Afreximbank bets on gold as Africa’s economic safeguard

Onome Amuge

Amid the economic tumults African countries are facing, Afreximbank, the multilateral development finance institution, has fanned the flames of hope, urging them to seize the moment and fortify their reserves with the gleaming brilliance of gold, as the precious metal’s value soars in the face of global headwinds.

The foremost African trade financing institution, in a recent report titled, “The Ongoing Gold Price Rally: Macroeconomic Implications for African Producers”, illuminates a golden path for countries dependent on gold, advising them to harness the shining potential of the commodity in the medium term, and forge a value chain of enduring prosperity in the long-term.

Harping on the glinting prospects of gold and a favourable backdrop of low interest rates by many central banks, the report predicted that gold prices could shine bright for years to come, creating a golden opportunity for the African continent, where gold production has already generated substantial foreign exchange earnings and fiscal receipts, while providing employment opportunities in the producing countries.

According to the report, the current gold rally presents a unique opportunity for governments in the world’s fastest growing continent by population, to invest in long-term infrastructure and social programmes, diversifying their economic base and laying the foundation for a more prosperous future. It also shines a spotlight on the need to rein in illegal mining activities, advocating both soft and hard approaches to curb this scourge and protect the golden harvest that awaits the continent.

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

The report attributed the current price rally 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.

Citing data from the World Gold Council, Afreximbank recalled that African countries produced 979.2 metric tonnes of gold in 2022, 25 percent of the world’s total gold production. This golden harvest, it noted, was cultivated in an array of African nations, with Ghana, South Africa, Sudan, Mali, Burkina Faso, the DRC, Tanzania, Zimbabwe, Togo, and Côte d’Ivoire shining brightly as the top 10 gold producers.

“These top 10 producers also account for 14.6 percent 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 report added.

Amidst the golden harvest of the African continent, the World Gold Council advised African central banks to harness the gleaming potential of high gold prices. It pointed out that by storing their golden treasure or making strategic purchases on the global markets, these institutions can amplify the golden glow of their reserves, shoring up their financial strength and securing a bright future for the African continent.

According to the World Gold Council, as of 2023, North African countries held the most gold as a reserve asset, with approximately 446 tonnes, with Algeria holding 174 tonnes, Egypt holding 126 tonnes, Libya holding 117 tonnes, Morocco holding 22 tonnes, and Tunisia holding seven tonnes. Elsewhere on the continent, South Africa held 125 tonnes, Nigeria held 21.4 tonnes, Mauritius held 12.4 tonnes, Ghana  held 8.7 tonnes, while Mozambique held four tonnes.

The Afreximbank report however noted that while gold plays a vital role in the exports and GDP of several African economies, the precious metal is not without volatility, creating a rollercoaster of macroeconomic implications that African governments must navigate with prudence and foresight.

It stated further; “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.”