A weakening foreign reserve position, sluggish export revenues and a shilling under siege could have informed President Yoweri Museveni’s partial lifting of a ban on mineral exports last week.

Although there are signs that the economy is going into correction mode, with the import bill falling 3 per cent, largely in tandem with a 2.8 per cent slump in export revenues during the second quarter of 2015, the exchange rate remains under pressure, with the shilling sliding 22 per cent against the dollar since January.

President Museveni announced the lifting of the ban during the fourth edition of the Presidential Investors Round Table a week ago but maintained that exports of unprocessed copper and iron ore would still not be allowed.

The new development means that industries will process at least to a spongy level before selling to manufacturers of final products.

President Museveni maintained the ban on exports of iron ore, arguing that there was a ready local and regional processing capacity that makes value addition a viable option. Demand for iron ore products like iron bars, iron sheets is growing at 9 per cent per annum.

“We do not want the problem of an industry not being part of the economy locally but it is part of the economy elsewhere. We want to get more value in terms of money, jobs,” said President Museveni. 

READ: Miners lobby Uganda to lift ban on mineral export

Lawrence Bategeka, an economist, said that with the risk of the trade deficit widening further with its implications for the exchange rate, the president is looking at all avenues of improving export performance. 

“The country needs to stop further external borrowing and more than double the current volume of exports to offset the deficit. The lifting of the ban is a prudent measure,” Mr Bategeka said.

Uganda imposed a moratorium on the export of unprocessed iron ore in 2013 and a ban on all other minerals last February. 

The government’s intention was to encourage value addition as a strategy to maximise revenue and employment from the sector but months down the road there are hardly any new investors or incumbent licence holders applying for licences to add value to any of the minerals.

Industry players attribute this to the steep capital requirements and technical capabilities that existing firms are unable to meet.

To establish a large scale mine by world standards, at least $5 million to $100 million is needed in the exploration process — from discovery to proving feasibility.

Banks are not interested in financing projects that bear inherent risks like exploration, but would prefer to offer credit to companies after major discoveries have been made.

In addition, due to a fall in commodity prices and a global economic downturn, exploration expenditure has fallen by at least 30 per cent worldwide with an additional 15 per cent to 20 per cent decline in exploration investment in Africa predicted in 2015 and beyond according to Uganda Chamber of Mining and Petroleum.

Existing investors have instead, been putting pressure on the government to lift the ban because their businesses were making losses from non-exportation of the raw minerals. 

According to the Bank of Uganda, the trade deficit improved by 6.3 per cent to $526 million on account of lower import expenditure, yielding a 3.1 per cent decrease in the import bill in the second quarter of 2015.

This was accompanied by a 2.8 per cent decrease in export receipts for the same period, with revenues falling to $680 million, largely on account of a 16 per cent decrease in coffee exports. Coffee receipts fell to $99 million in the second quarter on account of both lower volumes and lower prices.

Non-coffee exports increased by 2.5 per cent to $489 million, but this was not enough to stem further weakening of the local unit and a $400 million decline in foreign exchange reserve cover to $2.8 billion, equivalent to 4 months’ imports cover.

Mineral sector players say before it can achieve its goals, the government needs to address underlying infrastructure problems that discourage value addition in the sector.

For example, while there are investors adding value to limestone, and iron ore, their operations hampered by an expensive and erratic power supply.

Uganda’s data shows that the country has potential for exporting gold, uranium, iron ore, copper, cobalt, vermiculite, phosphates, tin, limestone and gemstones. Owing to low exploration, the country exports minimally.

“Currently, many companies have obligations that they have failed to meet and some have closed shop while others have cut back on both operations and staff. Lifting the mineral exports ban will therefore go a long way in reinvigorating the mining sector,” said Richard Kaijuka, vice chairman of UCMP.

Additional reporting by Martin Luther Oketch