At a time when the African gold industry should be basking in the glory of a gold price twice as high as it’s ever been, major African gold mining countries are shooting themselves in the foot.
The industry has recently imposed new rules to bring order to the rapidly-expanding small-scale mining sector – a boom caused by a gold price that has now reached a record $3,400 an ounce – but experts are worried these policy changes are motivated by avarice and will ultimately backfire.
If this happens, it will be enormously ironic, but actually not surprising.
Poorly thought-out policy changes, resource nationalism and sabre-rattling about nationalisation have long been associated with steep rises in ore value, as politicians try to ensure their countries get their share of the pie from “our” resources, experts say.
It is a complicated debate, of course, and much depends on the fine print because, as South Africa’s experience of zama zamas illustrates, there has been huge growth in illicit mining, which in itself can be a political nightmare. And it doesn’t help that the illicit gold trade is funding regional wars on the continent, notably in Sudan and Ethiopia, which have spilt over into neighbouring countries.
A prime example happened last week when Ghana’s ministry of lands and natural resources announced that the government had taken operational control of the Damang gold mine. This mine was previously operated by South Africa’s Gold Fields, and purportedly follows the government’s decision to reject Gold Fields’ application to renew its mining lease.
This came days after the country introduced the Ghana Gold Board, a new regulator tasked with overseeing the purchase, sale, assay and export of gold produced by licensed small-scale miners.
The change means that, from May, all foreign miners will be prohibited from trading or buying artisanal gold in the country – a policy aimed at curbing illegal mining, boosting government revenue and fortifying foreign exchange reserves.
Ghana is following in the wake of Tanzania’s government, which made a similar decision last October. In that case, the Tanzanian mining regulator passed a new rule requiring all mining companies and gold traders to reserve at least 20% of their gold for sale to the central bank.
In theory, this directive aims to help the Bank of Tanzania diversify its foreign reserves amid depreciation pressures on the local currency, the shilling. But this move illustrates another issue weighing on many African governments: a perennial shortage of foreign currency.
This has been most notable for countries like Zimbabwe, which has struggled to maintain a stable currency following the economic implosion consequent upon the seizure of white-owned farms in 2000. For years, Zimbabwean miners have grappled with sporadic and arbitrary disbursements of exchangeable currency.
Controlling conflict gold
Bernard Swanepoel, the former CEO of Harmony Gold and one of South Africa’s renowned mining experts, understands the motivation for new rules governing artisanal mining, but says he has never seen these policies succeed.
“In a perfect world, it could have been a great thing [because] perhaps governments would see some of the taxes and perhaps artisanal miners could have been marginally better off in reality. But I have never seen this work.”
Equally, there are rules in some countries requiring the mandatory sales of ore to state institutions, and not just for gold, but for other minerals too.
But besides the problem of how to fix an agreed price, and how to fairly divide the hard currency that typically results from mineral sales, there is the additional problem of smuggling when it comes to gold.
“You just have to follow the money,” Swanepoel says.
The best example is the fact that the United Arab Emirates (UAE) is flourishing as a gold exporter, even though there is no significant mining in the country. The UAE is now exporting more than $20bn worth of gold every year, much of it linked to untraceable artisanal gold.
But the UAE is not alone: Egypt has developed a large gold export industry partly because of its support for one faction in the Sudanese civil war.
According to a recently released report by NGO Sudan Transparency and Policy Tracker executive director Suliman Baldo and Chatham House senior researcher Ahmed Soliman, the gold trade connects Sudan’s civil war to the wider region and highlights the roles that commodities play in perpetuating violent conflict.
“Even before the start of the civil war in 2023, Sudan’s main warring parties – the Sudanese Armed Forces and the Rapid Support Forces – were in competition for the country’s natural resources. In fact, the fight to control gold assets was one of the drivers of the conflict,” the report says.
A similar battle is unfolding in Ethiopia, with a different Chatham House report finding that despite an end to the active conflict in the Tigray region, Ethiopia’s political and security crisis is deepening.
“Much of the country’s insecurity is linked to competition over natural resources, which has fuelled land disputes and intensified cross-border smuggling, driven inter-communal conflict, and aggravated environmental hazards,” it says.
Given these different threads, you can understand why many African countries would want to get a handle on artisanal mining – and you can see why many others would fight just as hard to ensure it doesn’t happen.
As Swanepoel puts it: “You can make all the arguments for why this will be rational [new policy]. But good luck implementing it.”
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