Gold Prices Soar but Africa Loses out, Says AfDB Paper

12/04/2012
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Africa is not cashing in enough from its large gold resources, despite the spiralling price of the precious metal over recent years, according to a working paper published by the African Development Bank (AfDB).

The paper, entitled ‘Gold Mining in Africa: Maximizing Economic Returns for Countries’, points out that gold mining is a significant activity in at least 34 of the continent’s 54 countries.

Africa’s annual average gold production is 480 metric tons, or 20 percent of the total average annual global output of 2,400 metric tons.

The price of gold has soared by more than five times since 2000.  At more than USD 1600 an ounce, the spot price of gold is at an almost unprecedented high, surpassed only by the spike experienced in 1980.

However, African governments and the peoples of Africa are not benefitting as much as they could from this boom.

A key factor is unfair concession agreements, say the authors of the paper, which severely limit the gains from gold mining that remain in the producing countries.  This particularly applies to the royalty rate stated in the agreements. 

The authors point out: ‘Our analysis shows that royalties, as a share of production cost, are low in Africa.’

They also note that most gold mines in Africa are majority-owned by foreign multinational companies, so the main way that African countries benefit from gold production is through tax revenues.  However, many mining companies have negotiated tax exemptions far above the provisions in the relevant mining code.

Not only does this mean governments are not receiving a fair share of gold revenues, it is holding back development in Africa. 

In some cases, African governments have taken action to solve the problem, which is not always restricted to gold but applies to other mineral concessions.  

The authors cite the example of Liberia. In 2006, the current Liberian government ordered a review of concession agreements signed in the country between 2003 and 2006.  Of the 105 contracts reviewed, 36 were recommended for outright cancellation and 14 for renegotiation.  Whether Liberia received a fair share was one of the key evaluation criteria for cancellation or renegotiation.


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