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Africa’s gold(en) edge

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Picture: Simon Dawson/Bloomberg

By Koffi M. Kouakou

“He who has gold makes all the rules,” says the old Chinese proverb.

The yellow metal still holds a great deal of power and rules the world.

The world is still fascinated and obsessed with its value, functionality and aesthetics. It is coveted, worn as jewellery, used for our teeth, sacralised and worshipped as a “noble” metal, and used in consumer electronics.

It is a profoundly ubiquitous metal in our lives. To illustrate such power, the British Library is hosting a series of events and exhibitions about Gold in History until October 2 this year. And African gold will be featured prominently with the famous history of the emperor of Mali, Kankan Musa, and his reputation as the richest man in history, to chronicle his possession of great gold wealth. This exhibition will attest again that for millennia Africa has supplied the world with gold and continues to do so.

Still, the Chinese proverb above holds sway. It forces us to ask, does Africa have gold? Plenty of it and everywhere on the continent. But can Africans make the rules with their gold? No, they don’t and can’t, at least for now. That’s a geopolitical reality.

So, who holds and owns African gold? Where is it stored and why? These questions take us down a rabbit hole. I will attempt to give some answers to them. But I may fall short.

In the meantime, what is certain is that the value chain of the gold market today is controlled by global powers that monopolise, store, own it and make the rules.

However, a gold commodity revolution is about to transform the nature of economic power in the world, and Africa holds a potential resource lead in it.

A gold commodity revolution

Before I discuss the coming revolution and Africa’s role in it, I had promised, in my earlier opinion piece on God and gold in Africa, to “tease out a more upbeat and fortunate view of the geopolitics of gold discovery in Africa, a brief history of it on the continent, the coming geopolitical consequences, and more important, why Africans should care about a difficult yet golden future for the continent.”

Rightly so, I was left with the impression that Africa’s gold assets, in trust or newly discovered, would bring more misery to the continent rather than a good fortune, when I last asked Professor Patrick Bond of the University of Johannesburg to share his views on the astonishing gold discovery in Uganda last June. The confirmed discovery of 31 million metric tons worth US$12 trillion is still mind-numbing.

My early scepticism has morphed into some hope that Uganda could use this newfound gold to create more wealth for its citizens.

I am still thrilled about it. So is Redge Nkosi, executive director and head of research at Firstsource Money in London, although cautiously upbeat. He sees mostly positive outcomes from this gold discovery. He thinks it will signal a great deal of economic growth and progressively uplift Uganda among nations, unless mismanaged.

I asked Nkosi what this gold discovery really means economically for Uganda, and more so their geopolitical implications for Africa. “It’s absolutely clear that such a discovery will revolutionise Uganda, East Africa and Africa as a whole. However, for it to be revolutionary in nature, this discovery will have to be managed in such a way as it would differ from various mismanagements that Africa has experienced in the recent past,” was his reply.

As an economist, he is fully aware of the geo-economic implications for Uganda. Usually, these sorts of bonanza resource discoveries lead to more mayhem and misery in Africa, he warned. Yet, he explained that it could also be an incredible wealth-building opportunity for Uganda, if well handled.

Then he added, “unless Uganda begins first to refine this gold and not entirely export it, and to beneficiate this gold into various many downstream assets as pertaining to gold and gold diverted products,“ it will not derive the maximum benefits from this discovery.

Nkosi echoes in part President Yoweri Museveni’s view that “it is criminal for anybody to argue for the continued exports of raw materials in Africa, when there is 90% more value in that product that you are giving to the outsiders.”

Already, the Ugandan government has licensed Wagagai gold-mining company, a Chinese firm, to start producing gold products locally in Busia district in Uganda. The company has built a gold refinery valued at US$200 million since 2016 and will commence mining immediately.

The call for the local refinement of gold “could enhance job creation and improve social service delivery to those living close to where the mineral is extracted.” But that’s the usual political speak. The reality is often the opposite.

On the geopolitical resonance of the gold discovery in Uganda, Nkosi added: “We are beginning to see a new geopolitical realignment occurring in the world, and gold has been used in Russia to stabilise the rouble. In effect and in some way, Russia has pegged the rouble to gold. Of course, in the recent past Russia has been buying a lot of gold. China itself has also been buying a lot of gold. And if that is the case, Uganda can use the very product to anchor its economic activities. Indeed, to anchor its currency and entire economy.”

