Who benefits from African gold? | | Financial Issues

Johannesburg, South Africa – Mansa Musa, the 14th century king of the Mali Kingdom, often comes to mind whenever African gold comes up in conversation. Known for his vast wealth, he is often said to be the richest man in history, mainly because of his empire’s vast gold reserves.

Yet centuries after Mansa Musa’s reign, Africa’s relationship with gold remains mysterious. The continent has some of the world’s richest gold reserves, but much of the wealth created by the industry continues to be siphoned off elsewhere. According to the United Nations Environment Program (UNEP), Africa has about 40 percent of gold.

Although Africa remains one of the world’s largest gold reserves, it continues to be at the bottom of the world’s gold price index. Gold mined throughout the region is sent mainly to the United Kingdom, where it is refined, sold and priced. As a result, the most profitable parts of the company remain concentrated elsewhere, creating a constant gap between output and value capture.

“Africa’s situation shows structural problems, including high levels of refining, economic failure and old business practices that tend to export unrefined gold, allowing offshore markets to take a higher price margin for refining and marketing,” Kate Collett, an analyst at the Africa Practice, told Al Jazeera.

Increasingly, African governments not only want to extract more gold but also to maintain their control. That goal extends to the mining process. Around the world, policymakers are seeing gold as a monetary asset that can bolster reserves, reduce external volatility and support greater fiscal governance.

Changes in international databases

Gold has also emerged as a safe-haven asset in the world’s most diversified economies. Unlike fiat currencies, they are widely viewed as retaining value in times of inflation, political strife and economic uncertainty.

Across the Global South, central banks have increased their holdings of gold in recent years as part of an effort to diversify reserves and reduce exposure to foreign financial systems. This is evident in developing countries, including China, Russia, India and Turkey, according to a survey by the World Gold Council.

By acquiring gold, central banks reduce their dependence on foreign currency and maintain reserves that cannot be linked to any financial system.

African countries have joined this transition to promote financial stability, build up reserves and increase financial strength.

Within Africa, Ghana, one of Africa’s leading gold producers, has increased the amount of gold produced in the country by the central bank under its domestic gold collection programme, according to Bank of Ghana reports and communications.

Nigeria has pursued a number of policy reforms, including high interest rates on gold as one way to boost its foreign reserves, according to central bankers and analysis by international financial institutions, including the International Monetary Fund (IMF) and the World Gold Council.

Tanzania wants about 20 percent of gold output from mining and trading companies to be distributed to the central bank in accordance with Bank of Tanzania regulations. Guinea has strengthened licensing and export controls in its mining sector, part of an effort to increase government oversight and generate more domestic revenue.

According to analyst Thea Fourie, head of regional analysis for the Middle East and Africa at S&P Global Market Intelligence, rising gold prices have fueled this shift. “This trend is in line with the major political changes following the de-dollarization … including the creation of alternative payment methods and the use of local currencies in transactions,” he told Al Jazeera.

For African producers, the changing global economy has led to the use of gold as an independent financial instrument, researchers say.

To capture more valuable information

Across the continent, governments are also trying to keep more profits from domestic production by tightening mining controls and changing the way gold moves from extraction to export.

Ghana has expanded its central bank gold buying program. Tanzania has promoted domestic trade regulation and storage requirements, while Guinea has tightened licensing and export regulations to improve domestic production and maintain costs.

In Guinea, authorities have also banned mining licenses that are seen as ineffective and bans on the export of unprocessed gold in a bid to encourage local refining. Namibia continues to ban the export of unprocessed salt, fueling efforts to raise domestic prices.

Professional mining, which often operates outside of the official system, is seen as part of the stable gold economy rather than as an independent sector. Governments want to set up production, reduce smuggling and increase tax and import revenues.

“These programs can help countries retain more value from their mineral resources by reducing smuggling, establishing professional mining and creating incentives for local refining and downstream industries,” Collett said.

But integration remains inconsistent. Many small-scale miners are still operating outside formal channels due to lack of access to finance, markets and technical support.

“As commodity prices rise, this gap between the law and the way work is done on the ground is widening, and the price is still moving outside the accepted system,” he added.

Resource nationalism in the Sahel

In the Sahel, the military-led governments of Mali and Burkina Faso have pushed to control the mining economy, making reforms as part of efforts to reduce economic dependence on former colonial powers.

Mali’s President Assimi Goita will oversee the restructuring of the mining sector, increasing government involvement and boosting domestic employment. With Russia seen as an important partner after the break with France, the government is also building a state-run gold refinery in Bamako.

Burkina Faso has increased government involvement in mining and is seeking to expand its gold reserves. Together with Mali and Niger under the Alliance of Sahel States, it pursued a deeper economic partnership. Plans for a closer financial union have been discussed, although they remain in development.

However, many of the largest mines in the region are still outsourced to foreign companies due to limited in-house skills.

According to Fourie, of S&P Global Market Intelligence, the change reflects the economic impact driven by economic and security concerns.

“These governments have also expanded relations with non-Europeans, and renewed old and diplomatic ties,” he said.

But analysts warn that too much government regulation can stifle investment if the controls aren’t well understood or aren’t applied consistently.

“The demand for control of African resources should not be reduced to the impressive power of the Sahel juntas, where the authorities are in prison, and the stories of danger,” said Collett.

A long way to control

Despite the increase in policy, a complete correction in the price of gold remains a long way off. Moving from production to refining and high prices in African countries requires investment, skills and industry.

Building a world-class refinery and attracting long-term investment will take time, even as governments push for greater oversight.

“When procedures are clearly established, if there is no interaction with stakeholders, that’s when investor confidence begins to decline,” said Beverly Ochieng, senior analyst at Control Risks.

Some governments have managed to balance strong regulation and investor confidence by maintaining clear regulations and negotiating with trading partners.

Meanwhile, most of the valuable African gold products continue to flow abroad.

“The test of miners in the state will be to check… if they can meet international standards, sell gold and set prices,” Ochieng said. “And in the end, the bottom line is whether the government is going to be able to see this through.”

However, many experts believe that the direction of travel has been established.

“I think that over time, we will see more African governments taking steps to ensure that all the money stays in the country…maybe in a few decades, we could see the OPEC type of gold coming out of African countries,” he said.