Technology key to boosting Uganda’s gold earnings
May 11, 2023
To benefit from the gold, the Government must intentionally position Uganda as a centre of international gold trade, with a strong reputation and good fiscal policies that favour the Government and its investors.
Artisanal miners using Borax to purify gold concentrates at Kasanda Mining site recently
In January 2023, the finance ministry reported that Uganda had registered a marked increase in export earnings from commodity exports such as maize, tobacco and gold. These had pushed growth in exports to 6.3% over a 12-month period, from $328.74m to $349.44m as at February 2023.
And although gold had played a part in pushing the country’s exports up, Government actually recorded a sharp decline in the amount exported in the period under review, with the taxman recording only $200m (sh753b), from export of the precious mineral.
This was on the back of protests against what traders called a litany of unfair taxes slapped by the government since most of the gold refined in Uganda is simply imported from the region, especially from Tanzania, Kenya and the Democratic Republic of Congo.
In the previous year (2021), the Government had earned about $1.8b in taxes from the gold sector following the opening of the African Gold Refinery in Entebbe, Wakiso district, which is said to have added the most value and volume to the country’s gold trade.
Although most of the gold that has been refined in Uganda over the past years is from the Eastern Africa region, Uganda is independently endowed with large deposits of the mineral, estimated to rake in at least $12.8 trillion if fully exploited.
As such, experts have since looked at gold as a low-hanging fruit, which the government can easily exploit to get funding for other infrastructure and social development programmes.
Investment in gold is not as costly compared to oil and gas, which of late has taken the full attention of the government, and the wider world, as billions of dollars are sunk into the ground to extract the black gold, at a prohibitive cost, compared to the real gold.
For instance, a Chinese company, Wagagai Gold Mining Company, has set up a refinery in Busia’s Wagagai area at an estimated $200m to extract and refine at least 5,000kg of gold per day, by the end of 2023.
According to John Walugembe, an economist, gold is thus a definite low-hanging fruit that the Government should consider exploiting, in a way that produces optimum returns for the country, without directly investing in the mines.
“I do not believe that our government has the capacity to directly invest in a gold mine, and even if it did, that would not be the best move, considering the kind of people we have in positions of leadership. If they can grab a few iron sheets, they can certainly grab all the gold,” he says.
Walugembe says instead, the Government can look at a blended arrangement, where it enters into joint ventures with capable foreign investors as it looks at transfer of technology, skills and knowledge from foreigners to locals over time.
A female gold miner uses a plastic basin to wash rock dust with water to extract gold nuggets. This was at Lungi village in Mubende district
The Government, he says, can thus concentrate on a facilitatory role by creating the best environment for green belt investors as it gradually encourages and incentivizes the sector for local investors as well.
“The reason you want as many local investors as possible to have the capacity to invest, is because any profits made are re-invested locally, which is not the case with the foreign investors, since the law allows them to take away all their profits after paying taxes,” he says.
According to Walugembe, to benefit from the gold, the Government must intentionally position Uganda as a centre of international gold trade, with a strong reputation and good fiscal policies that favour the Government and its investors.
His remarks come at a time when in March 2023, the US announced sanctions against Belgian national Alain Goetz and his African Gold Refinery over involvement in illicit movement of gold from the Democratic Republic of Congo DRC.
The US state department said Goetz was sanctioned over involvement in activities that threaten the peace, security and stability of the DRC by smuggling gold to regional states, including Uganda and Rwanda, where it is refined and exported to international markets.
Goetz was also accused of receiving illicit gold from mines in regions of DRC that are controlled by armed groups, and transporting it through Kenya, South Sudan and Tanzania for refinery without questioning its origin.
Walugembe says it is the duty of the government to protect such investors, because a dent in their reputation can dent the entire gold sector if it is not well-handled.
His colleague, Dr Fred Muhumuza, concurs, saying the Government should engage the US diplomatically, since the sanctions do not highlight criminal involvement of the implicated refiner in the DRC gold trade.
