West Africa has long been a giant among the world’s gold producers supplying more than one-quarter of the continent’s output and almost 10% of the world’s output. Some countries such as Ghana, Mali, Burkina Faso and Guinea have huge reserves and recently Ghana overtook South Africa to be the biggest gold producer in Africa.
But in spite of this, the region is caught in a Raw Material Extraction Cycle. Most of this gold is sent in its raw or semi-refined form to Switzerland, the United Arab Emirates and India where it is refined.
This dependence on foreign refiners also reduces the value that African countries could add to the value chain in their own countries through the refining process, the potential for which to boost their local economies and industrial development.
The Economic Case for Local Refining
There is a strong economic case to be made for developing local refining facilities. With the sale of gold in its raw state, countries miss out on the premiums that are charged for gold that is refined and accredited by the London Bullion Association of the UK. By adopting local refining, not only this value would be captured but also job creation in the technical and industrial sectors would be stimulated as well.
Moreover, it would improve transparency in the artisanal and small scale mining (ASM) industry which contributes a large percentage to the gold production in West Africa. Having in-house refining facilities makes it easier for the government to control the movement of gold, limit the amount of money leaving the country (oil washing) and keep a more equitable share of the profits within the community.
The World Gold Council has produced a report on the worldwide gold supply chain, which is available here, and has covered the production in Africa.
Challenges and Infrastructure Gaps
While the local refining process has many benefits, there are considerable challenges along the way. The biggest challenge so far is the infrastructure. Refining is an energy intensive process, which demands high capital costs, energy supplies and sophisticated skills and technology resources that are often lacking in the region. In addition, there are regulatory challenges such as the ability to achieve international accreditation and quality control.
In addition, some West African countries have been experiencing political uncertainty which makes it harder to plan long-term investments. But, there are recent efforts underway in Ghana and Guinea that show these are not intractable hurdles. Government is starting to enter into partnerships with private investors and international companies to construct required infrastructure.
A Step Toward Economic Sovereignty
The need to break the foreign dependence of refiners isn’t only about the economy, it’s about the increased economic sovereignty.
How West African countries can lower their exposure to the volatility of global markets and prices by having more control over the value chain. This transformation is in line with the African Union (AU) strategy of industrialization and value addition in Africa. In a rapidly growing mining industry, it will be important for the region to focus on refineries in order to keep gold being a driver of sustainable development and not only a provider of raw wealth.
To understand how other regions have been able to incorporate mining and refining in a successful manner, check out This Day Live’s resource nationalism report.
FAQs
What proportion of the world’s gold is obtained in West Africa?
Almost 10% of the world’s gold and more than one-quarter of all of Africa’s gold is found in West Africa.
Why is raw gold exported by the countries in West Africa?
In the past, there has been no refining infrastructure or experience in the industry in the region, making raw gold exports the only option for countries.
What may be the advantages of refining gold locally?
Local refining generates more value, provision of employment, transparency and averts IFFs.
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