How Uganda’s mining industry ground to halt

How and why everything fell apart is a combination of many factors ranging from political chaos resulting from civil wars, sporadic military coups, fall in prices of some commodities (including minerals), but mostly confusion and lack of prioritisation by successive governments.
In Uganda, towns such as Kasese in the southwest enjoyed the benefits of copper/cobalt and limestone mining; Tororo in the east bustled with activity of limestone and phosphate mining; Kabale and Kisoro with wolfram, tungsten, tin and beryllium, and Buhweju was a hub for gold mining. In fact, each region was famed for at least one or two minerals.

Things have changed
Today, gold mining in Buhweju and other new locations such as Mubende is a preserve of artisanals, including speculators, foreigners and big shots in government operating in shadows while in Kabale and Kisoro, it is the same script of illegal miners/smugglers and speculators running most of the show.
This state of affairs partly explains why the mining sector is in limbo and despite government’s various interventions over the last 30 years, including streamlining the regulatory environment through adoption of the mining policy in 2001 (currently under revision), the sector that once accounted for nearly 30 per cent of Uganda’s exports and 7 per cent of GDP has continued to perform way below average.

McKinsey, a New York-based consultancy in a report published in 2010, noted that Africa’s mining sector presents a paradox. That although the continent is strongly endowed with mineral resources, mining has not been the consistent engine of economic development that people in many countries have hoped for.
Uganda’s mining story dates back to pre-colonial times, but gained momentum during the British colonial administration between 1902 and 1939. This was when the first prospecting concessions were issued to individuals and companies – the East Africa Syndicate– in 1902 to prospect 100 square miles in Butiaba in Bunyoro for gold. By the end of 1908, 22 prospecting licences had been issued to cover the entire crown land in the protectorate.

In 1913, a British prospector, W. Brittlebank, got the first oil prospecting licence covering 898 square miles centering on Kibiro near Lake Albert where he had located oil seeps. However, the outbreak of World War 1 halted his activities up to the time when his licence expired in 1922.
In 1920, Capt A. W. Hills and Sir Phillip Lee Brocklehurst bought exclusive oil rights over a large area of West Nile at £50 (just Shs200,000 at the current exchange rate).
According to the Uganda Journal of 1967, mineral prospector J. G. Currie discovered gold in West Nile as early as 1915, though mining in the area did not pick up until 1920 when the Kilo Moto gold mines opened in Congo.

The opening of the Kilo Moto mines led to a rush by other prospecting companies such as Nile Congo Divide Syndicate from Congo to the West Nile sub-region. Though it did not find gold of economic value, the company discovered low grade copper in Manya area in West Madi.
More commercial deposits of minerals were found: Tin was discovered in 1925; gold in 1915 but its commercial mining started in 1933; wolfram in 1933; alluvial diamond in 1933; beryllium in 1922 and by 1959, Uganda had exported 1,063 tonnes of it, representing 11 per cent of the total world production. Others were limestone, copper, phosphate, cobalt, steel, etc.

The mining industry boomed during the British colonial administration, who, in fact, were pilfering most of the proceeds back home until their departure in 1962.
In the mid-1960s, President Milton Obote sent shockwaves in the economy with his Leftist tendencies—through the Common Man’s Charter—which catapulted him out of power a few years later. The period from 1971 up to around 1990 was marred by not just political but economic instability too.

From boom to burst
At the time of independence, the copper/cobalt from Kilembe in Kasese accounted for 5 per cent of the value of Uganda’s exports and the mining sector generally performed modestly. These fortunes gradually dropped over the years to its current contribution of less than 1 per cent to GDP.
“Besides economic turmoil, which set back most of our industry, over the years the global market experienced a big shift in commodities and their prices,” the Commissioner for Mines in the Ministry of Energy, Ms Agnes Alaba, says.

“This meant that investment in certain minerals was no longer lucrative,” Ms Alaba says, adding: “But it was and is still a matter of refocusing our attention; there is still huge potential in the sector.”
In fact, McKinsey in its research indicated that the period after the 2007/2008 global economic crisis was marked by “less appetite for the relatively high risk that usually comes with mining in many African countries.”
“Despitethe recent market turbulence, most observers expect demand for major mined commodities to grow strongly in the next 10 to 20 years, to support increased urbanization and infrastructure build-out in China and the emergence of India’s middle class. Africa, given its share of global resources, will surely play a significant part in meeting that demand,” McKinsey brief reads in part.

Investments
According to Ministry of Energy statistics, foreign direct investment in the sector rose from Shs18b in 2003 to Shs3 trillion in the financial year 2015/2016, particularly in gold, tin, phosphates, copper mining and processing projects. This excludes new minerals exploration projects.
The much anticipated investment of $620 million (Shs2.2 trillion) in the Sukulu phosphate complex in Tororo is the main driver of the current estimates.

Other major players include Hima Cement and Tororo Cement, the largest players in limestone mining for cement production. Last year, a Chinese company, Dao Marble, started mining and production of marble products from Karamoja. In 2013, the government attempted to resuscitate the Kilembe copper mines by leasing it to a Chinese company – Tibet-Hima – but the deal encountered some headwinds.

Similarly, revenues from licence fees and royalties increased from Shs1.8b in 2003 to Shs52b in 2011 but “between 2011 and 2014 there was a continuous decline in mineral revenues plunging back to Shs7.2b by end of Financial Year 2014/15,” according to the ministry estimates.
And given the extent of artisanal and illegal mining in the country, Ms Alaba said “a lot of the statistics are not captured.”

