In a refinery just outside Uganda’s main airport, workers slip bars of freshly refined gold into clear plastic bags sealed with a sticker of the national flag - black, yellow and red - and the label “Ugandan’s Treasure.”

Uganda produces little gold of its own. Alain Goetz, who set up the refinery, says that by branding gold from abroad as Ugandan, the operation is merely imitating others - for example, the Swiss don’t mine the gold they refine in Switzerland.

A pink building guarded by dogs at Entebbe on the shores of Lake Victoria, the refinery, African Gold Refinery (AGR), is part of a trend across Africa. Small-scale mining is booming, and new gold refineries are opening by the dozen, to process metal produced by informal diggers in Africa and beyond.

The refineries, which often win high-level political backing, can be positive because they offer miners and states a way to extract value from their own mineral wealth rather than just exporting raw commodities. But if not properly controlled, they risk adding to problems of smuggling and funding conflict.

Some of Africa’s new gold refineries are in South Africa, a major gold producer with an already large refining industry. There, authorities granted 19 refining licences in the year to March 2019 - as many as in the previous three years combined.

Elsewhere in sub-Saharan Africa - where until 2012 there were only a handful of refineries - as many as 26 are now either operating or under construction across 14 countries from Mali to Tanzania, including in states which mine little gold at home, a Reuters survey of public reports found. Officials in at least three more countries including Madagascar and Ivory Coast have publicly said they are interested in hosting a refinery.

Governments of gold-producing countries in Africa have long complained that the precious metal in their rocks is being illegally produced and smuggled out on a vast scale, sometimes by criminal operations, often at a high human and environmental cost.

By refining gold - in some cases obliging producers and traders to sell their gold to home-grown refineries - states hope to capture value that is being lost. Some new refineries have invested in systems to ensure they process gold from legal and environmentally responsible miners.

Uganda produces little gold of its own. Alain Goetz, who set up the refinery, says that by branding gold from abroad as Ugandan, the operation is merely imitating others - for example, the Swiss don’t mine the gold they refine in Switzerland.

A pink building guarded by dogs at Entebbe on the shores of Lake Victoria, the refinery, African Gold Refinery (AGR), is part of a trend across Africa. Small-scale mining is booming, and new gold refineries are opening by the dozen, to process metal produced by informal diggers in Africa and beyond.

The refineries, which often win high-level political backing, can be positive because they offer miners and states a way to extract value from their own mineral wealth rather than just exporting raw commodities. But if not properly controlled, they risk adding to problems of smuggling and funding conflict.

Some of Africa’s new gold refineries are in South Africa, a major gold producer with an already large refining industry. There, authorities granted 19 refining licences in the year to March 2019 - as many as in the previous three years combined.

Elsewhere in sub-Saharan Africa - where until 2012 there were only a handful of refineries - as many as 26 are now either operating or under construction across 14 countries from Mali to Tanzania, including in states which mine little gold at home, a Reuters survey of public reports found. Officials in at least three more countries including Madagascar and Ivory Coast have publicly said they are interested in hosting a refinery.

Governments of gold-producing countries in Africa have long complained that the precious metal in their rocks is being illegally produced and smuggled out on a vast scale, sometimes by criminal operations, often at a high human and environmental cost.

By refining gold - in some cases obliging producers and traders to sell their gold to home-grown refineries - states hope to capture value that is being lost. Some new refineries have invested in systems to ensure they process gold from legal and environmentally responsible miners.

Congo’s own official exports of informally mined gold remained negligible, which Congolese officials say shows much of its metal is being smuggled out.

AGR was one of four refineries to which Uganda’s tax authority wrote in September. The letter, seen by Reuters, complained of “rampant cases of fraud in the gold trade business including forgery and misrepresentation of customs documents, stamps and signatures.” It did not specify details, and the tax authority declined to elaborate.

AGR says its raw gold comes mainly from the region, but is not smuggled. “We have turned down a considerable number of individuals and companies who did not have the relevant documentations and whose source of gold is from (places) considered as high risks or sanctions areas,” an AGR spokesperson said.

Goetz said he recently stepped down as CEO of the refinery to spend time on charitable work, sold his shares to an unidentified investor from the Gulf, and now acts as a consultant to the refinery. Asked who ultimately owns AGR, neither Goetz nor the refinery’s spokesperson would comment.

“RACE TO THE BOTTOM”

Africa’s new refiners operate amid networks of buyers who are willing to pay extra for gold. These include smugglers taking advantage of tax differentials between African states, or looking to slip gold out of the continent.

Smugglers typically sell gold abroad for hard currency such as dollars, which they can use to purchase goods including cars, electronics or local currency that are in high demand in Africa. These they sell.

By not paying tax and avoiding the banking system, they can pay above market price for the gold and pocket the profit they make on the resale of the goods.

One refinery in Mali says it is struggling to compete with smugglers. Kankou Moussa Refinery has been in operation since 2015 and says it plans to invest more than 400 million euros ($445 million) to create a network of centres which will buy gold and educate miners on how to work safely.

But smugglers and money-launderers pay up to three percent above market price for gold, said Dario Littera, its president.

“They are losing ... on the gold, but they are paid in hard currency that they take back and buy local currency for a profit,” he said.

With high profits from smuggling and weak oversight pushing vast quantities of gold into the informal economy, there is little incentive for the new refineries to play by the rules, said the OECD’s Marechal.

He said he had seen at least one case when individuals implicated in large scale gold-smuggling in one West African country set up a refinery in another.

Without better and more consistent regulation, he said, competition between the new refineries may degenerate into a “race to the bottom.”