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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
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
This section presents the literature review inline to the findings of other schoolars
2.1 Empirical literature review
This section presents literature review in lne to othr authors
2.2 COVID-19 and its impacts globally
Impact of COVID-19 across the global economy will be profound. Already, as described in greater detail in the policy brief ‘Shared responsibility, Global Solidarity’ on the socioeconomic impacts of COVID-19, markets and supply chains have been disrupted, businesses are required to close or scale back operations, and millions have or will lose their jobs and livelihoods.2 ILO has estimated that full or partial lockdown measures now affect almost 2.7 billion workers, represent- ing around 81% of the world’s workforce, while the IMF projects a significant contraction of global output in 2020. COVID-19 is lurching the world economy towards a global recession, which will be strikingly different from past recessions.
The number of confirmed cases will be increasing rapidly unless we launch several awareness-raising campaigns to bring information on prevention and symptoms of the disease to tens of thousands of people, especially those who live in rural areas with no access to the internet or other information sources to survive the onslaught of COVID-19. Owing to the generous support of Sign of Hope, Relief and Development Peer Foundation (RDP) was able to reach 50,983 individuals through awareness sessions and train 141 community health volunteers (CHVs) on the preventive measures of COVID-19 in 7 districts of Ibb and Taizz governorates. RDP has also provided essential Personal Protective Equipment (PPE) to 236 supported FDPs and 9 health facilities in the targeted districts. Besides, 800 packs of masks and gloves were being distributed while raising awareness for the public
The virus can spread from an infected person’s mouth or nose in small liquid particles when they cough, sneeze, speak, sing or breathe. These particles range from larger respiratory droplets to smaller aerosols. Current evidence suggests that the virus spreads mainly between people who are in close contact with each other, typically within 1 metre (short-range). A person can be infected when aerosols or droplets containing the virus are inhaled or come directly into contact with the eyes, nose, or mouth and The virus can also spread in poorly ventilated and/or crowded indoor settings, where people tend to spend longer periods of time. This is because aerosols remain suspended in the air or travel farther than 1 metre (long-range). People may also become infected by touching surfaces that have been contaminated by the virus when touching their eyes, nose or mouth without cleaning their hands, Following the initial outbreak in China, in early January 2020, COVID-19 began rapidly spreading across all regions of the world, achieving a pandemic status. Flattening the contagion curve became a priority in many countries in an attempt to reduce the load on the healthcare system and the overall mortality rate. Several countries enacted shelter-in-place and social distancing measures to reduce interpersonal contact and mobility in order to curb transmission of the virus. This was often implemented through massive “stay at home” media campaigns aimed at altering citizens’ habits. While the health measures enacted have been, by and large, homogeneous across countries, compliance with these rules varied widely with local context. In the absence of perfect enforcement capacity by states, cultural attitudes and behavioral norms, which typically vary from country to country, can make an important difference and explain deviations in voluntary compliance. This is all the more true when it comes to individual mobility decisions, which entail a delicate trade-off between the chance of contracting (or diffusing) a disease and the economic (and individual well-being) costs associated with significant alterations of daily activities (Salzberger, Glück, & Ehrenstein, 2020).
People who live in a community often have common interests and values. This is why organizations develop different ways of handling challenges of pandemics in line with the community’s interest and their way of life. Community awareness often refers to the degree that people generally know about each other, about social norms and people’s different roles within the community, and about issues that affect the community (Aldila, et al., 2020).
Community awareness is essential as it enable the community to reduce on their resentment towards specific laws that the government may have put in place. Having a proper community awareness is very critical towards achieving community acceptance of given laws and policies and this increases community participation towards their common cause, Community awareness as describe by Hill is the best way where in family elders recognize their role in the family& recognize their personal capabilities and strengths& appreciate their responsibilities in the community regarding a specific activity in the community (Prandi et al., 2020).
