Ghana last year produced 4.3 million ounces of gold in 2012, a record
for the country. This led to increased profit for the 14 mining
companies operating in the country, revenue to the government in the
form of foreign exchange and taxes, and also contributed to economic
growth as a whole. Of course this was when gold prices were on their
longest surge in nine decades.
How a few months can change everything. Prices of the precious metal
have taken a tumble on the international market. From a record $1,794
per ounce about a year ago to $1,323 last week, spot price of gold has
lost a value of $471 in the last eight months, its worst run in over
thirty years. This fall in price has hit hard economies that depend on
the precious commodity like Ghana, which is Africa’s second biggest
producer of gold, behind South Africa.
So what reasons account for this spectacular dip in prices? First is a
slowdown in Chinese commodity imports specifically and the Asian
nation’s economy in general. China is the world’s second biggest buyer
of gold, only behind India. China is set to overtake India this year as
the largest buyer of gold in the world, data from the World Gold Council
reveals. China last month launched two gold Exchange Traded Funds
(ETF), for investors to trade in paper gold.
China’s remarkable economic growth of over 10 percent in the last
decade has been tied to the fortunes of commodity suppliers in Africa
like Ghana, South Africa, Democratic Republic of Congo, Zambia and
others. The International Monetary Fund (IMF) cut its forecast for
China’s economic growth this year to 7.8 percent from 8.1 percent, and
downgraded its GDP prediction for 2014 to 7.7 percent from 8.3 percent.
This is mainly due to the new leadership in China’s desire to
re-structure the economy from an export-driven one to a domestic
consumption-driven model.
The slow recovery in the economies of the United States and Europe
has also not helped. China typically imports raw gold, refines it into
jewellry and other products and then exports them to these western
nations. Slow demand for luxury gold items from these western countries
has led to China also reducing its imports of the precious metal.
Global supply of the commodity has also outstripped demand and the
consequence has been falling prices, just as global inflation has also
reduced. Global reduction in inflation means gold’s value as a hedge
against rising prices has also reduced.
All these global happenings have served to have a knock-on effect on
Ghana’s gold sector. Mining is Ghana’s main foreign exchange earner and
in 2012, contributed 27% to government revenues, according to the Alhaji
Inusah Fuseini, the Minister for Lands and Natural Resources. The
falling gold price is thus watched with depressing eyes by observers and
stakeholders in Ghana.
It translates to revenue loss for the Ghanaian government in foreign
exchange and taxes. Although Ghana, which is expected to grow at 8% this
year, became an oil producer in 2010, gold is still the dominant earner
for the West African country. The Monetary Policy Committee of the Bank
of Ghana, the country’s central bank, last week released figures to
show that export earnings from gold for 2013 was estimated at US$2.7
billion, compared to US$3.2 billion in the same period in 2012 due to
lower prices and volumes.
The government’s fiscal budget deficit was 12% at close of 2012 and
this year the finance ministry has set a target to reduce it to 9% by
close of this year. The falling gold prices and reduced revenue from
other sources forced the imposition of taxes on various sectors
including banking, telecommunications, and agriculture and even on
condoms (jokingly renamed as “Sex Tax” by sections of the local media).
In the budget statement this year, the government proposed a 10%
Windfall Tax to be imposed on mining firms but the depressing gold
prices is sure to make the government shelve the idea.
Additionally the government went to the international market to raise
capital through a $1 billion Eurobond. It was over-subscribed.
The challenges in the local gold industry, which made international
headlines most of this year for the illegal Chinese gold miner arrests
and deportations is having other effects.
Johannesburg Stock Exchange-listed miner, Anglogold Ashanti, one of
the largest in the country and largest employers announced in July it
was laying off 430 miners in its Obuasi mine in the next three months.
Mark Marcombe, Anglogold Ghana’s Senior Vice-President said it will be
done with a human face.
“Extensive engagement and consultation is underway with the union,
the workforce, the Government, and with the community”, he said.
Dr. Tony Aubynn, the president of the Ghana Chamber of Mines, an
umbrella body representing all mining companies in the country, shared
similar concerns.
“Most companies tend to review their strategies on staying viable and
if the behaviour of the gold price does not improve, there could be
cost cutting, which may affect employment in the sector as well”, Aubynn
explained.
Goldfields Ghana Limited, another South African miner and one of the
most profitable, last week appointed Mr Alfred Baku as its Head of West
African Operations. He is the first Ghanaian to assume the position and
will double as the group’s Senior Vice-President. West Africa
contributes 40% to its group output. His appointment is seen as a way of
helping to cool down tensions in its Ghanaian operations after workers
went on strike this year, accusing the managers of racism, a report in
South Africa’s Business Daily suggests.
But it is not all gloomy. Anglogold is set to invest about
$200million this year in its Ghana operations which Mr. Morcombe said is
intended to modernise the infrastructure and reverse rising costs and
low production.
Experts have called for the country to also add value to the gold
produced instead of just exporting it in the raw form. It was thus
welcome news when it was announced that the continents only third gold
refinery-Asap Vasa Company Limited- was seeing increasing activity. The
company refines 100kg of gold daily. Although it is smaller in refining
capacity compared to Sudan’s 900kg refinery and Randgold’s in South
Africa, the indigenous firm’s owners have high hopes for the future.
Henry Vroom Parker, the CEO of Asap Vasa said the company, also
refines silver, refined 45,000 ounces of gold last year and 60,000 in
the first half of this year. On the company’s future plans, he said
their vision is to “become the foremost West African supplier of refined
gold and gold alloy products to local and international markets”.
In the 2013 ‘Ease of Doing Business” listings, Ghana was ranked the 64th out
of 185 countries in the World Bank’s index, making it the fifth easiest
country to do business in sub-Saharan Africa. Despite lower gold prices
currently, a stable government, and relatively skilled and cheaper
labour costs mean investment in the country’s mining sector still holds
very good prospects in the long term.
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