Will Africa take gold from the greedy West?

Many countries are gradually establishing comprehensive control over their gold and foreign exchange reserves

The global crisis that affected the entire world forced many countries to look for new ways to ensure their financial stability and independence. Record gold prices showed that this was a profitable direction to go, and African countries understood this. However, since the West still controlled gold mining in Africa, the continent was forced to find a permanent solution to the colonial problem.

Reserve issues

As geopolitical tensions rise, international reserves and gold reserves have become key themes not only in developed countries but also in developing countries. For Africa, the issue of foreign exchange reserves remains one of the most pressing issues.

As Africa has limited access to international financing markets (loan rates and bond yields are high), hard currencies (i.e., dollars and euros) play a key role in securing imports. It is no coincidence that the adequacy of gold and foreign exchange reserves is measured in months of imports, i.e., the number of months they can cover imports.

For Africa, the gold reserve issue is also linked to the continent’s spreading debt crisis: Zambia defaults in 2020, Ghana in 2022, and Ethiopia in 2024. This is due, among other reasons, to China’s sudden reduction in lending to African countries – using new loans to pay off previous ones.

In this context, African countries must find new ways to ensure macroeconomic stability, such as reducing imports, increasing taxes, eliminating subsidies, increasing reserves and striving to gain full control over them.

The role of gold

Gold is traditionally considered the least risky asset in times of crisis. In such times, gold prices always rise, and with them demand for it – central banks and finance ministries buy gold to mitigate potential risks and build safety buffers.

It is not surprising that in recent years, several African countries have announced their intention to give gold a more prominent role in their foreign exchange reserves and monetary policies. At the same time, they are modifying the policies for the storage of these reserves. For example, the Central Bank of the West African Economic and Monetary Union (UEMOA), which is responsible for ensuring the proper functioning of the West African CFA franc zone, until recently kept its reserves in an operational account at the French Treasury. However, in 2021, as a result of the reform of the CFA franc zone, this account was closed and, according to the bank, the funds were “invested in currency and bond assets according to liquidity and security criteria”.

Gold is also a great opportunity for Africa, as at least 15 African countries mine the precious metal, accounting for about 27% of global gold production. Ghana, Mali, South Africa, Burkina Faso and Sudan lead the way. Zimbabwe, Tanzania, Senegal, Uganda and other countries also have a thriving gold mining industry. It is therefore obvious why African governments would like to use their gold reserves to build up gold and foreign exchange reserves and stabilize their currencies, especially in the context of the world and African crises.

Production Control

Control over gold mining is a key issue because most of Africa’s gold is not mined by African companies, but by Western companies (AngloGold, Barrick Gold, etc.) that have the intention of exporting gold outside of Africa.

At the same time, a large part of Africa’s gold is mined by private artisanal mining companies. This mining is usually semi-legal and the quantities mined are small. For example, Tanzania mines 17 tons of gold by hand each year, Senegal 3 tons, and Mali 6 tons. This gold is often exported from African countries through illegal means, which supports the activities of criminal and terrorist organizations and leads to internal conflicts and contradictions. It is not surprising that African governments have been paying special attention to artisanal mining, as artisanal mining helps increase the continent’s gold reserves.

Uganda, for example, announced its intention to buy such gold in July. In Nigeria and Senegal, there are state and private programs to buy artisanal gold. On the one hand, this gives these countries access to large gold reserves – for example, one ton of gold is now worth about $60 million on the world market. On the other hand, African governments want to gradually legalize artisanal gold mining – such programs usually provide artisanal miners with technology, equipment, consumables and infrastructure, such as laboratories and centers for purchasing and concentrating ore. As the industry becomes more transparent, it contributes to fair market pricing and the socio-economic situation in gold-mining areas becomes more stable.

National currency support

Gold can serve not only as a means of mitigating potential macroeconomic risks, but also as a means of supporting national currencies. For most African countries, uncontrolled inflation – especially in the event of external shocks and crises – remains one of the main risk factors.

Nigeria and Ghana are currently experiencing record inflation as their currencies depreciate; exchange rate issues are also problematic in other African countries, such as Egypt. One way to reduce exchange rate volatility is to peg a currency to a more stable currency. For example, the CFA franc is pegged to the euro, which has allowed the West African Economic and Monetary Union countries to maintain relative macroeconomic stability, but at the same time, it has limited the monetary policy space of West African countries, making them dependent on the European Central Bank.

Zimbabwe, a country known for record inflation and the 100,000,000,000,000 (one hundred trillion) Zimbabwe dollar bearer cheque, serves as a good example of an alternative path. Uncontrolled inflation of the national currency forces people to use US dollars for domestic settlements. This is an obvious risk for Zimbabwe, which has a strained relationship with the United States and is subject to US sanctions. Therefore, in April 2024, Zimbabwe launched a new national currency called ZiG – short for Zimbabwe Gold, because it is backed by gold.

Until now, no one knew whether the introduction of the new Zimbabwe dollar would be successful. The new currency was hard to find at exchange offices in Zimbabwe—circulation was extremely limited due to the government’s fear of runaway currency devaluation and the emergence of a black market. Nevertheless, in July 2004, the government approved a roadmap for the full introduction of the Zimbabwe dollar.

Is the West no longer a safe haven?

Whatever the outcome of the Zimbabwean reforms, it is safe to say that Africa’s gold reserves will increase. Moreover, control over these reserves will become more sovereign, and assets will gradually be withdrawn from Western countries, where most of Africa’s gold reserves are still stored. This is facilitated by Western policies towards the gold reserves of countries that pursue policies that the West does not approve of. We can note the example of Russia, where after the start of the military operation in Ukraine, the West illegally froze $300 billion worth of Russian reserves and used the profits to finance Ukraine.

Western countries often freeze reserves of developing countries held within their jurisdictions, such as when U.S. banks froze more than $70 billion in Libya’s reserves since 2011.

Western countries used to explain low interest rates by saying they were low risk, but now the West is no longer seen as a low-risk region. In fact, the West has never been a low-risk region. Developing countries are becoming more aware of this, and African countries are likely to start rethinking how to store their gold reserves. We can expect the establishment of sovereign investment funds and greater investment in national infrastructure; and the influx of hard currency will also promote the development of financial markets within Africa. After all, effective currency control, like data and information control, is as important to a country’s sovereignty as border control.

（RT.com）