The African Gold Rush: Does China Help or Hinder Ghana’s Economy?
by Alexa Rose
“All the decisions I have made in my life were regularly plagued with doubt”
–John Mahama, Ghana’s President since 2012
What was once an economically desolate land saturated with an abundance of raw minerals is now becoming an ever-increasing decisive player in the global brawl for sustainable resources. Prior to a decade ago, foreign investors had long neglected the African continent and many of its regional economies failed to maximize their potential with regards to exporting their raw materials. Today, China has arrived as the knight in shining armor and situated itself as the catapult for development in African countries that contain vast mineral reserves. Ghana is China’s fourth largest export market in Central and West Africa. Ghana is just under South Africa in gold mining as gold is their primary export commodity. When commodity prices are high (thanks to Chinese investments), Ghanaian growth soars; this becomes evident when comparing its GDP from 2011 (38.752 billion USD) and from 2001 (7.435 billion USD).(i) While China is promoting the advancement of technological and institutional capabilities with its condition-free aid, they are effectively securing a political situation in which they are guaranteed a fixed portion of the gold mining revenue.
The role of China in Ghana’s infrastructural expansion is dynamic, yet questionable. In certain respects, the rapport is mutually beneficial. China provides soft loans that, unlike the United States or the United Nations, have a willful lack of a humanitarian agenda. With a no-strings-attached scenario, authoritarian governments become quite friendly to Chinese economic domination. Essentially, China obtains these raw materials, manufactures and refines them, and sells them back to the African market at a much higher price.(ii) This is simply due to the fact that Ghana does not currently have the means of production necessary to undertake the refinement process itself. It is now commonplace that Chinese loans to low-income countries, mainly in Africa, exceeding the amount of World Bank loans. Incidentally, the stipulated preconditions are a set of infrastructure projects that are to be executed by only a Chinese enterprise.(iii) This is an excellent example of a modern day imperialist form of mercantilism under the pretext of economic development.
Like the illicit diamond industry in Sierra Leone, many underground gold mining schemes have arisen in Ghanaian provinces in order to capitalize on this elusive resource. Not only are nationals (in regions like Ashanti) participating in this less-than-fruitful venture, but many Chinese and even some Indians have been complicit as well. Despite the exposure to mercury poisoning and other health risks, there does not exist much occupational mobility for low-skill workers. Fearing deportation or death, they hide out in the woods to evade the police while trying to contact the Chinese Embassy for assistance.(iv) On the other hand, increased immigration from China to Ghana in pursuit of the gold empire has resulted in an overhaul of racially motivated discrimination. The gold mines preclude any foreign nationals from operation within it, which has been stipulated by Ghanaian law. According to BBC World News, Ghanaian authorities did so under the guise of protecting the environment.(v) Whether this is true or not is irrelevant; the more pressing issue is whether this contentious domestic climate will culminate in a permanent rift between the two countries’ diplomatic relations. After a series of raids beginning last summer, the number of Chinese nationals who were deported had risen exponentially (in June and July alone, 4,592 illegal Chinese immigrants were repatriated).(vi) China claimed that it did not desire any form of reprisals, but it became enormously difcult for Ghanaians to apply for visas to China.(vii)
Since Ghana’s economy is centered on only three commodities – gold, cocoa, and more recently, oil – its market is therefore highly vulnerable to price fluctuations and trade shocks. According to the World Bank, the most recent data on mineral rents as a percentage of total GDP indicates that mineral production is increasing quite rapidly, from 6.1 in 2009 to 9.6 in 2011.viii Unfortunately, this projection has been compounded by a steady decline in the international price for gold. From 2013 to 2014, gold has depreciated by approximately 25% and future forecasts appear bleak.(ix) As mining accounts for nearly 5% of Ghana’s annual economic output, the sharp decrease in value has raised a lot of eyebrows.(x) It does only affect corporations, who are squeezing every drop of revenue just to mitigate their costs of production, but also local businesses who are ill-prepared for long-term sustainability and therefore do not have many cost-cutting alternatives. Most of these international corporations employ solely Ghanaian citizens as workers on the ground.
