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From: Berhane Habtemariam (Berhane.Habtemariam@gmx.de)
Date: Tue Aug 03 2010 - 08:38:28 EDT
FACTBOX-Key political risks to watch in Uganda
Mon Aug 2, 2010 11:55am GMT
By Elias Biryabarema
KAMPALA Aug 2 (Reuters) - Uganda will become an oil-producing nation in
2011, allowing it to reduce its budget dependence on foreign aid and improve
poor infrastructure.
East Africa's third largest economy is seen growing between 7-8 percent in
2010/11 from 5.6 percent in 2009/10.
Somali rebels killed 79 people in Kampala as they watched the World Cup
final on July 11 and said the suicide attacks were revenge for the presence
of Ugandan peacekeepers in Somalia.
Here are some of the factors to watch:
BOMBING FALLOUT
President Yoweri Museveni is under pressure to act on al Shabaab and the
rebels have said they will strike Uganda again if it does not withdraw its
troops.
While the African Union agreed to send 4,000 more troops to Somalia, their
mandate was not strengthened to let them attack the al Qaeda-inspired
rebels.
What to watch:
-- Any additional attacks. Do Western countries change their travel
advisories on Uganda? Any targeting of the oil sector could prove
particularly damaging.
-- Any signs that the government is using the attacks as a pretext to clamp
down on opposition ahead of 2011 presidential elections in which Museveni
faces his stiffest challenge since coming to power in 1986.
-- Uganda may send more troops to Somalia, heightening the risk of another
attack.
OIL WINDFALL
Uganda discovered oil along its border with the Democratic Republic of Congo
in 2006. British firm Tullow Oil and Heritage Oil have found up to 2 billion
barrels of oil in the Albertine Rift Basin. Reserves may be four times
bigger.
Five exploration licenses have been awarded while four blocks (8,000 sq km)
remain open. The government halted licensing in 2007 pending the enactment
of a new regulatory law.
Heritage has sold 50 percent stakes in Blocks 1 and 3A to Tullow Oil for
$1.45 billion. Tullow deposited $405 million of the total with the Ugandan
government in an escrow account pending the resolution of a tax dispute.
The deal allows Tullow to start a $10 billion project to develop Uganda's
reserves. It plans to bring in France's Total and China's CNOOC to fund
infrastructure, which could include a refinery and pipeline to the Kenyan
coast.
Tullow expects to start commercial oil production by the fourth quarter of
2011, increasing output to 200,000 bpd.
What to watch:
-- A prolonged wrangle between Heritage and the government over tax on the
Tullow sale. Heritage says it has been advised it does not owe tax in
Uganda, but the government wants the full $405 million. Uganda will decide
in August whether to resolve the dispute through arbitration in London or
via local courts.
Uganda's petroleum sector needs a heavy injection of capital to get into the
production phase. Investors will be looking for government commitments on
transparency and policy stability.
-- New regulations: The new law overseeing Uganda's hydrocarbon sector is
expected to be passed by parliament in the second half of 2010. Remaining
licenses could then be auctioned.
-- The impact of oil on the economy: Economic growth is expected to
continue. However, flows of petrodollars could divert attention from other
sectors and encourage corruption.
-- Impact of oil on the local currency: The sudden inflow of petrodollars
will strengthen the Uganda shilling, making other exports less competitive
in neighbouring markets.
-- Decline in donor dependence. Economists say the influx of about $2
billion a year from oil will help the government plug its fiscal deficit.
This could diminish the leverage donors have and see the government ignore
foreign pressure to combat corruption and expand the democratic space.
-- Tension between government and Bunyoro Kingdom: Nearly all the oil has
been found in the Bunyoro Kingdom. The Banyoro want a 10 percent cut of the
petrodollars and more power for their monarch. An oil revenue-sharing
formula is in the making.
REGIONAL RISKS
Uganda's economy has been buoyed by increasing exports, especially food, to
the neighbouring economies of South Sudan, Rwanda, Democratic Republic of
Congo and Kenya. The improved export flows have helped strengthen Uganda's
balance of payments. The country registered a cross border (informal) trade
surplus of $1.3 billion in 2008 from $776 million in 2007, according to the
Uganda Bureau of Statistics (UBOS).
South Sudan, which emerged from a decades-long civil war in 2005, imported
goods worth $910 million in 2009 compared to $465 million in 2007.
Landlocked Uganda is heavily dependent on imports from the Kenyan port of
Mombasa.
What to watch:
-- South Sudan referendum on secession in January 2011: A yes vote is
expected but if the result ignites a dispute with Khartoum, or even a
resumption of war, trade could be blocked. It could also undermine the
fragile peace in Northern Uganda.
-- Kenya referendum on constitutional reform: On Aug. 4 Kenyans will vote on
a new constitution aimed at avoiding a repeat of the 2007/08 post-election
violence.
The last bout of violence triggered a spike in fuel and food prices as
imports to Uganda were held up in the Kenyan chaos.
-- Uganda has sent more troops to its border with the DR Congo, after a
rebel group killed five people while fleeing a Congolese army offensive.
POLITICS
President Museveni will stand for a fourth term in elections in 2011, most
likely against arch rival Kizza Besigye. Besigye lost the previous two
elections but gained votes latterly.
With the oil find, Museveni now has reason to cling onto power. But the
opposition appears more united, setting the scene for an electoral showdown
that could turn violent.
What to watch:
-- Can the opposition unite? Leading opposition parties have formed the
Inter-Party Cooperation (IPC) coalition to field a single candidate. Besigye
is tipped to be the IPC's flag bearer ahead of ex-UN diplomat and Uganda
People's Congress leader, Olara Otunnu. The refusal of the Democratic Party
to join IPC may mean the opposition vote will fragment.
-- Opposition boycott? Opposition parties have threatened to boycott next
year's ballot unless the government reconstitutes the Electoral Commission
to make it impartial.
Any boycott would embarrass donors who backed Museveni and tie aid to good
governance. Currency traders say a sudden drop in aid could weaken the
shilling and drive up import costs.
-- Media and opposition crackdown: With oil revenues set to surge, some
analysts say Museveni has more reason than ever to cling to power. Experts
expect the former rebel to become more intolerant of dissent, critical media
and strong opposition.
-- Foreign aid cut? Donors may cut aid in the next financial year if the
government does not curb corruption.
Foreign aid contributes 30 percent of annual budget. Substantial cuts could
stall key infrastructure projects.
-- Investor jitters: Analysts say some investors may not roll over positions
in government securities ahead of the vote and capital expenditures may slow
around election time.
BUGANDA KINGDOM
Tensions between one of Uganda's traditional kingdoms, Buganda, and
Museveni's government exploded into days of bloody riots last September that
left around 20 people dead. A fire which destroyed the royal tombs stoked
hostilities.
Buganda's support for Museveni has fallen in the last two presidential
ballots, a trend seen continuing next year.
What to watch:
-- Museveni seeks to recapture the Buganda vote: Museveni could make
concessions such as reopening its radio station and softening his criticism
of the monarch or Kabaka, Ronald Mutebi.
-- Alternatively, Buganda cosies up to opposition: Some analysts expect
Buganda to become outspoken in support of the opposition. This could provoke
intimidation from Museveni but investor impact would be low if the rhetoric
remained just that.
-- Further violence: Relations between Museveni and the Baganda are bad.
Violence would spook capital markets, triggering a dash for dollars.
(Additional reporting by Peter Apps; Editing by David Clarke and Giles
Elgood)
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