Awareness of any pandemic is very essential to the community as it enables the community to be prepared and provide the support to the vulnerable population to help in reducing the risk of the disease spreading further to other members. In early 2020, the COVID-19 (caused by the SARS-CoV-2 virus) pandemic shocked the world, almost bringing it to an unprecedented stop. The new coronavirus apparently started to spread in China during December 2019, before moving to Thailand, Japan, the Republic of Korea (first confirmed cases on 20 January 2020), then to the United States, Vietnam, Singapore , and, at the end of January 2020, to Australia, Nepal, Europe (first cases in France on 25 January 2020 and later in Germany, Finland, Italy, Malaysia, Canada, the Middle East, and other countries of the Western Pacific Region and South-East Asia Region, and (3) onwards to Russia, Africa, and Latin America. On 11 March 2020, the World Health Organization (WHO) declared the COVID-19 a pandemic. By 31 July 2020, COVID-19 had spread across 217+ countries and territories, with almost 17.1 million confirmed cases and 668,073 deaths. America then had confirmed 9.15 million cases, Europe 3.31 million, South-East Asia 2 million, Eastern Mediterranean 1.53 million, Africa 0.75 million, and the Western Pacific 0.31 million cases.
2.2 Technology on oil imports
Information systems software covers vast areas of technologies such as mobile and security, wireless technology, software development, telecommunications and intelligent systems. According to Kwok Hung Lau & Haibo Huang (2012) Information system has a huge impact on industries, the community in general and our daily lives. Information systems software can be applied to many fields. One of the emerging applications in recent years is in most of the organizations to enhance better performance while (Lee & Kim, 2016) notes that Information systems software is fast becoming one of the main drivers of change, posing new strategic challenge. The business environment today has been undergoing unprecedented change and many companies are seeking new ways to stand out from the competition by sustaining their competitive advantage. In today’s highly competitive global marketplace, the pressure on organization is to find new ways of creating and delivering value to customers in growing stronger.
According to Laudon & Laudon, (2016) technology can be thought of as the application of scientific knowledge for practical purposes. From the invention of the wheel to the harnessing of electricity for artificial lighting, technology is a part of our lives in so many ways that we tend to take it for granted.
Pearlson, Saunders, & Galletta, (2016) emphasizes that the need for information systems development cannot be understood unless one also understands the use of software in the organization and unless the software can be applied to the organization to enhance its better performance and enable the organization achieve better performance.
The integration of information technology (IT) and business processes has irrevocably changed the way in which modern organisations operate. according Grant & Meadows, (2016), The majority of medium-to-large organisations invest significant amounts of time, money and effort on information systems (IS); which combine hardware, software and networking capacity to enhance the efficiency and effectiveness of their business processes. In some circumstances the IS/IT that supports a business process becomes so integral that it can be very difficult to differentiate between them. The way in which organisational accounting processes have become embedded and reliant upon accounting information systems (AIS) is an apt example of this phenomenon.
Pinedo, (2016) indicates that Information systems software works hand in hand with the hardware to enable the organization be in position to achieve its goals and objectives. Computers, keyboards, disk drives, iPads, and flash drives are all examples of information systems hardware.
Chen et al., (2016) indicates that Software is not tangible it cannot be touched. When programmers create software programs, what they are really doing is simply typing the list of the organization’s instructions that tell the hardware what to do. There are several categories of software, with the two main categories being operating-system software, which makes the hardware usable, and application software, which does something useful. Examples of operating systems include Microsoft Windows on a personal computer and Google’s Android on a mobile phone. Examples of application software are Microsoft Excel and Angry Birds.
According to Huang et al., (2013), Governments around the world are under the pressure from citizens and business to be more open and transparent in managing public funds, deliver quality public services as per needs of citizens therefore,inthe last quarter of 2017, the world wide expenditure on software development was 480 billion dollars (Hughes et al., 2017).This expenditure was in information systems software to enable better service delivery and improve on general public sector performance.
According to Andrade & Doolin (2016) Internet and intranet technology has practical integrative applications for organizations. In addition to the practical use of IT as an integrative mechanism, the management of technology also has increased. makes a strong argument that companies use IT to structure organizations. In addition, he argues that he and many others consider the management of IT as the biggest challenge. The research from this thesis addresses both of these two issues; namely, the use of IT for integration and the implications associated with the management of information technology itself.
