF STANDARDS UGANDA WILDLIFE AUTHORITY NATIONAL ENVIRONMENT AUTHORITY PUBLIC PROCUREMENT AND DISPOSAL AUTHORITY SMALL AND MEDIUM SIZED ENTERPRISES TRANSNATIONAL CORPORATIONS NATIONAL AGRICULTURAL ADVISORY SERVICES MINISTRY OF ENERGY AND MINERAL DEVELOPMENT

List of figures Figure 1.1: Figure 2.1: Figure 2.2: Figure 3.1: Figure 3.2. Conceptual framework for SMEs willingness to invest in oil and gas sector Map of the Albertine Graben Petroleum value chain Services demanded in the Upstream Petroleum activities Current actors in the Uganda oil and gas value chain and their interlinked relationships.

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 Peoples Perceived Benefits from oil discovery and trade

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, Ugandas 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
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Petroleum constitutes the highest import value of Ugandas imports. In 2009 and 2010 the percentage stood at 17 and 19 per cent respectively of the national imports

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 Ugandas likely revenues from oil. Yet whatever the oil price, if production goes ahead without hitches, the countrys 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 Ugandas economy, the SME3
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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 countrys policy development and poverty eradication initiatives. SMEs play a vital role in Ugandas 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 Africas 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

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 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.

The research questions that guided this study were to determine

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
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

H1

H2

H3

Willingness of SMEs to invest in the Oil and Gas sector

H4

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)

Key Full block lines Dotted lines H1, 2, 3 & 4 = = = Direct relationships Indirect relationships 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,

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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 studys 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.
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 Ugandas 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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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
Oi l & Gas resources Oil Field servic es and Equipm ent R eserves devel opment Tradi ng Fi nanc ing R&D Oi l & gas production Process chem ical s Agric & Manufacturing

Transport & storage

Oil refini ng Petrochem ical s

Gas processing

Transport & storage

Transport & storage Gas m arketing/ distribution Oil marketing & distributi on

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 Uganda Registration Services Bureau (URSB) Uganda Revenue Authority (URA) Public Procurement and Disposal of Public Assets Authority (PPDA) Data collected Officially registered SMEs, physical addresses and main contacts in the study districts SMEs tax payers category and various business operations they are involved in Enterprises registered under the PPDA Services provision to Government and TNCS national standards/ requirements for supplying services to Government Uganda Investment Authority (UIA) Ministry of Energy and Mineral Development (MEMD) National Agricultural Advisory Services Programme District Administration List of local enterprises by sector, investment value, year of licensing to measure age and areas of operation business Licensed TNCs involved in Oil prospecting and exploration activities, large oil importers and distributors in the study areas List of agricultural food suppliers in the study areas and their operation capacity List of enterprises in the district to compare with
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production and commercial section Uganda Clearing and

information obtained from other sources.

Name list of clearing agents likely to tap opportunities in

Forwarders Agents Association 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 National Environment Management Authority (NEMA) 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 List of environmental consultancy practitioners in study areas, environment quality standards and certifications. List of health providers and pharmacies in the study areas, health/drug quality standards and certifications

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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 TNCs currently prospecting and carrying out exploration in the oil and gas sector Data collected 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 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 Method used in data collection Interviewed two prospecting and exploration companies Tullow Oil and Neptune

TNCs importing and distributing Petroleum but also doing business with the prospecting

Interviewed Total E and P

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companies

Ministry of Energy and Mineral Development Ministry of Finance Planning and Economic Development

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 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. 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 three respondents

Interviewed two respondents

Enterprise Uganda

O1 Member Uganda National Chamber of Mines and Industry

Uganda Investment Authority (UIA)

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 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 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

Conducted one interview

Conducted one interview

Focused Group Discussion

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Uganda National Bureau of Standards Private Sector Foundation Uganda (PSFU) and Uganda Manufacturers Association

Quality specifications, certifications, procedures, and how they impact on SME investment 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 Procurement regulations, requirements and costs Identify procurement related constraints that may impact on SMEs investment in Oil and Gas.

Conducted one interviews Conducted one interview

Public Procurement and Disposal of Public Assets Authority (PPDA)

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 = 0.23, where n = sample population and N

N = total enterprise population in the region studied. Table 2.3 shows the distribution of the subsamples by sector and location (district) and the total sample size. Table 2.3: Distribution of the selected SME respondents by sector and district Sector Freight Forwarding Transport (passenger) Catering/ restaurants No. of respondents SMEs per District Kampala Masindi Hoima Buliisa Gulu 5 0 0 0 0 3 8 2 9 3 7 1 1 3 8
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Consultancy services Real Estate and Accommodation Micro financing and Foreign Exchange Bureaus Agricultural produce Processed Fresh (Food supply, beef, milk, poultry and fish) Health services Vocational training Metal Fabrication/Artisans Trading (supply of hardware merchandise and equipment) Maintenance (plumbers, electricians and mechanics) Road construction Total number of respondents

