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THE EFFECT OF COVID-19 ON THE INTERATIONAL SUPPLY CHAIN OIL INDUSTRY ACASE OF UGANDA
CHAPTER ONE
INTRODUCTION
1.1Introduction
This chapter presents background of the study, the problem statement, purpose, objectives of the study, research questions, study scope, justification of the study, significance, Hypotheses, conceptual framework, as well as operational definition of key terms and concepts.
1.2 Background of the study
Global supply networks have always been subject to shocks that take place in the major exporting nations. Trade conflicts, pandemics like COVID-19, political unrest on the home front, etc. are a few of these shocks (Guan, 2020), This vulnerability stems mostly from elements that may obstruct the smooth transfer of products and services from these exporting nations to their main import trade partners (Elomri et al., 2020).
All worldwide activity across all economic sectors and industries have been interrupted by COVID-19. The lockdown measures that nations throughout the world devised and put into effect as a health policy to lessen the effects of the pandemic’s spread on the human population are mostly to blame for the disruptions (Panwar et al., 2022). Fallout from the COVID-19 lockdown measures includes production halts, limitations on persons and products moving across borders, border closures, logistical challenges, as well as a slowdown in trade and economic activity (Fonseca, & Azevedo, 2020).
Due to COVID-19, the World Bank predicted that the world GDP will decrease by 5.2 percent in 2020. This implies a 5.2% decrease in the quantity of money and income available globally to finance production and consumption. A decrease in global buying power therefore results in a decrease in demand for commodities and a scaling back of supply chain firms’ operations. COVID-19 will, on a micro level, result in job losses, decreased earnings, and a fall in commercial activity. Households could therefore want less goods, which would have an impact on supply chain firms’ success (Javorcik, 2020).
China has been the world’s top exporter in the past 15 years, sending out items worth around US$2.3 trillion each year (WEF estimates). China accounts for 16% of all exports worldwide. The three biggest exporters in the world China, the United States, and Germany control approximately 30% of all exports worldwide (Sarkis, 2020).
The World Health Organization (WHO) headquarters in China initially received word of the COVID-19 pandemic, which started in Wuhan, China, on December 31, 2019. There were about 22.1 million recorded cases as of August 17, 2020. Its emergence in China, one of the world’s major centers for manufacturing and distribution, had an impact on the flow of finished and semi-finished goods into the various nations that rely on China for trade (Miroudot, 2020).
Nearly 20% of the world’s intermediate goods come from China. This has repercussions for international producers that rely on the nation for inputs either directly or indirectly. For instance, during 2018 and 2019, China accounted for more than 65 percent of all active pharmaceutical ingredients (API) imported by India. India has been facing delays in the supply, manufacture, and distribution of its pharmaceutical items as a result of the epidemic (Ivanov, 2020)
Due to rising global demand and export limitations for these commodities in many nations, the supply of essential things like personal protective equipment (PPE) and other medical supplies and equipment has been restricted globally. The shutdown has kept the transportation industry, which is essential to the operation of the global supply chain, partially closed. According to statistics, lockdowns have been implemented in at least 90 nations since March 2020, and at their height in April 2020, over 3.9 billion people were under lockdown (Free, & Hecimovic, 2021).
As a result, there were obstacles to the global supply chains’ efficient operation, which had a negative effect on international trade and industrial production. The epidemic has had an impact on the maritime sector, which is responsible for around 90% of $12 trillion in annual worldwide commerce activity. The World Commerce Organization (WTO) predicted that by the end of 2020, the amount of global trade will have decreased by between 13 and 32 percent. The supply-chain disruptions have also had an effect on other industries, including as manufacturing, retail, and construction (Ghadami et al., 2021).
Nearly all areas will see double-digit declines in trade volumes in 2020, with North America and Asia seeing the biggest drops in exports, predicts the WTO. As a result of the complexity of their value and supply chains, the electronics and automotive sectors will be the most severely impacted. The vulnerability of the world’s food supply systems has also been revealed by COVID-19.
By the end of 2022, the pandemic may cause 265 million people (up from 135 million) to experience severe hunger, according to the World Food Programme (WFP). The financial effects of COVID-19 on supply chains and commerce are substantial. The container throughput index, which counts the daily flow of people and products through shipping ports, fell from 113.3 in January 2020 to 107.7 in May 2020, a fall of 9.5 percent, according to the Institute of Shipping Economics and Logistics (ISL) ii.