Although he thinks the sanctions may not puncture gold trade from other refiners in the country or significantly hurt the sector in general, Muhumuza says it is important for the government to engage the diplomatic gear to resolve the gold impasse in time.
Paul Lakuma, a research fellow at the Economic Policy Research Centre (EPRC), says although investment in gold is much cheaper, and probably the would-be best way to short-cut financial challenges standing in our development plans, the government should never go into the mines full frontal.
“We may choose to do it the way we did with oil and gas, because we just created an environment to allow private sector investment and it is working. In mining, most of the time, the production curve is inverted, where production is at the upstream, and distribution at the downstream.
Given the nature of thieves in our government, it is better we leave the upstream business to investors, and create a fiscal system based on royalties and taxes,” he says.
Lakuma says the Government could instead look at a blended arrangement, where it creates a company to handle all minerals and act like a musketeer, and while the companies mine the gold, the government actually inspects the process and markets the gold.
“We can own shares jointly with these foreign companies, but avoid direct involvement in the mining. Instead, after the gold is mined, we inspect and take off verified costs and take off our share. The mines can be digitised to ensure that all processes can be digitally tracked so that every nugget of gold is accounted for,” he says.
Alternatively, Lakuma says investors can be allowed to run their own mines as long as the government designs very good fiscal policies that allow it to get its royalties and taxes before the gold is extracted, using technologies that can tell the estimated volumes that can be mined at certain periods of time.
It should be noted that investment in cutting-edge technology could indeed help the country navigate the challenges that hitherto have been standing in the way of fully exploiting its mineral potential, according to experts.
Thulagano Segokgo, Botswana’s minister for communications, knowledge and technology, says investment in technology is, for instance, rapidly changing the mining sector in Botswana, bringing about cost reductions, improved safety and efficiencies in the mines.
This, he says, could be copied by any other country interested in digitising their mines to optimize production, investment and safety of the mine workers, while at the same time creating a bevy of splinter jobs, especially for women and youth.
“If you know Botswana, you will understand that the diamond mine has been the mainstay of the economy, and we are very determined to see that this is sustainable in the long term. Our partnership with Huawei has, therefore, helped us to completely transform the mines, reduce accident incidents to zero and improve efficiencies in cost and production,” he says.
Currently, emerging technologies like Cloud, Artificial Intelligence (AI), Robotics and Big Data are enabling mining organisations to optimize production and exploration processes, improve supply chain and logistics and also increase sustainability.
Innovative mining technology, which uses location awareness, machine learning, robotics and other technologies that allow mining companies to automate many of their processes are being employed in modern mines all over the world.
According to Segokgo, these modern technologies are helping his country to reduce costs, improve safety and efficiency in the mines, while at the same time helping to preserve and protect the environment.
The Botswana experience is, therefore, an example of how technology can break the bottlenecks of mining limitations and contribute more to social economic development.
Uganda’s gold journey
The latest data from the energy ministry suggests the existence of critical minerals, including more gold in Kaliro, Zombo, Pakwach, Hoima, Kabale and Kanungu.
The Government has invested in acquiring high-resolution geological, geochemical and geophysical data and generated mineral targets that are packaged for investors to carry on detailed exploration.
In addition, the ministry says there are incentives provided to investors within the extractives industry to lessen investment costs, including zero-rated import fees for equipment and machinery and tax holidays, among others.
The incentives also accrue to artisanal and small-scale gold mining in the central, western, southwestern, eastern and northeastern parts of the country.
In Mubende, another goldrich belt, investment in the mines is still rudimentary, with most of the gold mined by artisanal miners using non-mechanised excavation methods, and mercury (an illicit reagent) to get the gold out of the pits.
According to the department of geological surveys and mines, under the energy ministry, approximately 31 million tonnes of gold deposits are already confirmed in the country, from which an estimated 320,158 tonnes of refined gold, worth $12.8 trillion, is expected.