There is strong evidence that gold mining has a positive effect on the economies of host nations
The World Gold Council has amassed a strong body of evidence to demonstrate the positive effect that gold mining has on the economies of host nations.
A significant addition to this evidence is a new research report, Responsible gold mining and value distribution, which demonstrates in detail the constructive role responsible gold mining plays in supporting sustainable socio-economic development, particularly in host nations. The member companies of the World Gold Council have collaborated to combine data which provides a detailed, country by country view on how value generated by the formal gold mining sector is distributed and how much of that value remains with host nations. This data covers expenditure in 2012 and includes payments to suppliers, employees and governments.
Out of a total spend of US$55.6bn, US$35.2bn (63%) went to suppliers and US$8.3bn (15%) to wages. An additional US$8.4bn (15%) was paid to governments in taxes and US$3.4bn in payments to providers of capital (including dividends and interest). The study also found that more than 80% of that total spend (US$44.6bn) was made in the country in which mines were sited.
Looking at the wider gold market, the World Gold Council recently commissioned PwC to produce an independent research report, The direct economic impact of gold to provide baseline indications of the direct economic contribution of gold in the world’s major gold producing and consuming countries. This research was ground-breaking in it breadth, covering the entire value chain of the gold industry, from mining and refining to end-user consumption.
One key finding, however, was the significance of gold mining to the economies of developing nations.
PwC estimated that gold mining made an economic contribution of over US$78.4 billion to the economies of the top 15 mining countries in 2012. Proportionally, gold mining had the most substantial impact on economic growth and wealth creation in developing countries in, for example, Papua New Guinea (15% of GDP), followed by Ghana (8% of GDP) and Tanzania (6% of GDP). For these nations, gold is also a major source of exports and, therefore, foreign exchange earnings. In 2012, gold provided 36% of all Tanzanian exports and 26% of the exports of Ghana and Papua New Guinea.
These works provide a clearer and more comprehensive picture of the economic value created by gold mining companies collectively, and this greater clarity and transparency can help industry stakeholders better understand the often complex economics of mining, which will ultimately contribute to better development impacts and outcomes.
In 2012 the World Gold Council convened a workshop in Lima on gold mining and socio-economic development in Peru. Attended by 400 people, speakers included Jorge Merino, the Minister for Energy and Mines, Beatriz Merino, former Prime Minister and Martin Vizcarra, Regional President of Moquegua and leading figures from business and civil society. This report summarises presentations on poverty reduction, supplier development, local capacity building, public-private partnerships, the creation of industrial clusters and the impact of illegal mining.
Download the second edition of our report, "The Economic Contribution of large-scale gold mining in Peru" (La contribución económica de la minería de oro a gran escala en el Perú) .
Our 2011 report, "The Economic Contribution of large-scale gold mining in Peru" (La contribución económica de la minería de oro a gran escala en el Perú) , found that:
- Nationally large-scale mining accounted for 60% or US$16.3bn of Peru’s total export revenues in 2009. Gold mining exports totalled $US5.6bn in 2008, almost 60% of which came from the four mines included in this study
- Mining has consistently represented between 40% and 60% of Peru’s total earnings over the last three decades and has been one of the largest taxpayers in the country throughout the last decade – representing 25% of total government revenues at its peak in 2007.
- In 2009 approximately $800m in revenues was collected from the four sample mines’ in 2009.
- The four mines’ aggregate employment level is set to peak this year at 5,000 employees, 99% being Peruvian nationals. Of the $250m in salaries expected to be paid across 2011-2014, community salaries account for $US100m.
- The sample mines’ contribution to foreign direct investment (FDI) is significant each year and reached nearly 10% of Peru’s total in 2007.
The four mines’ expenditure with national suppliers averaged 90% of their total procurement, or nearly US$1.4bn per year from 2007 to 2010, with 41% of all purchases going to community-based firms in 2010.
In 2009 we produced the first ever study analysing the long term benefits of gold mining over the entire mine lifecycle. Entitled “The Golden Building Block: gold mining and the transformation of developing economies”, the report found that large scale gold production was a major factor in bolstering the economies of developing countries.
The report looks at the well-debated “resource curse” theories and assesses actual financial contributions through an in-depth case study of Tanzania and the effects of gold mining on its economy over a 40 year period. A Life Cycle Assessment is used, capturing 120 metrics between 1995-2034 from World Gold Council members Barrick Gold Corporation, AngloGold Ashanti and IAMGOLD. The assessment finds:
- The evidence from the relatively short history of Tanzania’s formal gold mining sector is very encouraging. The country’s level of foreign direct investment has surged ahead to position Tanzania as one of the leading African nations in terms of foreign direct investment.
- Tax contributions from gold production, although still lower due to depreciation allowances, are already one of the largest sources of tax revenue for Tanzania, at 3.6% of the total.
- Employment does not rank among the larger macro economic inputs of gold production. However, it still exceeds the job creation from Tanzania’s utility sectors.
- The report sheds light on several important indicators for the coming decades. Gold mining activity by the 3 companies referenced alone is expected to double the already significant foreign exchange earnings, reaching $1.4 billion by 2012-16.
- On the important issue of government tax payments, the exhaustion of depreciation allowances in the coming years positions these gold companies to be major contributors to Tanzania’s tax income, paying potentially 6-8% of all government tax revenues by 2017.
These encouraging results are contingent upon the continued investment of significant levels of capital by gold mining companies. The mines surveyed showed a total of $2.32 billion already invested in mine construction. A further capital outlay of $2.67 billion will be necessary over the next 40 years if the levels of production discussed in this report are to be achieved. The operators surveyed are clearly prepared to collectively invest up to $100 million in individual years, but a major increase in their tax burden would likely affect their investment decisions. Such a scenario could result in lower investment than is currently anticipated in the future.
In many respects the future contributions of the industry to Tanzania’s economy will be determined by the government’s decision to make tax policy changes in the current round of active deliberations, and those in coming years.
Our 2005 report, “A Touch of Gold: Gold mining’s importance to lower income countries”, found that:
- Gold mining companies source supplies and labour locally wherever possible.
- In addition to the significant export revenue provided to host nations by gold mining activity, it also generates royalty and tax income, technology transfer, skilled employment and training for local populations, together with further jobs through the multiplier effect.
Gold mining can also bring substantial improvements in physical, social, legal and financial infrastructure.