Issued licences
According to the Energy ministry’s Directorate of Geology, Survey and Mines (DGSM) which oversees the sector, as at the end of 2015, there were 818 mineral licences issued around the country, up from 100 in 2003.
However, several companies do not submit returns on the exploration work they have carried out.

Additionally, areas that are licensed for exploration work to determine the mineral deposits are actually parceled out actual mining activity. As a result, the Auditor General – in various reports says (and DGSM also admits) – that the country lost a lot revenues. For example, the Auditor General John Muwanga in last year’s audit submitted to Parliament in January indicated that Shs2.7b was outstanding in “annual mineral rent fees” by DGSM.

The audit also shows that royalties amounting to Shs354m was uncollected as at June 2017, a practice which “denies landowners the revenues arising from use of their land, which potentially can affect the relationship between mineral right holders and landowners,” the report notes.
Separately, one private mining company had not paid royalties amounting to Shs679 million caused by failure by DGSM to enforce payment.

Grind to halt?
According to Ms Alaba, progress is being made: “[Previously], we did not know much about the proven reserves for the minerals and it was hard to convince anyone to come and invest in what we are not sure of but we are making good progress on surveys.
“In 2012, we undertook some airborne geological surveys that gave us preliminary estimates and we are working with data to attract more investments,” she says.
The World Bank, African Development Bank, and Nordic Development Fund funded the survey. At the several mining conferences convened by the Uganda Chamber of Mines and Petroleum (UCMP), an association of formal mining players, experts have repeatedly pointed out lack of adequate geological data for mineral exploration as a setback to the growth of the sector.

This is worsened by other challenges such as land acquisition and the poor infrastructure in the countryside, where most deposits are located. The government is currently in the process of revising the mining policy, which Ms Alaba said will “usher in a new regime” in the sector with the objective of increasing the economic contribution of mining to the economy through more private investment.

Additionally, there will be provisions that would finally define artisanal mining in Uganda and this allows a process on how it can be legalised. The policy also attempts to have a mix of competitive bidding and first come first serve basis in applications for an exploration licence.
Among the ongoing interventions to revive mining also includes surveying of the Karamoja sub-region to get enough geological data about mineral deposits in the area. UCMP’s board chairperson Elly Karuhanga says this was flagged a priority during the Presidential Investors Round Table (PIRT) meeting at State House in Entebbe early this year.

PIRT), conceived in 2004, is a high level forum chaired by the President and coordinated by the Prime Minister. It brings together select foreign and local investors to advise government on, among other things, how to improve the investment climate. President Museveni has on various occasions outlined plans to revive mining, including twice decreeing against exportation of minerals—Tungsten, iron, gold, cobalt, phosphate, Granite, salt, and copper—in raw form.
He argued that the country was losing a lot of money in wasted value addition but later made a U-turn following intensive lobbying and complaints by investors.

In part two tomorrow, we look at prospects of Tororo’s phosphate.

Challenges and opportunities

The United Nations Development Programme (UNDP) and European Union recently released a report titled: ‘Baseline Assessment and Value Chain Analysis of Development Minerals in Uganda’ detailing challenges and opportunities of Development Minerals (minerals and materials that are mined, processed, manufactured and used domestically in industries such as construction, manufacturing, infrastructure and agriculture).

“Despite multiple potential downstream applications, most Development Minerals are transformed into a limited number of products and/or produced in insufficient quantities, with implications for the trade deficit. Reliance on imports of many Development Minerals and their products constituted 3.2 percent of Uganda’s trade deficit of $2.56b in 2016,” the report reads in part.
The other challenge, as Uganda Chamber of Mines and Petroleum’s board chairperson Elly Karuhanga explains, is lately a lot of attention has been focused on the oil discoveries which are expected to earn the country between $1.5b and $2b in revenues once commercial production starts.

“But mining would make a much bigger contribution than oil and gas, for we are endowed with different types of minerals. No economy can develop without steel or cement and we have enough steel reserves to last Uganda more than 100 years; oil cannot last 100 years. We have phosphate and in fact world class reserves than can make this country rich,” Mr Karuhanga says.
From the private sector vantage point, Mr Karuhaga says Uganda has potential to revive its mining glory only if the government starts addressing the bottlenecks such as bureaucracy that every investor keeps raising.

“Implementation is the problem, not just in Uganda but the whole of Africa… But if the President can ensure that we have Hakuna Mchezo in the mining sector, I think we are about see a revival of mining,” he says, adding: “Nobody was going to invest in Uganda with all these bottlenecks.”

Research. The Global Witness report published in June last year titled: ‘Undermined: How Corruption, Mismanagement and political influence is undermining Investment in Uganda’s mining sector and threatening people and environment’, put prominent names in the government at the centre of the mess in Uganda’s mining sector.

The UK based anti-corruption group in the report accused President Museveni of influencing the awarding of deals to investors in the extractive sector. These investors, the report noted, sometimes turn out to be fake, evade taxes, and abuse human rights and the environment concerns.

Total investments in the mining industry: Shs3 trillion
Number of mineral licences issued as of 2017: 818
Mining sector contribution to the economy: one per cent from 30 per cent in the 1950s/1960s.