In February 2022, Uganda commissioned a $200-million iron ore smelting plant that could significantly boost steel & metals production in the East African nation.
The launch came amid plans by Uganda to follow Kenya in banning the sale or trade in scrap metal to tame wanton vandalism of infrastructure such as high voltage power pylons, infrastructure supporting CCTV cameras, and road furniture.
The region is facing scarcity of cast iron scrap. Tanzania and Rwanda used to be sources of cast iron, but it is no longer available in those countries.
Abraham Muwanguzi, a senior planner for technology and industry at the National Planning Authority-Uganda (NPA) told the East African in February that the current EAC Common External Tariff needs to be reviewed as it favours importers of wire rods.
Uganda hopes to increase its capacity in iron ore smelting when Pramukh Steel Ltd, Madhvani Steel and Kabale Steel commission their plants, according to their publicised plans. This would allow Uganda to supply smelted iron ore and products to its domestic market as well as Kenya, Rwanda, Burundi, South Sudan, and the DRC.
Confirmed iron ore deposits
According to Uganda Investment Authority (UIA), Uganda has confirmed iron ore deposits in commercial quantities, estimated at over 500 million tonnes, based on the “limited” surveys so far undertaken. In 2014/15, the Government of Uganda supported aerial and geological surveys which confirmed over 200-million metric tonnes of iron ore deposits in the Kigezi region of southwestern Uganda alone, with huge prospects for more discoveries.
The surveys have not yet been extensive enough, leaving room and opportunity for more reasonable exploration to establish the real extent of the iron ore deposits. It is important to note that based on the reconnaissance survey carried out in southwestern and eastern Uganda, which confirmed high quality hematite deposits, there is ample room for further exploration with the potential for finds double or more the confirmed iron ore deposits.
In Uganda, iron ore occurs abundantly mainly in two areas: Hermatite iron ore found in Muko in Kabale and Kisoro districts of southwestern Uganda, and magnetite iron ore in Sukulu and Bukusu in Tororo District in eastern Uganda. Hematite iron ore is also known to occur at Mugabuzi, in Ssembabule District in central Uganda.
Realistically, most parts of Uganda have iron ore deposits, albeit in varying quantities. All these iron ore deposits are largely untapped with immense opportunities for investors to utilise.
Growth potential in iron and steel industry
UIA studies show that Iron and steel are amongst the most sought after commodities, especially for structural purposes due to a number of advantages, among which are the good mechanical properties, low production cost associated with it and high strength in relation to its weight. Iron and steel are easily recyclable for the production of new products. Ultimately, the use of iron and steel-based products has come to be associated with the industrialisation of economies for decades.
A study by Muwanguzi et al. (2000) forecast that from 2019 to 2024, liquid steel production can be increased from 210,000 tonnes to 1.4 million tonnes per annum, with measures for industry sustenance and infrastructure investments put in place. According to the study, “even though there is projected to be an initial fluctuation between 2020 and 2022, due to interruptions during the period of technological upgrade, there is on average, a distinctive steel production growth over the next 5 years.” The study recommends fast-tracking the highlighted public and private sector investments in domestic iron and steel production.
Output
Uganda’s steel production (for both domestic and export markets) currently stands at an estimated 585,000 tonnes per annum, that is, 35 percent of installed capacity. Of these, 210,000 tonnes is liquid steel production, which is mainly produced through scrap smelting in the induction furnaces.
According to NPA, in 2018 Uganda’s iron and steel plants had total installed capacity of about 1,000,000 tonnes per annum. Of the installed capacity, only 50.17 percent (501,700 tonnes) was being utilized (this figure has since increased). Of the total annual iron and steel production of 501,700, only about 165,000 tonnes (32.89%) was produced from scrap and raw iron ore. This implied that 67.11 percent (485,200 tonnes) of the raw material for iron and steel making in Uganda were imported, not taking into consideration the accessories like zinc and aluminum, amongst others.
Out of the total 165,000 tonnes, manufactured through melting scrap and iron ore, iron ore accounted for only 10 percent (16,500 tonnes) per annum. The ore is used mainly to refine the scrap for some industries. Essentially, out of the 500 million tonnes plus of iron ore available in the country, a tiny fraction is being utilised per year. This offers great iron and steel investment opportunities.
Value addition
The sector has also had significant advancement in vertical integration. A number of steel industries used to import ingots and galvanized and colour-coated steel, as well as rely on scraps. That is no more as they now manufacture them locally, hence value addition. More value addition opportunities exist on account of discovery of abundant iron ore deposits in eastern and southwestern parts of Uganda.
The NPA is also leading the process of integrating further the iron and steel sector – exploration, mining, smelting/processing, transporting, trading, construction, etc. The iron ore deposits in the southwest and east have the capacity of supplying an integrated iron and steel industry.
