Establish a supplier development fund to strengthen SMEs in the Oil Sector

One of the key preoccupations of the government is how to enhance economic production and eradicate poverty. However, the extent to which the government should get involved in driving economic production is a divisive matter. Both the supporters of government involvement and those against have very strong arguments to back their view points.


A number of governments have realised that they have to work with the private sector to enhance economic production; some of these governments have adopted public-private partnerships (PPP’s). A PPP can be described as a government service or private business venture which is supported or operated through a partnership of government and one or more private sector companies.


A good example is the Taiwanese government that adopted the concept for strategic sectors. The government offered preferential loans and provided technical and managerial assistance. It also subsidised up to 60 per cent of the costs of consultants advising firms in these strategic sectors. Tax incentives were also introduced to support innovativeness and promote technological capability.


Back home, the Uganda government is also keen to establish public-private sector partnerships that will boost economic production.


For instance in the agricultural sector, improvements in the technical capability of farmers have been achieved through the work of the National Agricultural Research Organisation and various agricultural development authorities. The Agricultural Credit Facility has also enabled firms involved in the agricultural value chain to access credit at subsidised rates.


The government also encourages private sector involvement in the energy sector; Uganda Energy Credit Capitalisation Company (UECCC) was established to enhance the flow of private sector financing resources towards investments in small scale, renewable energy generation and distribution projects and/or rural electrification projects in Uganda. UECCC financiers include the government as well as multilateral and bilateral development partners.


Another example of PPP’s aimed at increasing the productivity of a strategic sector, is the European Union and UKAid programme in Uganda’s road construction industry. Working with the key stakeholders including the government and lenders, the programme supports local contractors to achieve international standards of work quality and improve vocational skills. The programme also provides guarantee schemes to help local construction companies undertake bigger contracts.


In the oil sector, SMEs have to meet very stringent operating requirements in order to be part of a world class value chain.


To deliver at this level they will have to develop sophisticated technical and managerial competencies. At the core of oil sector operations is the principle of reliability. That is being able to deliver the right quality, quantity, safely and on time. Reliability will not be compromised, because of the potential dangers and losses that can arise from a job that is poorly done or not done on time.


To succeed, SMEs need to develop effective risk management frameworks, where they document and monitor potential risks. They need to establish ethical codes and compliance systems to enhance the integrity of their services.


In order to be able to access larger amounts of credit, these SMEs have to strengthen their accounting systems, carry out regular independent audits of their operations and strengthen compliance with tax regulations. Stanbic Bank is one of the institutions that have proactively engaged other stakeholders to train SMEs in the oil sector. In September 2012, it co-hosted a business clinic, where the SMEs were trained on oil sector contracting and procurement processes, finance, tax management, governance, and health, environment and safety.


Such high performance standards require oil sector service providers to be in a state of continuous improvement, with a single minded focus on operational excellence and flawless execution.


In conclusion, Uganda should establish a supplier development fund to strengthen the capability of SMEs in the oil sector. An ideal fund would have two components: one for building the technical and managerial capability of the SMEs, while the second component would provide a credit guarantee that would allow them to borrow larger amounts of finance at subsidised rates.

This article is authored by Mr Karama who coordinates the oil and gas strategy at Stanbic Bank Uganda.


This opinion was picked from the Daily Monitor Website

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