Then he concluded: “In short, the discovery of gold in Uganda will quite fundamentally alter the geo-economic landscape of the entire East Africa and Africa. It will also begin to locate Uganda in the true geo-economic map of the world as being a key player that must not been overthrown by the pressure of some winds.”

More important, he shares the example of Russia’s ability to use its natural resources and mineral wealth such as oil, gas and gold to leverage its economic power to fend off recent European sanctions against it and assert itself on the global scene.

He insists there are massive implications and lessons for Uganda to leverage its gold resources, to commensurate the gold resources it holds to play a geopolitical role in partnership and alignments with other resource-based economies in Africa and around the world, to position itself in the coming gold commodity revolution. But only if Uganda understands how to do so, then will it be able to succeed to use it as Africa’s gold(en) edge in the coming gold commodity revolution.

Here then, Africa must stand on its own and can use gold as asset, money or a new currency to begin altering the geopolitical landscape, dominated by the extractive Western nations and mainly unfavourable to Africa for centuries.

It seems the future is a resources-based economy. Incidentally, one of the consequences of the war in Ukraine has been that Russia has pegged the rouble to gold, helping to revive great interests in the backing of currencies with gold.

So, the discovery of gold in Uganda and other parts of Africa makes the continent an important player on the gold market worldwide, with enormous geopolitical consequences as well.

Transforming the nature of global economic power

Last April, when the Russian Central Bank pegged its currency to gold – one gram of gold at 5 000 rouble – after the US-led Western sanctions, the world scoffed. President Joe Biden dismissed the currency as rouble as it fell. But in time, the rouble bounced back, and its rapid recovery is now seen as a victory for Russia. It has unleashed a great interest in gold-pegged currencies. Moreover, it has reactivated the old notion of resource economies and brought back gold as a driving and transformative force behind the international financial system. Russia has reactivated a trend.

Now that Russia has successfully pegged its currency to gold, China, India and other nations are considering doing just that.

Mali is contemplating a similar approach to create its own gold-backed currency, the Wari, independent from the French-backed colonial monetary union, CFA franc and the euro, after it leaves it. Last week, Mali asserted full sovereignty over its gold production and beneficiation and hopes to use them to support its fledging economy.

Recently, Zimbabwe launched a new gold coin that is surprisingly helping to slightly reduce its dreadful inflation.

Significantly, gold interest could benefit in rise with the acceleration of the global de-dollarisation trend. When operational, the BRICS new currency could also benefit gold. At the end of June, Russian President Vladimir Putin announced that Brazil, Russia, India, China and South Africa (BRICS) are developing a new basket-based reserve currency.

“The issue of creating an international reserve currency based on a basket of currencies of our countries is being worked out,“ said Putin at the BRICS business forum.

Many see the new BRICS reserve currency proposal as an alternative to the US dollar and the International Monetary Fund’s (IMF) Special Drawing Rights (SDRs) currency. The alternative mechanism for international payment systems, perceived to address US hegemony of the IMF, will surely be backed by gold. It will allow the BRICS to establish their own unit of currency and geo-economic sphere of influence.

If successful, a gold appetite could encourage many nations to join the BRICS reserve currency with the goal of a diversity basket of preferred global currencies controlled by no country.

That’s why the gold discovery in Uganda and in other parts of the continent becomes a powerful strategic and geopolitical tool for Africa.

However, there are implications for the emerging global financial system, loaded with risks and benefits for the geopolitics of gold-backed currencies. The de-dollarisation will accelerate and weaken the influence of the US dollar as pre-eminent global currency when gold-backed currencies grow in numbers to entrench commodity-based economies. The risks could also lead to the geopolitics of conflicts as the US dollar hegemony loses its power over other currencies. Therefore, Africa must be careful about navigating its implications.

Furthermore, the consequences could reinforce the already unsavoury reputation of a gold industry whose dirty secrets are distasteful for poor nations, and especially Africa. Gold trafficking is a lucrative trade. And many nations are setting themselves as gold hubs to make the precious metal a preferred commodity.

Once the city of gold, Johannesburg has lost its lustre to many other more ambitious metropoles. Dubai is setting itself as a haven for gold or the gold souk of the world with the largest gold refinery.

Strangely, all this interest in gold-backed currencies has not rallied the gold price on the global market. One would have thought that it would rise, given the sudden global interest in gold-backed currencies.

There is an eerie silence about the evolution of the price of gold on the world market. It has not moved much. The gold price has remained moderate and constant as if an invisible hand is maintaining it stagnant.

In fact, since March the gold price has fallen 17%, from $2 050 to a little bit over $1 700 per ounce. Why? Manipulation?