Growing domestic demand
Uganda’s consumption of steel per capita stands at around 15kg. Although this is below Kenya’s 45kg and the world average of 250kg, the growth potential is great. Importation of iron and steel products increased to USD 279 million in 2015, up from USD 162 million in 2010. Iron and steel imports stood at USD 369 million (International Trade Centre, 2019). The iron and steel trade deficit gap is large as imports have exceeded exports by 80 percent throughout the years. As a result of the huge and growing domestic demand/market, there has been significant private sector investments in the sector, with ample room for more growth.
Uganda’s population has been growing over the years – now at 41 million and is projected to reach 53 million by 2030. Probably as a result of the growth in population, imports of iron and steel have correspondingly been increasing.
Increasing market for iron and steel products
Uganda’s iron and steel industry has evolved over the years in both scale and scope. The market value currently stands at over USD one billion and growing. The produced iron and steel products are mainly sold locally (70%), with some exports to the neighbouring East African countries.
The domestic market is growing by leaps and bounds, on account of huge infrastructure projects and real estate boom. Infrastructure projects in oil and gas like the East African Crude Oil Pipeline, the Central Processing Facility, the “oil” airport and roads, as well as other construction projects (dams, roads, bridges, real estate, vehicle assembling, industrial parks, factories, etc.) provide a huge and ready market.
The regional market includes northern Tanzania, South Sudan, the Democratic Republic of Congo, Rwanda, Burundi and Central African Republic. Uganda exports roughly 4,000 tonnes of steel products, 15 percent of which go to South Sudan alone.
With improved competitiveness and a strategic location in the heart of Africa, Uganda has the potential of accessing markets like COMESA (Common Market for Eastern and Southern Africa) and SADC (Southern Africa Development Cooperation). The African Continental Free Trade Area (AfCFTA) will provide great investment and trade opportunities.
Investment opportunities
Investment opportunities exist in the iron and steel sector, starting from exploration and early stages of mining, processing and smelting through to midstream stages like value addition and manufacturing of steel products, and downstream to marketing, supplies and use.
Opportunities exist in establishment of iron ore smelting (direct-reduced iron) plants, including manufacturing of sponge irons. Opportunities also exist in plants or supply of reducing agents like coking coal and natural gas to reduce impurities. Presently, natural gas is plentiful in Tanzania, but with development of the oil and gas sector in Uganda, the odds will change and the cost will reduce significantly. Opportunities further exist in the production of associated gas, in millions cubic feet per day, to supply the industry.
The Covid pandemic, which disrupted global supply production and supply chains, including of iron and steel, gives Uganda the opportunity to develop an alternative steel production centre to those in the Far East.
Opportunities also exist in skills development – for the sector and linked to other related sectors like other minerals, oil and gas, manufacturing, etc.
One of the key competitive advantages for Uganda is that it has a higher potential for an integrated iron and steel industry, unlike her neighbours.
Most of the industrial and steel making activities in Uganda are currently centred in Greater Kampala and Jinja metropolis. Potential investors have the opportunity of setting shop in the iron ore-rich regions.
Policy and incentive regime
Uganda has a favourable business and investment stance on the iron and steel industry. Efforts are in place to focus policy attention on both export-orientated growth, as well as on production for domestic markets.
The President of the Republic of Uganda banned the exportation of unprocessed iron ore in 2011. The ban was aimed at developing the iron and steel industry in the country by facilitating the promotion of value addition on raw iron ore, enabling job creation, infrastructure development, technological growth and advancement and reduction in forex expenditure.
The iron and steel sector, as part of the bigger mining industry, has special incentives, including writing off capital expenditures in full.
The “Buy Uganda, Build Uganda” policy is in place, aimed at promoting local content. Indeed, many iron and steel players are already reaping the benefits of BUBU, including lucrative supply contracts for huge infrastructure projects.
Regulatory frameworks like the Investment Code of 2019, the National Industrial Policy 2020 and others are in place to support investments in the sector as well as others.
Uganda Investment Authority has plans of establishing industrial parts in the two regions with large, confirmed iron ore deposits – southwestern and eastern. Potential investors in the iron and steel sector have the opportunity of setting up shop in the two regions in the near future.
There are efforts geared at reducing and easing cost of doing business. There are enablers in place to drive costs down and boost iron steel manufacturing. Uganda Investment Authority, for example, has a One Stop Centre that speeds up setup of investment projects, as well as a business development unit that offer supportive services for the investors.
The government pays particular attention on enabling investors in the iron and steel sector to grow sustainably. A number of investments projects are benefiting from this initiative, including access to incentives and the Government has BUBU in place, the local content policy aimed at boosting local industries.
There are also efforts at improving competitiveness in order to access regional markets like COMESA and SADC.