According to Rana et al., (2017) information systems initiatives in India was first started in 1990 with a minimal financial investment into National Informatics Centre to enable computerization of operations and automation of the pension fund. This was to eliminate the several challenges with the mismanagement and poor record keeping of the files of the pensioners.
Krecie (2016) reports that the government of Philippines invests around 8-10% of its Gdp on Information systems to enable integrating the operations of government agencies and also on improving transparency in public sector. These financial investments in information systems by different public sector organizations across the globe, is a manifestation of the long-term benefits of the service in enhancing better organizational performance.
The government of South Africa has over the last decade, recognized the importance of information and communications technology (ICT) and more recently Information systems in improving the standards of service quality and increasing the overall efficiencies of government (Aisara & Pather, 2011). As a result, the government has provided systems software to different public institution amounting to over R14 billion during2015/2016 financial year.
Abdullahi(2014),reports that the government of Nigeria in an effort to eliminate inefficiencies in service delivery and improve general performance, the government invested 32 billion dollars in 2015 to improve on the network systems and elimination of inefficiencies in the Information systems performance.
CHAPTER THREE
METHODOLOGY
3.0 Introduction
This chapter presents the methodology which consists of the research design, data types and source, tools of data collection, and data analysis.
3.1 Research design
This study will adopt a cross sectional survey design. This design is preferred because it enables collecting data in a short time (Creswell 2003 and Koul 2005).
3.2 Study Information
The researcher will use secondary data obtained from the national income accounts of Uganda as prepared and compiled by the Ministry of Energy.
3.3 Period of information
The study will focus on the effect of covid-19 on the interational supply chain oil industry acase of uganda.
3.4 Data type and sources
Source of data will be from secondary sources. The main source of data for this study will be the national income accounts of Uganda as prepared and compiled by the Ministry of Finance and Economic Development (MOFED), Department of National Accounts, UBOS, Ministry of Energy. In addition World Bank Africa database will also be used.
3.5 Tools of data collection
The data will be got by presenting an introduction letter given to me by the head of department international. This clearly presented my purpose to the different organizations where I will be legible to collect the necessary data for my analysis.
3.6 Data Analysis
Data will be analysed using Unit root tests will be conducted using ADF to find out the existence of unit root. The variables will then be tested to determine the presence or absence of cointegration. Error Correction Model will b used to capture the short run effects. There after a short-run parsimonious model was estimated after isolating the statistically insignificant variables from the error correction model. This was followed by performing diagnostic tests of serial correlation, stability and heteroskedasticity. The instruments of data analysis will be SPSS, EVIEWS.
Analytical Procedure
This study will use annual data to examine the determinants of oil imports in uganda in Uganda. The co-integration procedure requires time series in the system to be non-stationary in their levels. Moreover, it is imperative that all time series in the co-integrating equation have the same order of integration. Thus, the study will first ascertains the time series properties of coffee export and other explanatory variables by using the augmented Dickey-Fuller (ADF) and Philips-Perron test for stationarity (Dickey and Fuller, 1979 and 1981). The equation estimated for the ADF test is stated as follows:
Where, for example Xt=LCX is the oil imports in natural logarithmic, D is the first difference operator, t is the time trend, β, δ and θ are parameters, Ɛ is the stationary random error and n is the maximum lag length. The null hypothesis is that the series contains a unit root which implies that β1=0 the null hypothesis is rejected if β1 is negative and statistically significant. To determine the long run relationship between oil imports and explanatory variables, the Johansen co-integration procedure is used (Johansen and Juselius, 1990 and Johansen, 1991). The procedure involves the estimation of a VECM. The VECM used in the study is as follows:
Where, Yt is the dependent variable, Zt is the explanatory variables, Xt is exogenous variable, Yt-1 – θZt-1 is the error correction and D is represents the difference operator. Furthermore, ε represents the vector of white noise process. The VECM allows causality to emerge even if the coefficients of the lagged differences of the explanatory variable are not jointly significant.
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