World Gold Council looks to disprove ‘resource curse’

A new study by the World Gold Council sets out to show how gold mining improves the macroeconomic situation in developing countries.

The aim was to test the ‘resource curse’ theory that says natural resources don’t benefit developing nations, says Maureen Upton, WGC’s sustainability advisor, who authored the report.  

“The (arguments against resource development) are frequently trotted out by environmentalists and anti-mining activists in general,” Upton said during an interview at the Denver Gold Forum last week, where the report was presented. “We wanted to get to the bottom of it and take a key gold producing country as a case study and look at hard data and the actual facts that surround some key topics.”

The report focused on Tanzania where large-scale gold mining is relatively new – the construction of the first mine began only in 1995 – taking data from the two major operators there, Barrick Gold and AngloGold Ashanti. The study considers the time horizon between 1995 and 2034 when the last mine is supposed to close (as a control factor). The report also considers studies by Oxford Policy Management and International Council on Mining & Metals that consider the effects of mining in other resource-rich developing nations.

“We came up with surprisingly positive numbers,” Upton says.

The report says Tanzania’s level of foreign direct investment improved substantially to US$750 million from gold mining, much higher than any other sector. The report says foreign exchange earnings are expected to double from Barrick and AngloGold by 2012-2014 to about US$1.4 billion. Tax contributions from gold mining amount to 3.6% but are lower due to depreciation allowances and will rise to 6-7% by 2017.

The report also notes significant capital investment must continue to make these positive results happen but points out that their future tax burden may affect their future investment decisions resulting in lower investment than anticipated.

To encourage investment, countries like Tanzania need to implement favourable tax policy.

Upton says countries with more stable tax policies were better off but the WGC is not advocating any certain policies.

 “If there’s not a stable tax environment companies will not continue to invest,” Upton says.