By Collins Mtika and Umaru Kashaka
Uganda and Malawi have introduced new mining laws which government officials and experts say have great potential to help curb Illicit Financial Flows (IFFs) in both countries.
New Vision’s Umaru Kashaka in Uganda teamed up with Nyasa Times’s Collins Mtika in Malawi to examine these new laws and see how each of them could do more to combat this vice which robs governments of millions of dollars a year that could otherwise be spent on vital services and development.
Both countries, which are mineral–rich but among the poorest in Africa, say if properly regulated, mining could play a major role in their economies hit hard by the coronavirus pandemic.
Minerals found in these countries include gold, phosphates, copper, iron ore, tin and tantalite.
Both countries are members of the Extractive Industries Transparency Initiative (EITI), a global standard for the good governance of oil, gas and mineral resources — Malawi since 2015, Uganda since 2020.
What new laws say
In Uganda, the Mining and Minerals Bill, 2021 was enacted by Parliament on February 17, 2022 and now awaits the President’s assent to become law. However, in Malawi, the new Mines and Minerals law is in force after it was gazetted on February 15, 2019.
Both countries want to use these closely related new laws to streamline operation in the mining subsector where most of the small-scale miners operate without licenses.
They also want to use the new laws to provide for an accountable and transparent licensing regime and also provide for the participation of host communities in the entire decision-making chain of mining.
Uganda’s energy and mineral development minister Ruth Nankabirwa said that currently, the contribution of minerals to the country’s economy stands at a dismal 1.4%.
“A new legal and regulatory framework will therefore unlock the potential of the mineral subsector to spur economic development and transformation of the country,” she told Parliament while tabling the bill last October.
Malawi President Lazarus Chakwera said in a television address in April 2021 that despite a lot of mineral resources in the country, the subsector had faced exploitation not only by foreigners but also local miners.
“Although the Kayelekera sandstone uranium deposit was discovered during Malawi’s first presidency in 1982, six presidencies later our country has nothing developmental to show for it, not even in the Kayelekera community itself,” he said.
The Australia-based company, Paladin Africa, used to fully own and run the Kayelekera Uranium Mine in northern Malawi, but in 2020 it sold its 85 per cent stake to Lotus Resources Limited and Lily Resources Ltd, which are also based in Australia.
However, Kayelekela Uranium Mine general manager Theo Keyter contended that his company contributed about $42 million in taxes and $10 million in royalties to the economy of Malawi from 2008 to 2021.
Records from Pay What You Produce show that between April 2009 and December 2014, Paladin paid nearly $11 million to the Malawi government in royalties and over $38 million in payroll, withholding and non-resident taxes.
Financial records also show that the company grossed $295 million in revenues from Malawi during the same period. Malawi EITI’s annual report for 2019/20 indicated that the country earned $10 million from the mining sector.
Millions of dollars lost
IFFs are cross border exchanges of value, monetary or otherwise, which are illegally earned, transferred or used, according to the United Nations Economic Development in Africa Report 2020 titled, “Tackling Illicit Financial Flows for Sustainable Development in Africa.”
The report says IFFs cost African countries around $50 billion per year, dwarfing the amount of official development assistance the continent receives annually.
A 2021 study, titled “Illicit financial flows risk factor in Uganda’s oil and gas sector”, authored by the Civil Society Coalition on Oil and Gas, indicated that Uganda could be losing sh2 trillion in IFFs per year and that the situation could get worse with the commencement of commercial oil production in 2025.
President Chakwera said in a September 2020 State-of-the-Nation Address to Parliament that Malawi loses $85 million worth of gold exports to the Middle East every year.
He revealed that data from rich Gulf states showed that Malawi was the source of large amounts of gold traded in those countries.
He also said his government had plans to increase the mining sector’s contribution to the gross domestic product (GDP) from the current 3 percent to 20 percent as well as economically empowering communities where minerals are being mined.
What others say
Analysts and government officials interviewed for this story said these new laws and the existing ones are enough to regulate the mining industry but the major problem lies in implementation.
“When this enacted Bill finally becomes law we will ensure that the transparency obligations in it are fully enforced and patrol the porous borders (between Uganda, DR Congo and South Sudan),” Sydney Asubo, executive director of Uganda’s Financial Intelligence Authority (FIA), said in an interview.
He said the new mining and minerals law requires people to disclose the source of minerals outside Uganda.
“The law says it is illegal for you to buy gold without a document indicating the source. This document from the country of origin should satisfy that this gold was properly mined within the laws of that country. However, if somebody walked in from DR Congo to Uganda now and said this is gold, and I want to buy it on black market, there is nothing that can stop me from buying it,” he said.
Asubo, however, noted that when it comes to IFFs in the mining sector, there has been so much focus on the countries where these minerals are allegedly from and not on the destination and transit countries.
“There are some countries such as the United Arab Emirates which are not known to be producers of these minerals but there are big markets. So why is it that those countries are not put to task to ensure that what they bring in is clean?” he asked.
Analysts in Uganda say the requirement for companies to disclose beneficial owners and for the government to publish that beneficial ownership information is important for curbing money laundering, capital flight and other forms of IFFs.
“The Bill would ideally help curb IFFs because of the provision (clauses 45 and 331) for declaration of beneficial ownership since laws and regulations on financial transparency and anti-money laundering have the strongest influence on IFFs,” said Lynn Gitu, program leader at IMPACT, a non-governmental organization which attempts to control the sourcing of minerals in regions of conflict.
However, she said, curbing IFFs requires a concerted effort beyond just one government ministry or agency and beyond just a couple of provisions in law.
“I think consideration should be made of the need for political will to set up legal and institutional frameworks that support curbing of IFFs. The Financial Intelligence Authority (FIA) for example, needs strengthening,” Gitu said.
The Minister of State for Minerals, Peter Lokeris, also echoed Asubo’s views, saying the enacted Bill will help Uganda and other East African Community (EAC) countries to trace the source of minerals.
“Our EAC countries have all assented to this change because we all think illegal mining is a major cause of insecurity and violence (especially in the eastern DR Congo),” he said.
“The enacted Bill will also see us employ government geologists even at the site of mines in order to see the processing of the minerals from the start to finish,” Lokeris added.
Malawi Chamber of Mines coordinator Grain Malunga said in an interview that the new law aims at promoting community benefit sharing and promoting mining at various levels.
“It is important for the country to support the emergence of medium to large scale mining in order to promote transparency and accountability in the mining sector. Medium to large scale mining and exploration companies are at exploration or advance feasibility studies and are yet to commence mining operations,” Malunga said.
He also noted that mineral smuggling is apparently common in gemstones and gold mining being undertaken by artisanal and small-scale miners due to lack of the speedy formalization of the sector.
Now that Uganda and Malawi have finally cleared a major hurdle in their efforts to promote a more transparent and accountable form of extractive sector management in their respective countries, experts say combating IFFs will depend on the implementation of this and other existing legislations.
“The starting point with combating any crimes including financial crimes is having laws in place and once you have the laws in place then the next step is to implement them. However good you have a law on the law books if it is not enforced then it will never work,” Asubo said.
“This story was produced by NyasaTimes (Malawi) in collaboration with New Vision Newspaper (Uganda). It was written as part of Wealth of Nations, a media skills development programme run by the Thomson Reuters Foundation. More information at www.wealth-of-nations.org. The content is the sole responsibility of the author and the publisher.”