2 September 2015

Uganda: Billions Lost in Secret Gold Trade

Photo: Daily Monitor
President Museveni during a tour of the African Gold Refinery in Entebbe on February 20, 2017.

Kitumbi sub-county in Mubende district looks like a refugee camp. Seen from a hill in Bukuya town, it's a vast outpost of makeshift tents with dust hovering over them.

It is here that gold worth billions of shillings is traded annually. It is a camp for artisanal miners, with a population of more than 25,000 people - women, girls, men, and boys - there mainly to eke a living from the trade.

The camp is a zone of frantic movements, noise from ball millers crushing stones for the sand where gold is sieved. But it's also a hub for boda bodas ferrying people, trucks carrying sand, and traders buying gold. Bars, retail shops, clinics, and video halls dot the place.

Emmanuel Kibirige, the chairman of Ssingo artisanal and small-scale miners' association network, can barely answer a reporter's questions as he is deluged by phone calls - people searching for work, gold buyers inquiring whether he has anything to sell.

"Where I am here, if I was given a job of Shs 5m per month I would not take [it]," he murmurs. "I sell an average of 180 grammes of gold per month and each [gramme] at Shs 100,000."

At this stage, a female gold buyer, in her early twenties, approaches him and asks whether he has 'anything'.

"How much are you offering?" Kibirige asks.

"Shs 95,000," she replies.

"I can only take Shs 100,000 [per gramme]," he says.

Without much haggling, she accepts to pay and walks away - he will call her when the gold is ready.

"She is a representative of a gold dealer," he tells me. "They are many around here - young boys and girls - representing gold dealers. After buying, it will be taken to Kampala and sold to exporters, mainly Indians."

Kitumbi is one of the areas where the glittering commodity starts its long journey to Kampala and consequently exported to other parts of the world, including China, India, and United Arab Emirates (UAE). Other places where gold is mined in Uganda include Karamoja in north eastern Uganda, Buhweju and Ibanda in the west, and Mayuge and Namutumba in eastern Uganda and Mubende in the central region.

Even after being mined, much of the gold remains "underground." When artisanal miners wash and sell the precious metal, Uganda's taxman may never touch it at all.

An analysis of various documents - from both government and private bodies, and interviews with key players in the sector - reveals a clandestine operation in Uganda's massive gold trade, costing the country billions of shillings in lost revenue.

"Illegal gold trade is there," said Gabriel Data, a chief geologist at the department of geological survey and mines (DGSM) Uganda.

"People are mining erratically. We have written to police and Uganda Revenue Authority (URA) - everywhere in eastern Uganda, northeastern, southeastern - it [illegal mining] is happening."

DUBIOUS NUMBERS

The official numbers, which one source in the sector characterised as 'gross underreporting', are the first step to grasping the scale of illicit gold trade. For the last 15 years, according to documents from the DGSM, Uganda has never produced more than 30kg of gold annually. Output often fluctuates between less than one and 10kg.

The Mining Journal Special Publication Uganda 2012 shows that between 2000 and 2012, the country only twice recorded official production of more than 1kg: 2004 and 2008, with 1.45kg and 1.86kg produced respectively.

The journal says the low production was mainly because Kisita Gold Mining Co in Mubende was not operational at times, while gold location licenses (LLs), which account for most of the gold mining in the country, had been reporting very low production.

Yet a study on artisanal and small-scale mining commissioned by the ministry of Energy to help inform artisanal miners' strategy revealed that Uganda had actually produced 1,200kg of gold in 2008 alone.

That year, Bank of Uganda (BOU), which captures the actual volumes of exports as provided by Uganda Revenue Authority, reported 1.4 tonnes (1,446kg) of gold were exported.

"And we were very conservative with this number, meaning a lot more could have been produced," said one official who participated in the study.

At Kitumbi, one gold buyer said she can buy up to 400 grammes of gold monthly here and "when the month is really low on production I buy 150 grammes."

"We sell the gold to mostly Indians in Kampala, who export it," she says.

There are an estimated 260 representatives of gold buyers at Kitumbi, said Kibirige, everyday combing through the makeshift huts buying any piece of gold they can land on. In a 2013 report, the DGSM, citing the most recent figures available, said Uganda produced 4.3kg and 5.3kg in 2012 and 2013 respectively.

"[It is worth noting that Kisita mining company has been the only company reporting gold production. It is imperative to note that most of the gold in the country is mined by artisanal miners," said the DGSM 2013 report.

LICENSING

The report says Uganda exported 164kg of gold in 2013, with 161kg of it imported for re-export, mostly from South Sudan. But according to BOU, Uganda did not import anything from South Sudan in 2013 and that the country exported 494kg of gold that year, above what DGSM reported.

"It is not easy to track and get someone with smuggled gold. It is absolutely difficult," said geologist Data.

Changes in the tax regime appear to be one factor spurring smuggling. Gold from other countries that is officially re-exported from Uganda used to be subjected to a tax of 0.5 per cent of its declared value. However, this tax was increased to one per cent in 2013.

The tax rate for gold produced in and officially exported from Uganda was increased from three per cent to five per cent at the same time. And it has made traders sometimes declare gold mined in Uganda as having been imported for re-export in order to pay less tax.

A May 2015 report by the Organisation for Economic Co-operation and Development (OECD) linked the new tax regime to increased smuggling. It pointed out that since 2011 when URA asked for documentation of origin of the gold traded here, gold re-exports have become very rare, making more traders go underground.

"No export duties are paid on smuggled gold and the Ugandan government earns considerably less in direct taxation from the trade now than it did before the 2011 rule change," the OECD study says.

Uganda's stagnant tax to GDP ratio - at 12 per cent compared to region's 18 per cent average - highlights a neglected element to tackle illicit trade in precious metals.

A former consultant to government on the minerals sector, who is still involved in exploration in the country, points to illegal mining as a principal factor that explains less tax revenue got from minerals such as gold. A trader in Mubende, who declined to be named, said Uganda's gold production could be as high as five tonnes annually - worth $140m or Shs 500bn.

"Here in Mubende alone, we can produce more than a tonne every year," the trader said.

According to Data, gold buyers are everywhere in the country, especially Kampala.

"You can go and sit at any shop in Kampala and say 'I have gold I am selling' and you will get buyers," Data said.

Last year, the US-based Global Financial Integrity (GFI) said Uganda lost Shs 2.2tn between 2002 and 2011 through illicit outflows, including smuggling. Dickson Kateshumbwa, URA's commissioner for customs, said the authority was becoming more vigilant.

"We have intensified our enforcement, especially at the airport where this gold is smuggled," Kateshumbwa said.

To Kibirige, government has a simple remedy for all this.

"Issue location licenses to artisanal and small miners. Monitor what they produce and you get royalties," he says.

MIN

LEG

 

"Government prefers big companies, but they don't declare all they mine."

"We [artisanal miners] also need government help - train us, get us protective gears and [advanced] mining machines to improve our techniques.

"Production will increase. We shall declare and government will earn more," Kibirige says.

"We don't pay taxes now."

At Kitumbi, Kibirige pulls out a tiny glittering fragment of the metal, wrapped in a one-thousand shilling note. A buyer measures it and it is 0.57gm - worth Shs 65,000. He is paid.

"That's how we make money and that's my last contact with that gold," he says.

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