ALL THAT GLITTERS IS NOT GOLD

The International Monetary Fund's scheme to sell gold to help some of southern Africa's poorest and most heavily indebted countries, could cause far more human misery and economic chaos for the countries instead.

By Hugh McCullum

September 1999

Selling gold to help some of southern Africa's poorest and most heavily indebted countries would seem like a good idea at first glance, but the fact is that the International Monetary Fund (IMF) scheme could cause far more human misery and economic chaos for Southern African Development Community (SADC) countries like South Africa, Tanzania and Zimbabwe.

The gold industry is already reeling from the sale by the Bank of England of 25 tonnes of gold at US$261.20 an ounce during an auction which was oversubscribed.

Gold prices, already at a 20-year low, dropped further to US$256.90 an ounce, a decline of US$36 an ounce since May when Britain's central bank announced its plan to sell off 415 tonnes of its 715-tonne reserve. The sale netted the bank about US$210 million.

Hundreds of thousands of workers in the gold-mining industry in southern Africa could lose their jobs, wreaking economic havoc in countries already struggling to stabilise their economies.

Even more controversial is the IMF's plan, supported by the Group of Seven (G7) industrialised nations, to sell 10 million ounces of its gold reserves to finance debt relief for countries like Tanzania and Mozambique. The latest blow came when the Bank of Switzerland announced it will sell 1,300 tonnes of excess gold reserves as early as next year. Selling the gold will undoubtedly create new economic problems for the mineral-rich region and may well weaken the economies of 36 of the 41 most indebted countries in the world which the IMF wishes to help by relieving them of crippling external debt. In addition to the SADC countries, Ghana, Mali and Burkina Faso in Africa will be seriously affected as well.

Already 5,000 miners in South Africa have been laid off without severance pay by the East Rand Proprietary Mines, the first of several mines expected to go bankrupt from falling bullion prices.

Zimbabwe's Chamber of Mines, deploring the British and IMF decisions, says 30,000 jobs in the gold-mining sector are at risk, affecting the lives of as many as 150,000 people dependent on the gold sector.

Many southern Africans, from presidents and gold barons to trade union leaders, are furious at the world's new disdain for the once-precious metal.

'It doesn't make sense to say we'll weaken your economies and then give you a little debt relief,' says Trevor Manuel, South Africa's Minister of Finance.

And Kaire Mbuende, executive director of SADC, says the IMF scheme is unnecessary. 'It is within their power to forgive debt without selling the gold,' he told the closing session of the Southern Africa Economic Summit in Durban. 'Selling gold will just create new problems.'

Even Mozambique, supposedly one of the beneficiaries of debt forgiveness, fears the IMF's gold sale. Thousands of migrant gold miners send home some US$50 million each year. Most of them face unemployment as mines close.

Like Mozambique, tiny Lesotho is also set to feel the pinch. Lesotho and Mozambique supply about 46% of the gold-mining labour force in South Africa.

At their fifth annual meeting in Maseru in early July, the SADC Ministers of Finance and Investment said in a communique, 'For these countries [Lesotho and Mozambique], the impact will especially be on remittances, which form a major part of their revenue earnings.'

The ministers tasked Manuel with communicating with the British Chancellor of the Exchequer, Gordon Brown, and finding means to stop further auctions of gold by the UK government.

The answer to the debt problem is a write-off, not selling gold, says Patrice Motsepe, executive chairman of African Rainbow Minerals, a black empowerment group.

And President Thabo Mbeki, in a move calculated to gain support in the US, reversed his earlier position and came out firmly against the IMF plans.

Since the IMF sale requires some 85% support from its board, and the US has 17% of the votes, Congress could effectively veto the plan. Republicans have introduced legislation to block the proposal and the US Congressional Black Caucus has added its opposition.

Paradoxically, southern African mines have been steadily cutting their costs of production to become more competitive with such countries as Australia and Canada, where producing an ounce of gold costs about US$250, but the price is falling faster than mines can retool.

And, say gold analysts, prices are plummeting at a time when world demand for gold outstrips supply; so, if it were not for the central banks and IMF sales, the price of gold would be going up.

Jewellers, dentists, electronics makers and personal hoarders absorb about 4,000 tonnes of gold annually while mines throughout the world produce just over 2,500 tonnes, the shortfall being made up from recycled gold, forward sales by mines and sales by central banks.

The big question mark is the 35,000 tonnes of bullion stored in those central bank vaults, which used to be kept as a hedge against economic downturns. About 80% of the trading in gold futures is by speculators, not users.

'If they believe,' says Brenton Saunders, a gold analyst in Johannesburg, 'that governments will demonetise that gold and sell it to buy euros, dollars and yen for portfolio balancing, the price will plummet.'

The damage to South Africa and other countries in the region could be incalculable. Labour unions and mine-owners alike, along with governments, are mounting an intensive lobby to stop the IMF plan and declare an immediate moratorium on all gold sales by central banks.

The steep decline in gold prices is contrary to assurances by Britain's Prime Minister Tony Blair that the sale of gold in tranches would not affect price speculation but Saunders says speculators are nervous.

'A 25-year-old in front of a computer in London who has never been down a gold mine has no idea of the impact on people and nations of what he's doing.'

And the London-based World Gold Council, which represents the industry, calculates that while the IMF could realise about US$108 million a year by selling gold, those same highly indebted countries have already lost US$224 million from the US$36 drop in gold prices in the last three months.

Others are critical of Britain as the main coloniser of countries being hurt the most, noting that South Africa has been the world's biggest gold producer for more than a century.

'In the 19th century, Britain profited enormously from the gold mines in southern Africa. The Anglo-Boer war was a gold war - Britain was losing to Germany in gold competition and saw South Africa's mines as a solution. Now, it's the same old colonial power that's giving this region another blow,' says Prof. Sampie Terreblanche, a political economist from the University of Stellenbosch. - Third World Network Features

About the writer: Hugh McCullum wrote the above article for Southern African News Features (30 July 1999), published by the Southern African Research and Documentation Centre (SARDC) in Harare, Zimbabwe.

1948/99