Uganda elections leave oil industry exposed

Uganda elections leave oil industry exposed

In the run-up to Uganda’s elections, political dynamics are set to increase risks across sectors, with the oil industry particularly exposed to the course of elections.

On 9th November 2015, official campaigning for next year’s election commenced. The Electoral Commission has decided upon eight presidential candidates – among them are two notable contenders.

President Yoweri Museveni, 71, is running yet again after being in power since 1986. This time round however, a threat has emerged to his likely re-election. Former Prime Minister Amama Mbabzi, who was sacked from his post as Prime Minister in 2014, is running for the presidency.

Whilst it is difficult to conceive of any Ugandan political figure posing any real threat to Museveni’s rule, Mbabzi’s candidacy certainly causes problems for Museveni. His decision to run highlights Museveni’s waning influence within the National Resistance Movement (NRM). This also means that Museveni may have to reach a political compromise with Mbabzi.

In turn, Mbabzi will be able to draw on support from disillusioned factions within the ruling NRM. Having been in power for 30 years, he has an extensive network extending through government, intelligence and the military. Running as an independent, he has also been able to draw support from nine political groups.

Electoral difficulties

However, it remains true that the political opposition movements in Uganda are divided, substantially weakening their potential to secure office. Kizza Besigye, leader of the Forum for Democratic Chance (FDC) – Uganda’s largest opposition party – failed to unite with Mbabzi. This raises the likelihood of losing the election to Museveni and election violence as the FDC leader promises to protest.

The elections, similar to 2011, will likely be characterised by corruption and intimidation. Museveni has significant political influence within the Electoral Commission. The electoral commission will likely be Museveni’s most favoured tool to prevent contenders from challenging his rule.

With this in mind, it is difficult to see how the body will successfully reduce tensions in the election. The Commission maintains that candidates cannot campaign in the same place at the same time, which will help to prevent violent clashes. Yet, such measures are unlikely to prevent probable violence following the outcome of the election.

Economy in flux

Uganda’s vulnerable economy compounds political risks. This year, owing to a decline in global trade, a fall in coffee prices, a decline in exports to South Sudan, and a collapse in commodity prices, the country’s export earnings will drop by around $200 million.

The Bank of Uganda (BoU) expect that this will negatively impact Uganda’s weak balance of payments and contribute to a sharp depreciation in the Ugandan shilling. The country’s export earnings are expected to reach just $2.4 billion while the cost of imports is likely to stand at $6 billion.

These dynamics pose real problems for Uganda’s current account. With an economy on the rocks, political compensation in the form of corruption in elections will become attractive in order for Museveni to maintain power and national cohesion.

The Oil Industry

One sector that is disproportionately exposed to the political and economic fragilities is the upstream oil industry. Without oil, Museveni will need to resort to repression to maintain power. With oil he has an opportunity to practice excessive corruption.

Museveni, who makes decisions on the sector personally, will likely see oil production as an opportunity to buttress his patronage system which is under threat from political factionalism.

Already, Museveni has claimed that 70% of revenue shares from International Oil Companies (IOCs) will be owned by the government, but this is yet to be passed into law. At the same time, Petroleum Sharing Agreements are kept secret. This is an unusual practice and significantly heightens corruption risks, as shown by the 2013 allegations of bribery between Tullow Oil and the President.

Furthermore, key regulatory institutions such as the Anti-Corruption Division and the Ugandan Petroleum Exploration and Production Department (PEPD), designed to regulate the sector, remain vulnerable to political forces. Investors have little confidence in these institutions.

Risk Surge

In the run up to elections and upon their outcome, IOCs will be exposed to significant political risks. There is potential for heightened risk of corruption in the upstream oil sector, whilst political pressures from the executive will increase in light of the NRM’s weakening grip on power and Museveni’s desire to hold on to it in the face of an increasing portfolio of obstacles.

About Author

Elliot Kratt

Elliot is a Freelance Analyst with The Economist Intelligence Unit. Prior to this, he held positions in a number of risk consultancies and has worked in East and West Africa. He has been quoted by journalists with the Financial Times and Wall Street Journal. Elliot holds a first class BA (Hons) in International Relations from the University of Leeds. All views expressed are his own.