4 6 7

1 8 3

2 10 5

0 2 2

2 9 3

8 6 7 3

5 3 4 2

7 4 4 3

8 2

1 0

3 2

10

16 96

4 45

8 61

3 11

9 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
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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 Freight Forwarding Data collected 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 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, 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 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 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. 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 Capital base, sales trends, price trends, current size and potential size
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Transport (passenger)

Catering/restaurants

Consultancy services

Real Estate and Accommodation

Micro financing and Foreign Exchange Bureaus

Agricultural produce

Processed Fresh (Food supply, beef, milk, poultry and fish) Health services

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 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. 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 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 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 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 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

Vocational training

Metal Fabrication/Artisans

Trading (supply of hardware merchandise and equipment)

Maintenance (plumbers, electricians and mechanics)

Road construction

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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 Cronbachs 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

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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 = +is +Xi + where Y is dependent variable (Willingness of SMEs To invest il 4he oil and gas sector =1, or not =0); is a constant; Xis are the explanatory variables; is are a vector of explanatory variable coefficients; and 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 companys 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 Cap Variable description Capital base (value of fixed assets owned by the company (in Uganda shillings) volumes purchased and sold Variable Data form Categorical Hypothesised effect +

Vps

Dichotomous

+
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Info. Cred. Cost. Cust. Pol. Infr, Bus Reinv.

Access to information about contracts and procedure Access to credit Cost of credit and capital (interest rate) Size of customers (number of regular customers for the companys goods) Policy awareness Available supporting physical infrastructure Business stability(number of years of business operation) Percent of profit re-invested annually

Dichotomous Dichotomous Categorical Categorical Dichotomous Categorical Categorical Categorical

+ + + +
+

+ +

The coefficients in the logistic regression were estimated using the maximum likelihood estimation method (Judge et al., 1980) using SPSS. The estimated coefficients (s) 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 Cramers 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
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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.

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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.

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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.
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).
6

33

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 Ugandas 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
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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 3.2.1.1

SMEs Distribution and Economic Profiles 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 Hoima Masindi Buliisa Gulu Kampala Total Frequency 59 25 8 51 50 193 Percent 30.6 13.0 4.10 26.0 25.9 100.0

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

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Table 3.2: Distribution of SMEs by sector Sector 1 Agric, Forestry and fisheries 2 Accommodation and food services 3 Information and communication 4 Finance and insurance 5 Real estates 6 Administrative and support services 7 Education 8 Petrol and Oil Business 9 Human Health and social work services 10 Mining and quarrying 11 Agro inputs and vet facilities 12 Distribution business 13 Animal production 14 Furniture and other wood fittings 15 Office and Stationary supply 16 Hardware supplies 17 Dry Cleaning 18 Manufacture and repair of machinery and equipment 19 Civil engineering 20 Manufacturing 21 Warehousing 22 Fire Fighting 23 Consultancy 24 Waste Management 25 Clearing and forwarding 26 Advertising and Market Research 27 Repair and installation of machines and equipment 28 Electricity, gas and air conditioning supply 29 Water supply and sewage management 30 Construction 31 Wholesale and retail 32 Repairs of motor vehicles and bikes 33 Transport and storage Total
*N =192 due to Non-Response

Frequency 14 20 4 6 1 3 4 11 15 1 2 1 5 2 7 4 1 2 3 15 1 1 5 1 1 1 2 3 2 8 21 10 15 192*

Percent 7.3 10.4 2.1 3.1 .5 1.6 2.1 5.7 7.8 .5 1.0 .5 2.6 1.0 3.6 2.1 .5 1.0 1.6 7.8 .5 .5 2.6 .5 .5 .5 1.0 1.6 1.0 4.1 10.9 5.2 7.8 100

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
36

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 Business registration Status Registered Unregistered Business ownership Partnership Sole Proprietorship Limited Company Communal ownership Owned by the church diocese Business age* 1-10 years >10-20 years > 20 years Value of Fixed Assetsb (UGX) None
7

Frequency

Percent (n=193) 100.0 0 34.2 58.0 5.2 0.5 1.6 49.7 30.0 20.2 70.5

193 0 66 112 10 1 3 96 58 39 136

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.

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<10 million 10-100 million >100-500 million >500-1000,000,000 million > 1000,000,000 million Investment Capitalc (UGX) <100 million 100-200 million >200-300 million >300-600million >600-1000,000,000 > 1000,000,000 million Main Market Export Local
b c

7 20 22 4 4 43 66 13 31 21 17 8 185

3.6 10.4 11.4 2.1 2.1 22.5 34.6 6.8 16.2 11 8.9 4.2 95.9

*Business age refers to the period of business survival from first registration
Value of fixed refers to summated value of owned land, buildings, machinery, vehicles and furniture Investment 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.
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Table 3.4: Association between Willingness to Invest and hypothesized internal and external factors Sector (n=193) Factor Investment Capital Fixed Assets Age of the business Knowledge of oil business Information Flow Access to Power Access to other Infrastructure Policy awareness Cost of Capital Access to credit Quality standards Price trends Volume of sales Number of customers
*

Chi square(X2) value 19.57 14.50 12.27 28.17 15.18 6.56 8.801 4.78 10.856 7.122 9.953 4.59 8.87 4.80

Df 6 5 2 4 1 2 6 1 5 1 8 2 5 4

P value 0.003* 0.013* 0.043* 0.000* 0.000* 0.038* 0.0185* 0.779 0.054** 0.009* 0.268 0.101 0.114 0.308

based 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) 61 Competition from foreign companies 23.8 49 19.1 Lack of awareness and information 38 14.9 Corruption among officials Lack of Capital to invest competitively 45 17.6 Lack of capacity especially training and skills 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.
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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.