Well, who knows, it could be so. Goldman Sachs and other big US banks are known to manipulate commodity markets, especially gold.

Remarkably, many African nations occupy strategic positions on the World Gold Council Metal Focus global mine production listing.

China and Russia ranked the largest producers in the world in 2021. China accounted for around 9% of total global gold production. While China and Russia lead the global gold production, Ghana and South Africa are ranked 6th and 10th respectively. South Africa used to be first producer of gold in the world with Johannesburg known as the city of gold. Now China is. How times have changed to our detriment.

The gold-mining ranking below provides a quick view of the top gold-producing countries in the world. It also displays the geographical dispersion of gold-mining operations and the gold supply in the world.

Incidentally and respectfully, many African countries belong to the pantheon of the world top 45 gold producers with a total production of 740.5 tons in 2021.

I suspect these officially recorded figures may underestimate the real volumes that include illicit mining productions across the continent. What is more compelling, and fascinating, would be to add that total to the coming Ugandan and Malian gold productions.

Consequently, one could assume the future rise in gold production and consider that Africa will hold a geopolitical gold resource lead and power.

Designing pan-Africanist strategies

The transformative power of gold in Africa can only be meaningful if it is a well-managed asset for the well-being of Africans, mostly. It must also lead to its efficient use. Thus, Africa could be a geopolitical gold resource leader.

A gold-hungry world will see Africa as a source to fulfil their hunger.

Therefore, Africa’s place in the coming global resource and gold-pegged economy battle makes it a continent of choice and a potential player in the geopolitics of the gold market value chain.

Thus, our obsession with gold and its power relationship with African and other global currencies are critical to Africa’s geopolitical role into the coming international financial new order.

Understandably, the most obvious cause of this coming currency gold-backed revolution was triggered mainly by Russia’s announcement of a gold-backed rouble, with China’s lead to create a new currency reserve following the European economic sanctions against Russia after the invasion of the eastern region of Ukraine.

And with the BRICS nations pushing a global currency gold standard, there may be a great story to tell about the emergence of gold as capital investment asset to consider.

In that context, Africa is well placed to play a central role in the emerging international commodity-based economy.

Yet, Africa can only do so if it successfully designs and leads a pan-Africanist gold production strategy that understands the treacherous dynamics of the global gold market. It is the idea that African nation producers of gold would establish a continental trading block to assert their interests as does Opec, the global petroleum giant.

Nevertheless, there are still nagging questions. To what extent does Africa own and hold its own gold? Who owns this gold and gets the revenues from it? Where has the gold mined in the world been stored for the past two centuries?

Telling ourselves that Africa is rich in natural resources minerals hardly makes it a wealthy continent. Our wealth is owned by outsiders: British monarchs, Saudi kings, European aristocrats and the Vatican, Italian theologians and then of course global corporations, billionaires, and even the media today, by proxy with daily market analyses and insights.

The evidence is there to see, and it reinforces the notion of mineral wealth curse.

Refreshingly, Nkosi believes that the narrative that Africa’s natural resources wealth is a curse is overblown. Mainly because Africa has allowed Western extractive nations to dictate the terms of the ownership and taken advantage of them without genuine beneficiation on the continent. He believes the so-called resource curse can be managed well and profitably by Africans. He feels Africa can sidestep the old colonial constraints that bedevil the continent and control part of the gold value chain to its advantage.

As a successful strategy and a golden rule about owning and managing gold, he suggests Uganda and African nations learn from Scandinavian and others successful nations, and establish global sovereign wealth funds based on the immense proceeds of gold assets to generate massive geopolitical and economic advantages.

But cynicism is rife about Africa’s success in any venture and a pan-Africanist gold strategy management will not escape it. Rightly so, as the waves of poor leadership, business and governance news constantly bombard our minds. They are difficult to ignore.

However, they have their limits. While the bad news is relevant, Africans must focus on successful stories that matter and inspire a golden future.

Those who don’t want Africa to succeed are numerous and their bile against the continent they exploit are powerful. As usual, they will continue to demonise Africa’s gold-based commodity future as a threat to their systemic existence.

But we cannot always continue to consume their terrible stories of despair and helplessness.

Instead, Africa must position itself in time to benefit from the coming shift with trustworthy partners. If managed well, Africa’s gold could turn into a golden edge. This is not a fairy tale.

Kouakou is an Africa Analyst and Senior Research Fellow at The Centre for Africa-China Studies, University of Johannesburg

This article is original to the The African. To republish, see terms and conditions.