Is Africa about to miss its golden moment?

With the gold price above $4,000 an ounce, you would think, of all continents, Africa would be celebrating. But in the true tradition of fluffed golden opportunities, Africa gold producers are actually having a tough time of it right now, with the high gold price papering over the cracks. 

As a continent, Africa produces more gold than any other, so in the broadest sense, the record high gold price is a godsend. This is a bit of a false numeric – “Africa” is in some ways an arbitrary measure. The world’s largest three producers, China, Russia and Australia, are currently producing about 900 tonnes of gold a year, which is roughly equivalent to the 1,000 tonnes produced in Africa. 

But whatever the numeric, the high gold price is fabulous news for many African countries – or is it? To some of course. Just to take South Africa, for example, the latest South African Reserve Bank Bulletin values the country’s gold reserves at just under R200bn. That’s twice what they were five years ago. This means that South Africa’s import cover ratio – which measures how long a country’s foreign exchange reserves could pay for its imports without receiving any new foreign income – is now up to about five and a half months.

From a liquidity point of view, that’s plenty, and for a lot of African countries, foreign exchange liquidity can be a terrible restraint on trade. So this is all good news.

The problem with a very high gold price is that it’s a forerunner of two big very African problems: greedy governments and huge increases in artisanal miners. 

In Africa, this has turned the continent’s second-biggest gold producer, Mali, upside-down. Technically, Mali is a major player, producing just over 100 tonnes a year. But Barrick’s Loulo-Gounkoto mine is currently closed after gold seizures by the new military government. Other gold mines are still producing in Mali, but with this major player out of the picture, production will probably drop to 26 tonnes this year. 

The good news

But there are spots of good news too. The value of gold exports from Tanzania in the year to August is 36% up on a year ago, the country’s central bank has just reported. It’s based not so much on gold production, which is pretty static, but it has become the country’s biggest export.  

Ghanaian gold production is also a good news story, partly because the country has managed to regularise its artisanal production. South African gold production is holding up, though it’s hard not to still be nostalgic about the glory days of 1994, when the country produced 580 tonnes in a single year. Local gold production has been shrinking at an average rate of 5.8% a year since then.

As we all know now, South Africa does have gold reserves but it needs big improvements in infrastructure, transport and governance – like much of the continent – to bring this value to fruition. And much of the continent is just not doing that. Just this week, Anglo American CEO Duncan Wanblad pointed out that in South Africa, two decades of policy that failed to support exploration has caused the country to miss out on a generation of new mines.

But the good news is that if the gold price stays high, the potential remains, because as long as the ore remains in the ground, policy changes can result in its exploitation. And as our story on the gold price published on Wednesday points out, there is some expectation that the price will remain high for some time. 

_{Top image: Rawpixel/Currency collage.}