African countries may not benefit much from the current Gold rush
In times of crisis, investors take the advice of an Indonesian economist, Toba Beta, that says “Never trust money more than Gold.” The current COVID-19 induced economic crisis is one of such moments as investors rushed for Gold amid uncertainty and fear of post-COVID inflation. Notably, Gold price reached an all-time high of $2063.5/oz in August 2020, currently up 26.6 percent YTD.
During this same crisis, African economies have been negatively impacted by lower commodity prices like crude oil, iron ore, cocoa, among others.
However, we ask, does the increase in Gold price offer any comfort for the Gold-rich African countries? As much as the COVID-19 pandemic has caused a surge in Gold price, the associated lockdown measures also caused a disruption in mining activities across the continent.
Notably, South Africa and Ghana, African’s leading Gold producers are top of mind within the continent. According to World Gold Council, South Africa and Ghana rank amongst the top ten producers of the precious metal globally. Despite being naturally blessed with the resources, unfair mining deals, characterized by highly generous concessions to attract investments, poor negotiation terms with mining companies, little or no economic linkage with the rest of the economy, illicit gold trade and smuggling means that African countries might not benefit much from the current Gold rush.
In 2019, Reuters estimated that billions of dollars’ worth of gold was smuggled out of Africa every year. In Nigeria, there are reports linking the recent banditry in the northern region to illegal gold mining. Other challenges include outdated mining technics and the lack of value-added capabilities to the mined Gold on the continent.
-United Capital Plc