Oil & Gas and Chemicals companies are in the midst of a two-pronged crisis: an oil price war and the impact of COVID-19. Oil prices dropped dramatically a few weeks ago when the Organisation of Petroleum Exporting Countries (OPEC) and Russia failed to agree on production cuts. OPEC and its allies (OPEC+) in a bid to stabilise falling prices, agreed to cut its combined output by 9.7 million barrels per day each in May and June from the agreed baseline. The timing of the agreement coincides with a period when the global crude oil market has more crude oil than it can use and potentially store.
The oil supply/demand imbalance is occurring in tandem with the depressed need for chemicals and refined products stemming from industrial slow-downs and travel restrictions in the wake of COVID-19. Consequently, the short- to medium-term outlook for high-cost producers, smaller operators and those companies with high levels of debt appears to be more challenging now than ever.
Consequently, between January and April, crude oil prices fell from $64 to $18.47 as a result of rising OPEC production and declining demand. As storage terminals fill to capacity, incoming shipments are postponed, and floating storage and pipelines are used to make up for onshore inventory limits, many businesses are also juggling high levels of inventory. As a result, prices will be dampened for quite some time, making it difficult to predict the pace of recovery.
The rapid growth and development of Technologie has greatly influenced how businesses are operated and managed in the 21st century. Today’s businesses are faced with evolvement and rapid changes as a result of the wide diffusion of technologies within organizations. The adoption and usage of Technology brings along competitiveness and thus leads to economic growth for economies that are able to exploit such opportunities (Steinfield, LaRose, Chew, & Tong, 2012).
Uganda confirmed commercial petroleum resources in 2006. Efforts to find oil in Uganda started as far back as the 1920s. These efforts led to the identification of surface seepages of oil and drilling of shallow wells around these seepages before 1945. One deep exploration well (Waki-1) was also drilled near Butiaba, in Buliisa district during 1938. These initial efforts were not successful in establishing commercial deposits of petroleum in the country. Renewed and consistent exploration efforts commenced in the 1980s which culminated into confirmation of commercial petroleum resources in Uganda during 2006.
The estimate resources in the country have increased from 300 million barrels in 2006 to 2 billion and 3.5 billion barrels in 2010 and 2012 respectively. As at June 2016, the discovered resources in the country were estimated at 6.5 billion barrels of oil equivalent in place with about 1.4 to 1.7 billion barrels of these resources recoverable (1 barrel is equivalent to 159 litres). The area explored presently represents less than 40% of the total area with the potential for petroleum production in the Albertine Graben. There is therefore potential for additional petroleum resources to be discovered in the country when additional exploration is undertaken.
1.3 Problem statement
Western Uganda has approximately 6.5 billion barrels of oil reserves, with at least 1.4 billion estimated to be economically recoverable. French firm Total, S.A., Chinese firm China National Offshore Oil Corporation (CNOOC), and U.K. firm Tullow have production licenses to develop Uganda’s oil reserves for export. In addition to producing and exporting crude oil, Uganda plans to build a refinery to produce petroleum products for the domestic and EAC markets, However despite discovering g oil in 2006, ugan da has not yet commenced oil production. This study therefore in tends to Investigate into the effect of covid-19 on the interational supply chain oil industry acase of uganda, with specific reference to oil morts in Uganda.
1.4 Purpose of the study
The study seeks to establish the the effect of covid-19 on the interational supply chain of oil industry.
1.5 Objectives of the study
- To investigate the effect of real exchange rate on oil imports in Uganda
- To establish the effects of oil prices on oil imports in Uganda.
1.6 Research questions
- What are the effects of oil prices on oil imports in Uganda?
1.7 Hypotheses
H1 Real exchange rate affects oil imports in Uganda
H2There is a positive effects of oil prices on oil imports.
1.8 Scope of the study
This section includes the content, geographical, time scope.
1.8.1 Content scope
The study will concentrate on two variables; Real exchange rate affects oil imports in Uganda and There is a positive effects of oil prices on oil imports.
1.8.2 The geographical scope
The study will be carried at Ministry of Energy and Mineral development data
1.8.3 Time scope
The period of data to be considered from Ministry of Energy an Mineral development will be from 2019 to 2022, while the study will be carried out from January 2019 to August 2022