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Figure 3.2. Current actors in the Uganda oil and gas value chain and their interlinked relationships.
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

Specialized services (TNCs)

Oil appraisal

Oil exploration

Oil Seismic surveys

Oil drilling

Direct services (Large scale players)

Indirect services (SMEs)

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 42

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

43

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 Peoples Perceived Benefits from oil discovery and trade Perceived benefit 1 Employment opportunity 2 Improvement in infrastructure 3 Growth of other sectors 4 Increase in revenue for local government 5 Service extension to people Frequency 87 76 57 46 67 Percent (n=333)* 26.1 22.8 17.1 13.9 20.1
44

*N > 193 due to multiple responses

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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.

46

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.

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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: 936947. 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). Ugandas 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 16. 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: Ugandas 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.

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Appendix Research Questionnaire

Constraints and Opportunities for Small and Medium sized Enterprises (SMEs) in Ugandas Oil and Gas Sector: A Case of the Albertine Graben region and Kampala District

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;
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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) Tick sector Specify Product/Service provided

Industrial Classification 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

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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
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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: A: 3.1 SME DECISIONS AND WILLINGNESS TO INVEST

INTERNAL FACTORS Please state the year in which your operations business started

3.2

State the shareholding/ownership of the Business Entity Nationality Country of Residence Shareholding (%)

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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) Value in Ugx by 31st December Asset Value in Ugx by 31st December 2009 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 company/Customer of Form Business of 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 Give reasons for change (kgs/tonnes) 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 Give reasons for change (kgs/tonnes) 2010 2009 2008 2007 2006 3.9 Indicate how the sales in your enterprise have changed over the last five business years Volumes sold Value (Ugx) Give reasons for change Year (kgs/tonnes) 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 2) Decreasing 3) Did Not Change Year 1) Increasing 2010 2009 2008

Reason for Change

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 2) No 3) Did Not Change Reason for Change 1) Yes Year 2010 2009 2008
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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 1 2 3 4 Commercial Bank Microfinance institution Co operative (SACCO) Others (Specify) Tick as appropriate

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 capital.............................................................................. ... accessing this

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 1 2 3 4 If yes, which of the following assets/collateral security were required? Land, Buildings Machinery and Equipment including movables Accounts receivable and inventories Personal assets of owner (house, etc)
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5 6

Other (Specify) 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 1 2 3 4 5 6 If your enterprise did not apply for credit or a loan what were the main reasons Collateral unacceptable Insufficient profitability Problems with credit history Incompleteness of loan application Concerns about level of debt already incurred Others (Specify) ) 1=Yes, 0=No

3.25 Have you ever reinvested in the business in the past 3 years? (

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 distancekms ii) If no, what is the distancekms 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 7. 8. 9. 10 3.30 3.31

Mobile phone coverage Electric Power stations Health Centres Financial Institutions Security (Police, Village Tribunals, Prisons) Do you have access to power (hydro or any other type) in your area ( ) 1=Yes, 0=No

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 chain. this

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?
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1 2

4 5 6 7 8

10 11 12 13 14 15

Partnership Area Specify activity Transportation services ( Trucks, Cars, loading vans and trucks) Logistics services (Fuel supply, in-house fleet management, Freight management, Custom Clearance and Cargo handling) Technical Services (Telecommunications, Plumbing, Metal Fabrication, Electrical and Mechanics, road maintenance, civil works and repairs, Crane services, Loaders and fork lifters) Micro financing/foreign exchange bureaus Lodging, Hotel and Catering Services Trade in Goods (e.g. spares parts, field gears, construction materials and other Consumables ) Real estate, Camps and Accommodation Consultancy services (IT, Environmental Management, Human Resource Management, procurement and financial management, quality assurance, project monitoring and evaluation) Community and Social Services e.g. Education and Vocational training, Health services/clinics, Pharmacies, etc) Waste management Ambulance and Emergency Services Security Warehousing and facilities management Labour contracting (Casual and semi skilled) e.g. painters, carpenters, and cleaners 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
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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: 5.0

AWARENESS ON POLICIES OF USE, EXPLOITATION, PARTICIPATION AND BENEFITS FROM THE SECTOR.

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 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) Do you know of any Oil exploration companies operating in your area ( ) 1=Yes, 0=No 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, 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
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5.1

5.2 5.3

5.4

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? ...............

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