| KAMPALA, July 12
KAMPALA, July 12 Suspected Somali Islamists
carried out two bomb attacks late on Sunday in the Ugandan
capital that killed at least 64 people as they watched the World
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
Here are some of the factors to watch:
The explosions ripped through two bars packed with soccer
fans. Foreigners were among the dead including one American.
Al Qaeda-inspired al Shabaab militants in Somalia had
threatened to attack Uganda for sending peacekeeper troops to
the east Africa country to support its western and
Ethiopian-backed government. An al Shabaab commander in
Mogadishu welcomed to the attack while saying he did not know if
they had carried it out.
What to watch:
-- Claims and attribution of responsibility. Ugandan
authorities say they have identified the severed head of a
Somali national who might have been a suicide bomber. Ethiopia
has already blamed the Islamists. [ID:nLD66A0I2]
-- Any additional attacks would do much more to deter
investors and tourists. Do Western countries change their travel
advisories on Uganda? Any targeting of the oil sector could
prove particularly damaging.
Uganda discovered commercial hydrocarbon deposits along its
border with the Democratic Republic of Congo in 2006. British
exploration firm Tullow Oil (TLW.L) and Heritage Oil HOIL.L
have found up to 2 billion barrels of oil in the Albertine Rift
Basin. Industry sources believe reserves could be four times
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 is awaiting government approval to sell its 50
percent stakes in Blocks 1 and 3A to Tullow Oil for $1.5
billion. Heritage initially signed a Sale and Purchase Agreement
(SPA) with Italy's ENI (ENI.MI) before Tullow, with whom
Heritage jointly owns the blocks, later exercised its
Tullow plans to sign partnership deals with France's Total
(TOTF.PA) and China's CNOOC (0883.HK) to raise the funds
required to develop infrastructure, which could include a
refinery and pipeline to the Kenyan coast.
Tullow says it expects to start commercial oil production by
the fourth quarter of 2011, gradually increasing output to a
peak of 200,000 barrels daily.
What to watch:
-- A prolonged delay in the approval of Heritage/Tullow
deal. Uganda has rejected Heritage's proposal to seek
arbitration in London and an offer by the firm to deposit $108
million to settle a tax dispute.
Uganda's petroleum sector needs a heavy injection of capital
to get into the production phase. Investors will be looking for
clear government commitments on transparency and policy
stability. Heritage has warned that the delay in approving its
deal reflects poorly on government investment policy.
-- 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 revenues on the broader economy: Uganda
has enjoyed a decade of strong growth and economists forecast
the trend will continue. However a sudden flow of petrodollars
could divert attention from other sectors and encourage
-- Impact of oil on the local currency: The sudden inflow of
petrodollars will strengthen the Uganda shilling UGX=, making
other exports less competitive in neighbouring markets. A
stronger local unit could drive up the import bill, mitigating
some of the impact on the shilling's value.
-- Decline in donor dependence. The World Bank calculates
Uganda will be earning 2 billion dollars from oil exports
annually. Economists say the influx of petrodollars will help
the government plug a substantial chunk of 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 the central government and Bunyoro
Kingdom: Nearly all the oil has been found within the Bunyoro
Kingdom. The Banyoro, who have historically complained of
marginalisation, deprivation and neglect, want a 10 percent cut
of the petrodollars and more power for their monarch. An oil
revenue-sharing formula is in the making.
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. As a land-locked country, Uganda is heavily
dependent on imports from the Kenyan Indian Ocean port of
What to watch:
-- South Sudan referendum on secession in Jan. 2011: A yes
vote is widely expected but if the result ignites a dispute with
Khartoum, or even a resumption of war, trade routes could be
blocked and demand hit. 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. One rights group
has said an arms race is on between two of Kenya's largest
ethnic communities ahead of the 2012 presidential poll.
The last bout of violence triggered a spike in fuel and food
-- Uganda's army has sent more troops to its border with the
Democratic Republic of Congo, after a rebel group killed five
people while fleeing a Congolese army offensive.
-- Uganda is among five east African countries that have
signed a new pact to govern sharing of the Nile waters, a life
and death issue for Egypt.
-- Any shift in Somali policy following the bombing.