Uganda has huge investment opportunities in iron and steel sector

By David Rupiny

Pramukh Steel Rolling Plant in Jinja, eastern Uganda.

By David Rupiny

Introduction

Uganda aspires to become an upper middle-income country by 2040. In her perspective national planning frameworks, Uganda has earmarked the development of the country’s iron and steel industry, based on its existing iron ore deposits and prospects, among the key interventions to be used to achieve the desired vision. The country considers the iron and steel industry as one of the country’s economic lifeline industries.

Iron and steel are vital materials and find their use in almost all areas of life and both can easily be recycled after their use to make new materials. Steel is the world’s most important structural material because of its high strength in relation to its weight and price. It is produced in many forms – from thin sheets and wires to heavy load-bearing structural members.

According to Uganda’s National Planning Authority, a strong integrated iron and steel industry will not only facilitate industrial take-off in the country but also lead to saving of forex expenditure, increase employment opportunities and form a strong basis to support the growth of other sectors through forward-back ward linkages. The industry will also increase local content in on-going and planned infrastructure projects.

Confirmed iron ore deposits

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 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 take advantage of.

Growth potential in iron and steel industry

Iron and steel are amongst the most sought after commodities, especially for structural purposes due to a number of reasons, 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 (Ruth, 2004).

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 of 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 gone up). 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 over 500 million tonnes of iron ore available in the country, only 0.0033 percent 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 southwestern and eastern Uganda have the capacity of supplying an integrated iron and steel industry.

Growing domestic demand

Uganda’s consumption of steel per capital stands at around 15 kilograms. Although this is below Kenya’s 45 kilograms and the world average of 250 kilograms, 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 currently stands at USD 369 million (International Trade Centre, 2019). The iron and steel trade deficit gap is large as imports have been more than 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 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 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 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.

Outlook

With the economy growing and industrialisation taking root, steel remains a critical component of that growth. Demand for iron and steel projects is on an upward trajectory, on account of a number of huge infrastructure projects in the oil and gas sector, construction of dams, vehicle assembling and other industries, construction (roads, bridges, etc.), industrial parks development, real estate, etc. Increasing urbanization, now at 27 percent (Uganda Bureau of Statistics’ 2019/20 National Household Survey Report), offers opportunity for growth, as well as an increasing middle class and access to regional markets.

Whereas Uganda is well endowed with iron ore deposits, there is potential for growth in exports partially on account of limited beneficiation. With the country’s population projected (read demand) to reach close to 53 million people by 2030, and 70 million by 2040, the time to invest in Uganda’s iron and steel industry is now. The import is that the projected significant growth in Uganda’s population is likely to result in an increase in the demand of steel which will be a consequence of a strong development based on important measures of industry sustenance and infrastructure investments (Muwanguzi et al, 2020).

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 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. Already, the Government has in place the “Buy Uganda, Build Uganda”, a 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.

Contribution to the economy

The iron and steel industry is valued at over USD one billion and is growing. Much of the potential is still untapped. The industry employs an estimated 10,000 Ugandans directly, and many more indirectly. The Top 20 industries are also important taxpayers. The iron and steel industry will continue to, and increasingly, anchor Uganda’s industrialisation.

Conclusion

High grade iron ore deposits, in commercial quantities, exist in eastern and southwestern Uganda. With more exploration, there is high potential for more discoveries and upward revision of the quantities. The iron and steel industry is growing by leaps and bounds, with high potential for more growth. This calls for more investments in the iron and steel value chain.

The Government of Uganda has placed development of the iron and steel industry at the centre of its national development agenda. In place are enablers like a conducive regulatory framework, an industrial strategy, infrastructure development, human resource capacity building, security, economic stability and supportive agencies like Uganda Investment Authority, National Planning Authority, Uganda Development Corporation, etc.

The iron ore deposits have the potential of adequately meet the demands of an integrated iron and steel value chain ecosystem in Uganda. This would anchor Uganda’s industrialisation, economic growth and sustainable development. In addition, a developed iron and steel industry would create more jobs, over and above the current estimated 10,000 Ugandans directly employed in the sector.

David Rupiny is UIA’s Media Relations Officer

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