18 March 2014

Uganda: Govt Should Be Cautious On Mineral Export Bans

Prime Minister Amama Mbabazi, whose political life has been the subject of intense debate over the last couple of weeks, took time off last week to host investors from Uganda International Mining Company Limited.

The investors were at Mbabazi's office to see if the government can lift the ban on the exportation of iron ore. Their demand, however, fell flat.

Mbabazi instead reiterated government's commitment to add value to the country's mineral resources. The answer was simple: the investors have no choice but to explore, process and sell the iron here in Uganda.

You have to give it to government for its unwavering resolve to stick to the call of value addition. Roofings Limited is one company that has said it needs more iron ore to grow its steel business.

Figures on iron ore are catchy. Up to $7.2m has been in invested in exploration around Kabale. From that investment, roughly 350 jobs were created, according to official figures.

And then, close to $75m worth of iron was exported in 2012, the latest figures available, compared to $226m worth of imports. Regionally the demand is estimated at $1.7bn worth of steel, and growing.

Any government would wish to exploit this demand.

It is not just iron ore that the government has its eyes on. Phosphates is another mineral with an exciting story.

The government believes that phosphates has by-products that can boost agriculture, contribute to the making of food additives, poultry feeds, and other products. Exporting phosphates in its raw form would deny the country revenue.

Just like phosphates, vermiculite, mined in eastern Uganda, has the same qualities that can create offshoot industries. Uganda is said to have the finest vermiculite in the world.

And yet you wonder whether, in its current fragile form, adding value is the best model that is needed to transform Uganda's mining industry.

Even before we head into the lack of adequate infrastructure, Uganda lacks the basics. For example, the country does not have an efficient laboratory to test its minerals. Mineral samples are flown abroad for testing, the results of which are usually at the discretion of the person who does the tests.

The laws governing the sector are still weak. Small firms exploring for minerals still clash with nearby communities, with no clear enforcement of the law.

Recently, in Tororo district, the phosphate project there was stopped because of land wrangles in the area. The same problem happened to the gold project in Busitema, and the one in Mubende, with the investors losing money as a result.

It is hard to discuss mining without touching on the sensitive issue of the environment. Carried out irresponsibly, mining has the potential to devastate a country's ecosystem. A typical example is the toxic residue that flowed from Kilembe copper mines, and wiped out part of the neighbouring vegetation.

Environmental watchdogs need to be on high alert to make sure that mining companies play by the rules. The problem is that the National Environment Management Authority is not well-equipped to monitor and regulate the sector. It is underfunded and understaffed. And of course there remains the industry's biggest challenge - the lack of an effective infrastructure. Uganda lacks enough energy to power the mining industry.

Mining companies in Kilembe and Hima (cement) have their own energy generation projects, something that other firms might not afford. The roads are poor too. To get to Dura, where it is mining lime, Hima Cement had to create a new shorter route.

So, it does not make sense for government to discuss value addition if it is not willing to invest in the reduction of the cost of doing business. For starters, there are no major mining companies operating in Uganda today. The small firms have taken the big risk of exploring for minerals, hoping that a large find can attract the bigger international players like Anglo Gold Ashanti.

Uganda needs these small firms just as it needed the likes of Hardman Resources and Tullow in its oil industry, which ultimately attracted the bigger players like Total E&P. Putting a blanket export ban on iron ore at the altar of value addition is not the right move.

In any case, Roofings Limited, which is demanding more iron ore, also needs about 45 MW of power for its Namanve plant, power that is barely available.

Instead, government should place a limit at how much iron ore can be exported so that the investors can recoup their investments and also expand their operations. It's only fair for someone who has invested significant amounts of money - unless the government does not believe the firms.

Twitter: @jeff_mbanga

The author is the business editor at The Observer.

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