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THE EFFECT OF COVID-19 ON THE INTERNATIONAL SUPPLY CHAIN OIL INDUSTRY: A CASE STUDY OF UGANDA
CHAPTER ONE
INTRODUCTION
1.1 Introduction
This chapter provides a general overview of the study, presenting the background, problem statement, purpose, objectives, research questions, scope, justification, significance, hypotheses, conceptual framework, and operational definitions of key terms.
1.2 Background to the Study
Global supply chains have historically been vulnerable to disruptions originating from major exporting countries. Events such as trade disputes, political unrest, and pandemics like COVID-19 can significantly obstruct the smooth flow of goods and services between trading partners (Guan, 2020; Elomri et al., 2020).
COVID-19 has caused unprecedented disruptions across global economic sectors. Governments worldwide instituted lockdowns as a public health response, which, while aimed at curbing virus transmission, led to production halts, transport restrictions, border closures, and widespread logistical bottlenecks (Panwar et al., 2022; Fonseca & Azevedo, 2020).
The World Bank projected a global GDP decline of 5.2% in 2020 due to COVID-19, resulting in a reduced capacity for production and consumption, ultimately impacting demand and the operations of supply chain firms (Javorcik, 2020). At the microeconomic level, COVID-19 caused job losses, income reductions, and diminished commercial activity, further decreasing household consumption.
As the world’s largest exporter, China plays a critical role in global trade, contributing approximately 16% of all exports. Its emergence as the epicenter of COVID-19 had a cascading effect on global supply chains, especially for intermediate goods and pharmaceutical ingredients (Sarkis, 2020; Ivanov, 2020). With over 90 countries implementing lockdowns by March 2020, the movement of goods was severely disrupted, paralyzing the maritime and logistics sectors essential for international trade (Free & Hecimovic, 2021).
The World Trade Organization (WTO) predicted a 13–32% drop in global trade by the end of 2020. Sectors such as automotive, electronics, and food systems were especially affected. The oil and gas industry faced a dual crisis—plunging oil prices due to a price war and the global economic slowdown caused by the pandemic. Crude oil prices dropped from $64 to $18.47 per barrel between January and April 2020, exacerbating challenges for high-cost and debt-laden producers.
In Uganda, the oil industry has evolved significantly since the confirmation of commercial petroleum reserves in 2006. From an estimated 300 million barrels in 2006, the country’s oil reserves have grown to about 6.5 billion barrels, with 1.4–1.7 billion barrels deemed recoverable as of 2016. Despite this progress, Uganda has not commenced oil production. This study seeks to assess how COVID-19 has impacted the international supply chain with specific reference to Uganda’s oil imports.
1.3 Problem Statement
Uganda’s oil reserves in the Albertine Graben, estimated at 6.5 billion barrels with at least 1.4 billion recoverable, have attracted investment from international oil companies like Total S.A., CNOOC, and Tullow. Although oil was discovered in 2006, commercial production has yet to begin. With global supply chains disrupted by COVID-19, especially affecting oil imports and pricing, this study investigates the pandemic’s effect on Uganda’s oil industry and import performance.
1.4 Purpose of the Study
The primary purpose of this study is to examine the impact of the COVID-19 pandemic on the international supply chain of the oil industry, focusing on oil import dynamics in Uganda.
1.5 Objectives of the Study
To assess the effect of the real exchange rate on oil imports in Uganda.
To examine the impact of global oil prices on oil imports in Uganda.
1.6 Research Questions
What is the effect of the real exchange rate on oil imports in Uganda?
What is the impact of oil prices on oil imports in Uganda?
1.7 Hypotheses
H1: The real exchange rate significantly affects oil imports in Uganda.
H2: There is a significant relationship between oil prices and oil imports in Uganda.
1.8 Scope of the Study
1.8.1 Content Scope
The study will explore how fluctuations in the real exchange rate and international oil prices affect oil import levels in Uganda.
1.8.2 Geographical Scope
The research will utilize data from the Ministry of Energy and Mineral Development in Uganda.
1.8.3 Time Scope
The study will analyze data from 2019 to 2022, with fieldwork conducted between January 2019 and August 2022.
