Friday January 31 2014

Uganda can use its mineral ores to industrialise its economy

By James Karama

On December 16, 2013, President Museveni hosted the Ministry of Energy and Mineral Development and the Uganda Chamber of Mines and Petroleum (UCMP) to a day-long retreat at State House Entebbe. The theme of the conference was ‘Building the mineral sector as an integral part of Uganda’s economy - value addition’.

President Museveni persuasively and consistently expounded his vision for Uganda’s mining sector. He did not waiver from the position that exporting unrefined mineral ores will deprive Uganda of an opportunity to build an integrated industry around its mineral reserves.

Such a clear vision is a boon for any corporate strategist. It has the right level of stretch and can be used to develop a monitoring and evaluation framework. However, it calls for very close cooperation between the public and private sector. The partnership between the ministry and UCMP is a step in the right direction.

Mr Elly Karuhanga, the chairman of UCMP, requested for more support from the government. UCMP presented a list of bottlenecks that they would like to be unblocked, some of which I have outlined below.

UCMP requested that the taxation rules should be aligned to the mining life cycle. For example, investors should not pay taxes at the exploration and appraisal phases, where they face a wide range of risks, including the lack of adequate financial resources to support their operations.

The mining laws should be amended to harmonise the relationships between exploration companies and local communities. The government also needs to adopt international best practices that allow for the traceability of minerals. It is now an international requirement that all mineral exports must have certificates of origin.
UCMP requested the government to complete the airborne electromagnetic surveys for the remaining 20 per cent of the country. The government should also increase its support for advanced exploration work through multiple approaches such as partnering with private exploration companies and establishing exploration companies or agencies to develop strategic mineral reserves.

The government team requested UCMP to discourage a simple mining mindset of: Extract the mineral ore, crush it into particulates and export it. The government expects the mining companies to apply an integrated approach that adds value within Uganda’s borders. The mining companies need to think about project ‘bankability’ from the onset. This would require advanced feasibility studies and the involvement of potential financiers such as banks, industrial partners, multilateral agencies, export credit agencies, investment funds and strategic investors.

The retreat was timely because Africa is experiencing an unprecedented scramble for it natural assets driven by giant resource-hungry nations. This scramble has also been spurred by improved mineral extraction technologies and new innovative uses for these minerals. Furthermore, certain countries are stockpiling strategic minerals with the objective of controlling the trajectory of global industrial development.

According to Paul Collier in his book, The Plundered Planet, the failure to harness natural capital is the single most important missed opportunity in the economic development of poor nations.

He argues that we have an ethical responsibility to bequeath to the unborn generations, either the natural assets bequeathed to us, or other assets of equivalent value. If we use natural assets without leaving other assets of equivalent value, then we are guilty of plunder.

The big question is what we shall tell our great grandchildren, when they ask us how we utilised Uganda’s deposits of iron, copper, vermiculite, coltan, gold, phosphates, etc.

Mr Karama is a member of the UCMP Local Content Committee and coordinates the Oil & Gas strategy at Stanbic Bank.