While the government has been cracking down on illegal gold mining pursuits, Ghanaian President John Mahama has been pushing towards private sector growth and away from a reliance on their primary export commodities. During an interview with the Financial Times, he explains, “We have a short-term problem with the fiscal situation...Apart from that, we have a problem with foreign exchange inflows due to the decline of the price of our two main commodities: cocoa and gold”.(xi) His purported intention is to process these goods domestically, but his emphasis was primarily on cocoa rather than gold. While the Ghanaian government might desire gold refinement production within its borders, no formal framework for such an implementation has been specified. This being said, it is a likely assumption that John Mahama is welcoming China’s participation in its domestic affairs. As foreign investment in Ghana increases, these subtle forms of neocolonialism become cause for speculation. Despite the impressive economic growth the country has experienced in the last decade, if Ghana continues to export its unprocessed goods at the present rate, other public sector industries will fail to prosper due to the country’s inability to profit from its production processes. Since there now exists a profusion of cheap imports, it has more or less orchestrated the downfall of local manufacturing enterprises. China’s intentions are clear in their decision to provide easy loans; Africa contains a host of valuable minerals, enough to sustain China’s flourishing economy in the long run. China’s approach is strategic on their part but is not sustainable in terms of Ghana’s long-term development. It is understandable why some African nations, and in this case Ghana, would look more favorably on Chinese aid as opposed to other forms of aid with more restrictions attached, but it is not in their self interest to rely heavily on this essentially unrestricted wave of Chinese investment, and is especially not in the interest of its people, who look towards its government to enact the sound policies that will develop their country.
While democracy may not be the solution for every country in the world, it appears that some favor this method of governing and are instigating measures for a gradual transition. The key to a secure and democratic political environment is transparency; in the context of gold mining, the travails of the individual miners must be a priority to the government. Ghana must have an honest intention to elevate its standard of living through a fundamental deference for every citizen. Of course, skeptics might wonder whether this notion is even attainable when considering power paradigms within governments, yet great revolutions in humanity are never born out of apathy. While increasing international pressure to comply with human rights standards may not apply to China, it does and will apply to Ghana and other African nations, simply because foreign direct investment will be an integral aspect in future economic stability. Ghana’s fiscal situation cannot flourish without an influx of foreign capital, which essentially translates into (at least an appearance of) respect for humanitarian matters. Perhaps China is an immutable character in the continuum of Ghana’s societal prosperity. It then becomes a subject for discussion when, but more so if, China will permit the construction of internal mechanisms for mineral production.
i.“Development Indicators.” World Economic Outlook. International Monetary Fund, Oct. 2013.
ii. Trying to Pull Together.” Te Chinese in Africa. Te Economist, 20 Apr. 2011. Web. 3 Mar. 2014.
iii. Ibid.
iv. “Ghana Arrests Chinese for ‘Illegal Mining.’” China. BBC News, 6 June 2013. Web. 2 Mar. 2014.
v. Ibid.
vi. “Ghana Deports Tousands in Crackdown on Illegal Chinese Goldminers.” World News. Te Guardian, 15 July 2013.
vii. “Ghana Deports Tousands in Crackdown on Illegal Chinese Goldminers.”
viii. “Mineral Rents (% of GDP).” Data. Te World Bank, 2011.
ix. Ibid.
x. Ibid.
xi. Blas, Javier. “Mahama Vows to Diversify Economy as Ghana Tackles Fiscal Turmoil.” Financial Times, 4 January 2014.
by Alexa Rose
“All the decisions I have made in my life were regularly plagued with doubt”
–John Mahama, Ghana’s President since 2012
What was once an economically desolate land saturated with an abundance of raw minerals is now becoming an ever-increasing decisive player in the global brawl for sustainable resources. Prior to a decade ago, foreign investors had long neglected the African continent and many of its regional economies failed to maximize their potential with regards to exporting their raw materials. Today, China has arrived as the knight in shining armor and situated itself as the catapult for development in African countries that contain vast mineral reserves. Ghana is China’s fourth largest export market in Central and West Africa. Ghana is just under South Africa in gold mining as gold is their primary export commodity. When commodity prices are high (thanks to Chinese investments), Ghanaian growth soars; this becomes evident when comparing its GDP from 2011 (38.752 billion USD) and from 2001 (7.435 billion USD).(i) While China is promoting the advancement of technological and institutional capabilities with its condition-free aid, they are effectively securing a political situation in which they are guaranteed a fixed portion of the gold mining revenue.
The role of China in Ghana’s infrastructural expansion is dynamic, yet questionable. In certain respects, the rapport is mutually beneficial. China provides soft loans that, unlike the United States or the United Nations, have a willful lack of a humanitarian agenda. With a no-strings-attached scenario, authoritarian governments become quite friendly to Chinese economic domination. Essentially, China obtains these raw materials, manufactures and refines them, and sells them back to the African market at a much higher price.(ii) This is simply due to the fact that Ghana does not currently have the means of production necessary to undertake the refinement process itself. It is now commonplace that Chinese loans to low-income countries, mainly in Africa, exceeding the amount of World Bank loans. Incidentally, the stipulated preconditions are a set of infrastructure projects that are to be executed by only a Chinese enterprise.(iii) This is an excellent example of a modern day imperialist form of mercantilism under the pretext of economic development.
