The Mother of All Gold Thefts

The mother of all gold thefts?

Over the last five years there has been a steady drum beat of reports  issued by various international agencies including the UN, by ECA and the by the African Union all suggesting that there has been massive a wholesale looting of Africa’s resources by the mining companies. All the reports have come to the same conclusion that those exporting  resources from the continent have been under-invoiced them ( selling them below the real or so-called arm’s length price) and the profits siphoned off through third country jurisdictions, often tax havens to avoid the payment of taxes and  royalties.

For thirty years I have been investigating these sorts of legal and illegal frauds from the tuna fisheries in the Solomon Islands to logging industry in Papua New Guinea to diamonds in Botswana. In all of them the common cause was to make more profits and the common method was fraud and deceit to avoid the payment of taxes. Those who are honest and study these sorts of resource sectors confront this all the time but they normally turn their heads and look the other way because the reality of international trade in these commodities is just too ugly to face and respectable people do not dwell on such matters. I have no doubt that many but not all mining companies would have no compunction about looting Africa’s resources  but some of the estimates that have been thrown about have been so outrageous that they defy credulity.

The report on the ‘mother of all resource rip-offs’ was published by the United Nations Conference on Trade and Development in 2016. In their report the UN  suggested that between 2000-2014 the gold mining companies in South Africa had under invoiced some US$78.2 billion in gold alone. How did they get to this number? They argued that  anything more than a 10% difference between what South Africa says it exported and what the receiving country says it imports was deemed to be some form of trade malpractice. Translated into Rand at today’s exchange rate that makes it about ZAR1 trllion. It is sum so immense that it makes the Guptas look like choir boys. But it is merely the latest in an outpouring of such gold thefts estimates that make the mining companies look like Ali Baba and the 40 thieves.

Needless to say South Africa’s gold miners and the Chamber of Mines did not take these estimates well and sprung into action, hired a consulting firm and lo and behold came up with a much smaller estimate because the data that was used by UNCTAD was simply unreliable and just about  everyone in international trade knows that you take the international data base produced by the UN ( Comtrade) with a  sack  of salt. Eunomics, the company hired by the Chamber of Mines eventually found much more reliable data. After much digging they found the gap between exports from SA versus imports from trading partners to be USD 19.5 billion and not USD 78.2 billion. This they explained could be caused by errors in reports with trading partners. So no theft after all, maybe!

The interesting question is how is it that South Africa, a country that was for  decades the world’s leading exporter of gold could possibly not be able to tell anyone exactly how much gold was  exported and where it went at the press of a button. The UNCTAD report caused a minor sensation with the South African Revenue  Service defending itself against the  implied criticism that they were completely incompetent. After 150 years of exporting gold and having produced somewhere between 35-40% of the world’s total gold stock this report made the South African authorities look  extraordinarily incompetent. 

South Africa is not alone in having dodgy gold trade statistics. If you look at Namibia’s trade figures you would think that Namibia produced no gold at all. This is far from the truth and if you check the  Namibian Chamber of Mines statistics you will see that total production  in 2016 was some 6.6 tonnes of gold. This minor stuff in comparison to South Africa’s 150 tonnes but it is growing. While Namibia used to be a small producer,  B2 Gold has increased the country’s production substantially. At the 2016 gold price and exchange rate the value of gold production this was N$3.7 billion Even if one deducts  several percentage points for  transport and refining the sum would make gold the country’s fourth largest export and yet not even a mention in the trade statistics. There is greatly increased interest in gold exploration in Namibia by the junior miners and no doubt this is set to increase. The reason I  was told that the figures do not appear was that gold is subsumed under diamonds. 

Why does Africa seem to care so little about trade data? The reason is  simple enough when a Minister of Finance is given the choice between allocating funds for trade data and funds for education, health or the police the choice is pretty obvious. But this is very short-sighted because if you do not monitor effectively  we will lose the revenue.  In Namibia we do not know what  we export and where it actually goes. Switzerland  is still the biggest destination but Switzerland says it buys almost nothing from us. All this indicates is that we have no idea as  to whether we are actually being cheated by the mining companies as that requires even more data.

It is essential that African countries work together to not only improve trade statistics so there can be certainly what is going out and where to but that we know what price it is going out at. Unless exports are monitored and cross checked by competent authorities then the resource exporters will be merciless in their exploitation of the fools and incompetents who do not bother and not check thoroughly what actually leaves their country.

These are the views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed.