Afreximbank Advocates for Strategic Investment in Africa’s Gold Sector

A report by African Export-Import Bank (Afreximbank) has stated that the current “high gold prices offer African countries an opportunity to strengthen their reserve portfolios with a safer asset like gold.”A

The report also advised African countries that rely on gold to take advantage of the increasing prices of the commodity in the medium term by investing in their gold sector and improving their value chain in the long-term.

The report forecasted that gold prices could remain high for a long time due to reduction in interest rates by many central banks. 

The report, titled, “The Ongoing Gold Price Rally: Macroeconomic Implications for African Producers,” said, “The gold sector is macro-critical in several African countries.”

It added that the African continent produced approximately one-quarter of the world’s gold and generated substantial foreign exchange earnings and fiscal receipts from it, while creating employment opportunities in producing countries.

The report stated that in the medium term, the gold rally was an opportunity for long-term infrastructure and social investments to diversify the production base. It urged governments to implement soft and hard measures to tame the activities of illegal miners.

The report added, “Recently, its value has surged and reached an all-time high. The rally began in mid-February of 2024.

“As of April 12, 2024, the spot price was $2,401.5 per ounce, a 21 per cent increase since mid-February 2024. Considering a longer timeframe, since October 2023, the value of the precious metal has risen by 32 per cent. Future prices are projected to be consistently upward, with 68 months of future pricing quoted at $ 2,776 per ounce.

“The current price rally is attributed to several factors, including the anticipation of monetary easing by major central banks, robust demand from central banks in emerging economies, and ongoing geopolitical instability in the Middle East and Ukraine.”

The report added, “African continent produces about one-quarter of the world’s gold production. According to data from the World Gold Council, African countries produced a total of 979.2 metric tons of gold in 2022. 

“Ghana, South Africa, Sudan, Mali, Burkina Faso, the DRC, Tanzania, Zimbabwe, Togo, and Côte d’Ivoire are the top 10 producers, which collectively account for 90 per cent of the continent’s production. In 2022, the top 10 producers received $66 billion in gold export receipts.

“These top 10 producers also account for 14.6 per cent of the continental GDP. Any change in the price of gold can have significant macroeconomic implications and trade dynamics for these gold dependent countries and the African continent.”

The said as of December 2020, the World Gold Council reported that central banks held roughly 35,000 tons of gold, amounting to approximately 18 per cent of all the gold in the world.

According to the same source, African central banks held about three per cent of global central bank gold reserves. It said African central banks could exploit the high prices and shore up their reserve holdings by storing the produce reserves or buying on the markets.

It stated that as of 2023, North African countries held the most gold as a reserve asset, with approximately 446 tons, with Algeria holding 174 tons, Egypt holding 126 tons, Libya holding 117 tons, Morocco holding 22 tons, and Tunisia holding seven tons. 

Elsewhere on the continent, South Africa held 125 tons, Nigeria held 21.4 tons, Mauritius h12.4 tons, Ghana 8.7 tons, and Mozambique held four tons.

The report said, “It is important to note that gold plays a significant role in the exports and GDP of several African economies. Therefore, its price volatility has significant macroeconomic implications.

“In the near term, the recent rally in gold prices is expected to benefit countries whose economies are heavily dependent on the precious metal. However, caution should be exercised to avoid macroeconomic instability, which could arise from the fluctuation of gold prices with its attendant effects.

“While windfall export receipts resulting from increased gold revenue will improve fiscal accounts, it is key to manage them carefully to avoid any extra spending that could destabilise the macroeconomic environment. 

The growth effect has remained subdued, and more effort may be needed to boost economic growth.”

According to the report, gold is a precious metal that symbolises stability and acts as a secure investment during economic turmoil.

It is an asset that maintained its value over the long term and is frequently utilised as a store of wealth, the report stated.

The report said while inflation eroded the real value of wealth, gold had usually maintained or even increased its value over time. Gold had proven to be a stable or even an appreciating asset during high inflation, making it a valuable secure investment.

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