World Bank Predicts a Reduction in Foreign Investment in the Oil Sector
Countries like Uganda that have been receiving money in the form of investment in exploration activities – Search for minerals, will see this dry up as companies cut their spending due to the impact of the Coronavirus (COVID-19).
This is according to the latest Africa Pulse report published by the World Bank. The report paints the gloomiest picture of Sub-Saharan Africa, showing that the region will fall into recession for the first time in 25 years.
Yet for countries like Uganda, to get investors to explore the existence of her minerals will face it even tougher. Last month, Uganda extended the deadline by six months to September 2020 for applications for those who wish to explore six new oil blocks in the Albertine region.
The report notes that “the fall in commodity prices – especially crude oil, metals, and minerals – will not only reduce their export proceeds but also slash the amount of financing brought by foreign investors.”
There are already indicators that investors are fleeing. Mining giant Rio Tinto has cut short its plans to invest up to $57 million (about Shs 210.9 billion) in Uganda’s copper project in Kitgum, according to its partner Sipa Resources Limited.
For Uganda, it also means its plans to export oil by at least 2023 are tampered with – as it may not happen.
When it comes to remittances – the money sent by Ugandans living abroad – it will nearly come to zero as most source economies like the USA, the UK and UAE have literally shut down. Uganda receives up to 4 percent of GDP in remittances annually by Ugandans abroad.
The report notes that COVID-19 will heavily affect aid flow to countries like Uganda. This is because “as major donors are now at the epicentre of the COVID-19 outbreak and their governments will deploy their resources toward protecting the vulnerable segments of the population that are being affected by the economic consequences of the pandemic.”
Expectedly, the report talks about tourism that has been hit hardest. For Uganda, tourism accounts for at least 20 percent of export earnings at an average of $1.4 billion in earnings annually.
This year, these earnings will be cut to negligible levels as all non-essential travels around the world have been prohibited.
As the fall in the export earnings continues, the report says countries with the largest external imbalance including Mozambique, Niger, Liberia, Guinea, Mauritania, Burundi, Sierra Leone, Uganda, and Sudan, face pressure for the domestic currency to weaken.
Bank of Uganda has said Uganda will only manage to grow by a paltry 3 percent this year, compounding the hard times that await the country. If the COVID-19 crisis drags on longer, this growth will be cut down further.