No shine in Uganda’s gold

Reduced mineral exports hinder economic growth.

According to the most recent numbers from the Bank of Uganda for July 2022, the non-formal export sector in Uganda has maintained a declining trajectory year over year (BoU). The result has been a dent in the previously emerging signals of export revival, spurred by significant advances in the coffee sector.

According to year-over-year (YoY) data, the country made US$1 billion from non-coffee exports in the fourth quarter of FY2020/21 but just US$700 million in the same quarter of FY2021/22. Additionally, a comparison of the central bank’s monthly data reveals that the declining trend has continued through the first three months of FY2022/23.

According to the data, the widening disparity is a result of the nearly 100% elimination of contribution from gold, which was previously Uganda’s top export good. As a result, the news is likely to get worse.

Gold shipments were on the rise from the calendar year 2019 (US$1.2 billion) to 2020 (US$1.8 billion), after abruptly appearing on Uganda’s export radar in 2017. Nevertheless, they fell to US$1 billion in 2021, and despite the government’s efforts to revive interest in the industry with news of enormous new deposit discoveries, it doesn’t seem probable that they will recover very soon.

According to data from the Bank of Uganda, the monthly value of gold exports has remained zero from January to July 2022.

The government’s establishment of a 5% levy on every kilogram of refined gold exported and a 10% levy on kilograms of raw gold for export in the 2021/22 FY has been criticised by analysts. The change became effective in July 2021.

However, there seem to be additional underlying causes for the disappearance of Uganda’s gold exports, such as a proposed law to prohibit the export of unprocessed gold and the failure to close the huge gap left after Alain Goetz, the promoter of Uganda’s largest gold refinery, was sanctioned by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) in March.

Doubtful taxes and regulations

The Mining Act, 2003, as it currently stands, would be amended by the Ministry of Finance in April 2021 in order to impose a US$200 export charge per kilogram on processed gold and unprocessed minerals. The new tax structure reportedly infuriated gold merchants, who halted all permitted gold shipments. The charge was also rejected by Parliament due to implementation difficulties.

The government is proposing the creation of a national mining company, the Uganda National Mining Company, which will hold 15% free equity in all large and medium-sized mining ventures and have the right to purchase up to 20% of additional shares in the mining ventures at the market price under the Mining and Minerals Bill 2021.

The new law is being supported by the government as a means of establishing a “robust, predictable, and transparent legal regime” that will enhance business operations and administration related to mining and mineral resources, guarantee effective revenue collection and management, encourage value addition to minerals, and boost mineral trade. But analysts and merchants of gold are cautious. Many claim that the bill raises the possibility of nationalization.

The formal gold sector is now uncertain as a result of the tax regime’s flip-flop. The news that the Ugandan government has adopted a rule to prohibit the export of raw gold, however, is another element that has contributed to the development of the fever.

In February 2015, President Museveni made the first public mention of a ban on the export of raw and semi-raw minerals while addressing to the parliamentary caucus of his ruling party, the NRM. He referred to the export of raw minerals as a “historical mistake.”

African Gold Refinery (AGR), a joint Belgian-Ugandan venture, began operations in late February 2017 after President Yoweri Museveni presided over a festive ceremony in Entebbe. According to reports, the refinery began operating in 2014 and cost $20 million. It had a daily processing capacity of 150 kg of gold.

According to the promoters, who include the Belgian Alain Goetz as CEO, AGR wanted to process gold from all throughout Central and Eastern Africa. The value of Uganda’s semi-manufactured gold imports and exports in 2020 was US$1.4 billion and US$1.8 billion, respectively.

Uganda is on a list

However, on March 17, 2022, the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury imposed sanctions on Alain Goetz, the African Gold Refinery, and a number of other businesses.

They were charged with taking part in “the illegal movement of gold worth hundreds of millions of dollars annually from the Democratic Republic of the Congo (DRC).”

According to a statement from the Treasury Department, “the illicit transfer of gold gives funding to armed groups that endanger the peace, security, and stability of the DRC.”

The U.S. claimed that it was focusing on, among other things, people and organizations engaged in activities that endanger the peace, security, or stability of the DRC or that undercut democratic institutions or processes there.

Armed groups in eastern DRC that control mines and take advantage of miners profit primarily from the sale of conflict gold, according to Brian E. Nelson, Under Secretary of the Treasury for Terrorism and Financial Intelligence. Alain Goetz and his network, he said, had aided in armed conflict by accepting gold from the DRC without questioning where it came from.

But Goetz claimed at the time that his listing appeared to be based on false information. He says that in April 2021, when the claims were initially made, he wrote to Janet Yellen, the secretary of the US Treasury, and explained why such an action would be unfair, unjust, and uncalled for.

“As we previously stated and will reiterate here, Senators Cory A. Booker, Benjamin L. Cardin, and Richard J. Durbin’s petition to impose sanctions on me and my corporate networks was premised on baseless allegations made public by a number of non-governmental organizations (NGOs).

signs of optimism?

The government seems committed to supporting the struggling industry, which once provided around 45% of export value. The government stated in July that extensive gold resources, with an estimated 31 million tonnes, had been found during exploration investigations.

The Chinese company Wagagai Gold Mining Company, which already has a presence in Uganda, seems to be the front-runner for the potential new concessions. The Uganda Investment Authority has previously stated that Wagagai is a major player with investments close to US$200 million, despite the secrecy surrounding gold operations.

The Uganda Free Zone Authority gave a “free port zone” designation to the Wagagai mining and refinery in February (UFZA). Free Zones are places in Uganda where commodities can be produced, manufactured, or processed duty-free for export. As a result, the Wagagai business endeavor will not be subject to import or export taxes. This can bring a dormant area back to life.

However, several analysts have advised caution in light of the government’s reported gold reserve size. They claim it is premature to make such declarations based on aerial scans. Instead, they advocate for additional verification that makes use of geophysical and geochemical surveys and analysis.