In a report published on April 29, Afreximbank (an African Export-Import Bank) indicates that the rise in gold prices, stimulated by central bank purchases and the anticipation of a drop in gold rates interest, economically benefits the 10 main African producing countries but could also slow down their economic diversification and encourage illegal mining.
Entitled “The ongoing gold price rally: Macroeconomic implications for African producers”, the report recalls that the upward trend in gold prices on the international market began in mid-February 2024.
As of April 12, 2024, the spot price per ounce reached a record high of $2,401.5, an increase of 21% since mid-February 2024.
While it is true that the rise in gold prices will undoubtedly have positive effects on the foreign currency reserves and tax revenues of African countries producing this precious metal, the report maintains, the fact remains that it could compromise their efforts at economic diversification, encourage the development of illegal mining activities and cause a surge in inflation resulting from an increase in the money supply greater than that of real production.
The report also indicates that Africa contributes 25% to the global production of the precious metal.
According to data from the World Gold Council, African countries produced a total of 979.2 tonnes in 2022. Ghana, South Africa, Sudan, Mali, Burkina Faso, DRC, Tanzania , Zimbabwe, Togo and Ivory Coast are the ten main African producers.
“In these countries, the gold sector represents on average 45% of total exports and almost 15% of GDP. Any change in the price of gold can thus have significant macroeconomic implications for these countries and for the entire continent,” note the experts.
In countries that rely on gold mining, an increase in prices leads to increased export earnings, which causes an increase in foreign exchange reserve flows. This improves their ability to manage debt, pay import bills and maintain currency stability.
However, the official gold reserves of African Central Banks remain low. They represent only 3% of central bank gold reserves globally. The rise in prices of the rare metal, which is unalterable and easily transportable due to its high density, therefore offers African producers the opportunity to strengthen their reserve portfolios with a safe asset.
Olivier KAFORO
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