- Tanzania is Africa’s fourth-largest gold producer and ranks 18 in the world.
- The country is ramping up production of the precious metal, targeting over 6 tonnes of gold annually.
- Gold miners and traders asked to allocate no less than 20% of their gold output to Central Bank of Tanzania.
Tanzania’s national gold reserve is growing and recent push geared at speeding up the growth of the country’s reserves signal to better days ahead for the nation’s currency. In the latest move, Tanzania has ordered all gold miners and traders to allocate no less than 20 per cent of their gold output to its central bank.
According to the Central Bank of Tanzania (BoT), this strategy is meant to help the country diversify its foreign reserves. By boosting its gold reserves, Tanzania hopes to offset the depreciation pressure facing the Tanzanian shilling.
According to authorities in the country; “This diversification intends to safeguard Tanzania’s wealth against currency devaluation or economic stability caused by global shocks.”
Reports show that Tanzania increased its gold purchase from local miners since the last financial year that ended June of this year. In the 12 months to June, the central bank bought 418 kg of gold to beef up its reserves and in the current financial year it intends to buy 6 metric tons of gold.
Tanzania’s bold move to build gold reserves
The Tanzania gold regulator is the Tanzania Mining Commission, which issued a statement saying the directive will take effect as of October 1st and is part of its newly enacted mining law.
“Miners and traders will be required to submit the reserved gold to two major mineral refineries, Eye of Africa Ltd in the capital Dodoma and Mwanza Precious Metals Refinery Ltd in Mwanza,” specifies the statement.
Tanzania also wants all major gold traders to strictly adhere to its foreign exchange regulations that among other things, mandates the repatriation of foreign exchange earnings from gold sales back into the country within 90 days.
Tanzania’s foreign exchange reserves stood at US$5.29 billion at the end of July, which according to sector experts, is enough to cover a little over four months of imports of goods and services.
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Tanzania gold output
As of last year, 2023, Tanzania ranked the world’s eighteenth largest producer of gold, according to GlobalData. In Africa, Tanzania is the fourth-largest gold producer and to date, the country accounts for 1 per cent of total global gold production.
“The 2023 output increased by 1 per cent compared to 2022 and over the five years leading to 2022, production from Tanzania decreased by a CAGR of 0.5 per cent but is expected to rise by a CAGR of 1 per cent between 2023 and 2027,” reports GlobalData.
Tanzania announced its establishment of a National Gold Reserve during the 2023–24 budget presentation last year. With the establishment of the National Gold Reserve, now Tanzania has both a gold and dollar reserve; previously, the country only had the US dollar as a foreign exchange reserve.
Tanzania is not the only one moving to increase its national gold reserve, or to establish one for that matter. The decision comes as many other central banks around the world are choosing to use gold as their local currency value backup as opposed to only keeping dollar reserves.
With more and more countries setting up gold reserves, there is a global surge in demand for gold and in turn, this means a subsequent increase in the price of gold.
As of 2020, Tanzania produced approximately 40.4 tons of gold, and the country’s gold reserves stood at around 1,300 tonnes. Currently, the leading gold producers in Tanzania are AngloGold Ashanti and Barrick Gold who mainly export their gold output, significantly contributing to Tanzania’s foreign exchange earnings.
Tanzania National Gold Reserve: Benefits of storing value in gold
The first benefit of establishing the Tanzania gold reserve is that it will play a significant part in stabilizing the economic stability by strengthening the local currency.
“Gold is a safe-haven asset, offering protection against financial uncertainties and currency fluctuations,” explains Philip Fliers of the Queen’s University Belfast.
In his report titled ‘Is gold a safe haven for investors?’ the economist notes that; “By accumulating and holding gold reserves, Tanzania can mitigate risks associated with global economic volatility and safeguard the value of its currency. This stability enhances investor confidence, encourages foreign direct investment, and fosters a conducive environment for economic growth.”
Secondly, when a country has its own national gold reserve it diversifies the country’s asset base as opposed to relying on foreign currencies like the dollar. “It reduces reliance on a single asset class and promotes a balanced portfolio with tangible resources,” details the report.
By diversifying its asset base, Tanzania can effectively mitigate the risks associated with fluctuations in global financial markets and commodity prices. “By holding gold reserves, Tanzania can act as a shield against external shocks, protecting its economy from the adverse effects of market turbulence and enhancing its resilience in the face of uncertainties,” Fliers further explains.
Thirdly, by establishing the National gold reserve, Tanzania affirms its national sovereignty. The Tanzania gold reserve will also allow the country to have a larger say and control over the resource as well as to capitalize on the benefits of gold mining and processing.
“By building a robust gold reserve, Tanzania can assert greater autonomy in financial decision-making and reduce dependence on external actors. This fosters a sense of empowerment and positions the nation to leverage its resources for the collective welfare of its citizens,” reads the report.
Then, with the economic development gains that come with the National Gold Reserve, Tanzania will effectively create employment opportunities for its work force. This can come directly through the asset up of gold refining and processing facilities within the country.
Value addition of gold will increases the economic impact of the gold sector and foster technological advancements and transfer of knowledge.
“Furthermore, by retaining a portion of the gold output domestically, Tanzania can benefit from the multiplier effect, where increased economic activity generates positive spillover effects across various sectors,” Fliers also points out.
Tanzania will also be forced to adopt responsible resource management practices; “Tanzania’s commitment to establishing such a reserve highlights its dedication to sustainable development and ethical mining practices,” the report details.
The Tanzania Gold Reserve will necessitate effective governance and regulations thereby ensuring that its mining sector operates in an environmentally conscious manner, protecting ecosystems and preserving natural resources for future generations.
According to the economist; “Establishing a National Gold Reserve in Tanzania holds significant promise for the country’s economy. It presents an opportunity to leverage Tanzania’s position as an essential gold producer, enhance economic stability, and stimulate domestic industries,”
“By retaining a portion of the gold output within the country, Tanzania can mitigate risks associated with overreliance on gold exports and strengthen its currency. Establishing a national gold reserve represents a strategic move toward economic resilience,” Fliers concludes.
It is an overall beneficial move to establish a national gold reserve, even though Tanzania has taken the move rather late, but now that it has, it stands to gain all the above benefits and strengthen its economy at a time when global fluctuations occur all too often.
“It demonstrates a forward-thinking approach to leveraging its natural resources and optimizing the benefits of gold production for its long-term economic development.”
