As the African nations use Gold to turn it back into its currency, Uganda joins the ranks by Gold Mining as a strategic asset to strengthen its currency and build a foreign exchange reserve. To clarify, the Bank of Uganda plans to purchase Gold domestically from artisanal miners. This helps reducing reliance on raw Gold imports and supporting local Mining communities. This initiative sheds light on the latest proposals by Nigerian lawmakers and decisions made by other African nations. For example, Zimbabwe introduced a Gold backed currency, Zid or Zimbabwe Gold, to keep its economic stability, at the same time, Ghana requires major miners to sell 20% of their refined Gold to the central bank.
African countries, including Uganda, face significant economic challenges such as high debt levels and rising interest rates. These issues are merely repercussions of Covid-19 pandemic and global events like Russia’s invasion of Ukraine. Nevertheless, Uganda has kept its economy stabilized through monitoring policy adjustments and by choosing not to defend its currency under pressure. Although, capital flight due to anti-LGBTQ legislation has impacted Uganda’s foreign exchange reserves, causing the World Bank to suspend new financing in August.
Gold Mining Impact on the Economy in Uganda
The Bank of Uganda‘s Gold purchase program aims to moderate declining foreign currency addresses risk in international financial markets. The central bank supports small-scale Mining operations by buying Gold from artisanal miners, which positively affects other economic sectors.
Uganda’s foreign exchange storage went down by $149 million by 2023, totaling $3.47 billion in April, or 3.2 months of future import cover. This rate is not sufficient to cover the country’s current account deficit. Currently, the central bank has no Gold in its storage.
Developments in Uganda’s Gold Industry
Uganda has Gold refineries. However, it lacks significant Mining operations. Nevertheless, Wagagai Mining Uganda Ltd., a subsidiary of China’s Liaoning Hongda Enterprises, plans to open a refinery in 2024 following the discovery of substantial ore deposits. Uganda permits Gold imports from neighbouring countries and exports $2.8 billion worth of billion in the year through April. A UN report indicated that Uganda benefits from Gold smuggled from the Democratic Republic of Congo, which faces ongoing instability in its mineral-rich eastern region.
Check out this article about Gold and Amid inflation.
Economic Impact and Future Prospect
In a nutshell, Uganda’s decision to purchase domestic Gold is a strategic move to strengthen its foreign exchange reserves and support local miners. This initiative reflects a broader trend among African nations to use it to stabilize their economies. Uganda aims to reduce economic risks and boost its currency by enhancing its Gold reserves. Moreover, his program will help artisanal and small-scale miners, improving their livelihoods and stimulating economic growth in related sectors.
For more information, read this research.
