What record-high gold prices mean for Tanzania

Dar es Salaam. Gold prices have surged to unprecedented levels, reaching a peak not seen since records began in 1970, driven by the strengthening of the US dollar and forthcoming US elections.

The Trading Economy website reported this week that one ounce of gold was trading at $2,523 (Sh6.85 million). This increase is attributed to the global decline in demand for the US dollar and inflationary pressures, which have led investors to seek stability in gold.

A Dar es Salaam-based economist, Mr Oscar Mkude, said the price rise is partly due to a global shift away from the US dollar.

“To preserve their wealth, people are investing in gold. If they later decide to convert gold back into cash, they will either get back the amount they spent or even more,” he said.

Mr Mkude added that similar trends were observed during the Covid-19 pandemic when gold prices soared as people invested in valuable assets amid economic uncertainty.

The surge in gold prices presents an opportunity for gold-producing countries like Tanzania, which stands to benefit from increased revenues and higher tax collections from gold sales.

Mr Mkude said the shift is driven by investors seeking refuge from the dollar’s volatility and inflationary impacts on economies.

Prof Abel Kinyondo of the University of Dar es Salaam said that historical patterns show people often turn to gold during times of economic instability.

“During previous world wars, gold was a preferred asset. Today, similar trends are occurring as the US dollar strengthens and people invest in gold to protect their assets,” he said.

Prof Kinyondo also mentioned that emerging economies like the BRICS nations are exploring alternatives to the dollar for transactions, with countries like Russia and India already using their own currencies.

The rise in gold prices has been a boon for Tanzania’s mining sector. In 2023, gold sales in Tanzania increased to Sh7.27 trillion, up from Sh6.49 trillion in 2022, according to figures from the National Bureau of Statistics.

This boost in revenue comes despite a slight decrease in gold production, which fell to 54,760 kilogrammes from 56,943 kilogrammes the previous year.

However, production of gold and silver jewellery has increased, with output reaching 29,699 grams in 2023 compared to 20,037 grammes the year before.

The Bank of Tanzania (BoT) Monthly Economic Review for July reported that gold sales reached $3.12 billion during the year ending June, 2024, up from $2.909 billion during the preceding year.

Minerals minister Anthony Mavunde said that revenues from Stamigold, a government-owned mining operation, have also increased.

Stamigold, which is owned by the State Mining Corporation (99 percent) and the Treasury Registrar’s Office (1 percent), produced 7,449.60 ounces of gold and generated Sh36.57 billion from July 2023 to March 2024. Additionally, the mine’s connection to the National Grid has reduced its energy costs by Sh700 million per month.

For the past 20 years, Tanzania has relied heavily on mineral exports as a primary source of foreign revenue. According to the National Development Plan Proposal for 2024/2025, Tanzania’s exports have shifted from agricultural products to minerals.

“Previously, we exported more to Europe, America and Africa. Now, our major markets include Asia, Kenya, Uganda and the Middle East,” said Prof Kitila Mkumbo, Minister of State in the President’s Office (Planning and Investment).

Gold now dominates exports, accounting for 39.9 percent of all export sales, compared to previous years when agricultural products like coconuts, Brazil nuts and cashew nuts were more prominent.

The BoT is also procuring god locally from small, medium and large-scale miners as part of efforts to diversify the country’s foreign exchange reserves and reduce reliance on a single currency.

Official data show that so far, the BoT has procured 418 kilogrammes in gold reserves and the plan is to purchase six tonnes this financial year, Finance minister Mwigulu Nchemba told Parliament in June this year.

Economist Donath Olomi emphasises that rising gold prices boost revenues from taxes and royalties paid by gold mining companies.

“When gold prices increase, the tax contributions from mining companies also rise, similar to any other product experiencing a price hike,” Dr Olomi explained.

However, Tanzania faces challenges due to the lack of a processing industry for gold.

Mr Mkude suggests that the government should develop a system to add domestic value to gold, rather than only exporting raw gold.

“We need to create a system that adds value locally. The current system benefits only the miners, but we need to extend the economic cycle beyond mining to include processing within the country,” he said.

Plans are underway to address these challenges.

The government aims to enhance mineral exploration, including gold mining in Mara Region and other strategic minerals like cobalt, nickel and lithium.