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No shine in Uganda’s gold

Vanishing mineral exports dent economic recovery

Kampala, Uganda | THE INDEPENDENT | Uganda’s non-formal export sector has maintained a downward trajectory year-on-year, according to the latest July 2022 figures from Bank of Uganda (BoU). The effect has been a dent on the otherwise emerging signs of recovery in exports buoyed by impressive gains around the coffee sector.

The year-on-year (YoY) figures show that the nation earned US$1 billion from non-coffee exports in the fourth quarter of FY2020/21 but that dropped 30% to US$700 million in Q4 of FY2021/22. And a comparison of the monthly figures from the central bank shows the downward trend has persisted in the first three months of FY2022/23.

The news is likely to worsen because, according to the figures, the growing gap is a result of the almost 100% disappearance of contribution from what has been Uganda’s leading export commodity; gold.

After suddenly popping up on Uganda’s export radar in 2017, Gold exports were on an upward push from the calendar year 2019 (US$1.2 billion) to 2020 (Us$1.8 billion). But they dropped to US$1 billion in 2021 and appear unlikely to recover soon despite the government’s efforts to shore up interest in the sector with reports of huge new deposit findings.

Year on Year to July 2022, the monthly value of gold exports has been zero, according to the Bank of Uganda figures.

Analysts have blamed the government’s introduction in the 2021/22 FY of a 5% levy on every kilogram of refined gold exported and a 10% levy on every kilogram of unprocessed gold for export. The move came into effect in July 2021.

But there appear to be other underlying factors for the disappearance of Uganda’s gold exports, including a proposed law to ban the export of unprocessed gold and the failure to fill the gaping hole left after the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) in March sanctioned Alain Goetz, the promoter of Uganda’s largest gold refinery.

Uncertain taxes and policies

The Ministry of Finance in April 2021 proposed to Parliament to amend the Mining Act, 2003, to impose a US$200 export levy per kilogram on processed gold and unprocessed minerals. Gold dealers were reportedly unhappy with the new tax regime and stopped all legal gold exports. Parliament also rejected it saying the charge would be hard to implement.

The government under the Mining and Minerals Bill 2021 is proposing a levy of $100 for every kilogramme of exported gold and the establishment of a national mining company; the Uganda National Mining Company, which will hold 15% free equity in all large and medium mining ventures, as well as have the right to buy up to 20% of extra shares in the mining ventures at the commercial rate.

The government is promoting the new law as its way of providing a “robust, predictable and transparent legal regime” that will improve mining and mineral administration and business processes, ensure efficient collection and management of mineral revenues, promote value addition to minerals and increase mineral trade. But gold traders and analysts are wary. Many say the law introduces the threat of nationalisation.

Meanwhile, the flip flop around the tax regime has spread uncertainty around the formal gold sector. But the fever has spread because of another factor, the announcement that the Uganda government has introduced a law to ban the export of unprocessed gold.

President Museveni first publicly mooted a ban on the export of unprocessed and semi-processed-minerals in February 2015 while speaking at a parliamentary caucus meeting for his ruling party, the NRM. He called exporting unprocessed minerals a “historical mistake”.

In late February 2017, a joint Belgian-Ugandan venture gold refinery, African Gold Refinery (AGR), officially opened for business at a colorful event officiated by President Yoweri Museveni in Entebbe. The refinery had been in operation reportedly since 2014 and was said to be a US$20 million facility with a capacity to process 150 kilogrammes of gold per day.

The promoters, led by the Belgian Alain Goetz as chief executive officer, said AGR hoped to process gold from across Central and Eastern Africa. In 2020, Uganda imported Gold in a semi-manufactured form worth US$1.4 billion and exported the same form of gold worth US$ 1.8 billion.

Uganda blacklisted

But on March 17, 2022, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), sanctioned Alain Goetz, the African Gold Refinery, and a network of other companies.

They were accused of involvement “in the illicit movement of gold valued at hundreds of millions of dollars per year from the Democratic Republic of the Congo (DRC)”.

“The illicit movement of gold provides revenue to armed groups that threaten the peace, security, and stability of the DRC,” the Treasury Department statement said.

The U.S. said it was targeting, among other things, individuals and entities involved in activities that threaten the peace, security, or stability of the DRC or that undermine democratic processes or institutions in the DRC.

“Conflict gold provides the largest source of revenue to armed groups in eastern DRC where they control mines and exploit miners,” said Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson. He added that Alain Goetz and his network have contributed to armed conflict by receiving DRC gold without questioning its origin.

But at the time, Goetz said his listing seems to be based on misinformation. He explains that he wrote to the Secretary of the US Treasury, Janet Yellen, in April 2021, when such allegations were first brought up, and clearly demonstrated why such a move would be unfair, unjust, and uncalled for.

“As we explained then and we will repeat here, the petition to sanction me and my corporate networks by Senator Cory A. Booker, Senator Benjamin L. Cardin, and Richard J. Durbin were based on unfounded accusations published by various non-governmental organisations (NGOs).

Signs of hope?

The government appears determined to shore up the floundering sector which at one point contributed about 45% of export value. In July the Government announced that exploration surveys had revealed vast gold deposits estimated to be around 31 million tonnes.

Wagagai Gold Mining Company, a Chinese firm, which already had an operation in Uganda appears to be the front-runner for the likely new concessions. Gold dealings are secretive but the Uganda Investment Authority has previously said Wagagai is a big player with investments nearing USS$200 million.

The Wagagai mine and refinery were in February granted a ‘free port zone’ under the Uganda Free Zone Authority (UFZA). Free Zones are designated areas in Uganda where duty-free goods are stored, manufactured, and or processed for export. This means the Wagagai business venture will be exempt from import and export tax. This could resurrect a sector in limbo.

But some analysts have counseled caution regarding the size of the government’s announced gold reserves. They say based on aerial surveys to make such pronouncements is premature. They instead recommend further validity including using geophysical and geochemical surveys and analyses.

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