Like the illicit diamond industry in Sierra Leone, many underground gold mining schemes have arisen in Ghanaian provinces in order to capitalize on this elusive resource. Not only are nationals (in regions like Ashanti) participating in this less-than-fruitful venture, but many Chinese and even some Indians have been complicit as well. Despite the exposure to mercury poisoning and other health risks, there does not exist much occupational mobility for low-skill workers. Fearing deportation or death, they hide out in the woods to evade the police while trying to contact the Chinese Embassy for assistance.(iv) On the other hand, increased immigration from China to Ghana in pursuit of the gold empire has resulted in an overhaul of racially motivated discrimination. The gold mines preclude any foreign nationals from operation within it, which has been stipulated by Ghanaian law. According to BBC World News, Ghanaian authorities did so under the guise of protecting the environment.(v) Whether this is true or not is irrelevant; the more pressing issue is whether this contentious domestic climate will culminate in a permanent rift between the two countries’ diplomatic relations. After a series of raids beginning last summer, the number of Chinese nationals who were deported had risen exponentially (in June and July alone, 4,592 illegal Chinese immigrants were repatriated).(vi) China claimed that it did not desire any form of reprisals, but it became enormously difcult for Ghanaians to apply for visas to China.(vii)
Since Ghana’s economy is centered on only three commodities – gold, cocoa, and more recently, oil – its market is therefore highly vulnerable to price fluctuations and trade shocks. According to the World Bank, the most recent data on mineral rents as a percentage of total GDP indicates that mineral production is increasing quite rapidly, from 6.1 in 2009 to 9.6 in 2011.viii Unfortunately, this projection has been compounded by a steady decline in the international price for gold. From 2013 to 2014, gold has depreciated by approximately 25% and future forecasts appear bleak.(ix) As mining accounts for nearly 5% of Ghana’s annual economic output, the sharp decrease in value has raised a lot of eyebrows.(x) It does only affect corporations, who are squeezing every drop of revenue just to mitigate their costs of production, but also local businesses who are ill-prepared for long-term sustainability and therefore do not have many cost-cutting alternatives. Most of these international corporations employ solely Ghanaian citizens as workers on the ground.
While the government has been cracking down on illegal gold mining pursuits, Ghanaian President John Mahama has been pushing towards private sector growth and away from a reliance on their primary export commodities. During an interview with the Financial Times, he explains, “We have a short-term problem with the fiscal situation...Apart from that, we have a problem with foreign exchange inflows due to the decline of the price of our two main commodities: cocoa and gold”.(xi) His purported intention is to process these goods domestically, but his emphasis was primarily on cocoa rather than gold. While the Ghanaian government might desire gold refinement production within its borders, no formal framework for such an implementation has been specified. This being said, it is a likely assumption that John Mahama is welcoming China’s participation in its domestic affairs. As foreign investment in Ghana increases, these subtle forms of neocolonialism become cause for speculation. Despite the impressive economic growth the country has experienced in the last decade, if Ghana continues to export its unprocessed goods at the present rate, other public sector industries will fail to prosper due to the country’s inability to profit from its production processes. Since there now exists a profusion of cheap imports, it has more or less orchestrated the downfall of local manufacturing enterprises. China’s intentions are clear in their decision to provide easy loans; Africa contains a host of valuable minerals, enough to sustain China’s flourishing economy in the long run. China’s approach is strategic on their part but is not sustainable in terms of Ghana’s long-term development. It is understandable why some African nations, and in this case Ghana, would look more favorably on Chinese aid as opposed to other forms of aid with more restrictions attached, but it is not in their self interest to rely heavily on this essentially unrestricted wave of Chinese investment, and is especially not in the interest of its people, who look towards its government to enact the sound policies that will develop their country.
While democracy may not be the solution for every country in the world, it appears that some favor this method of governing and are instigating measures for a gradual transition. The key to a secure and democratic political environment is transparency; in the context of gold mining, the travails of the individual miners must be a priority to the government. Ghana must have an honest intention to elevate its standard of living through a fundamental deference for every citizen. Of course, skeptics might wonder whether this notion is even attainable when considering power paradigms within governments, yet great revolutions in humanity are never born out of apathy. While increasing international pressure to comply with human rights standards may not apply to China, it does and will apply to Ghana and other African nations, simply because foreign direct investment will be an integral aspect in future economic stability. Ghana’s fiscal situation cannot flourish without an influx of foreign capital, which essentially translates into (at least an appearance of) respect for humanitarian matters. Perhaps China is an immutable character in the continuum of Ghana’s societal prosperity. It then becomes a subject for discussion when, but more so if, China will permit the construction of internal mechanisms for mineral production.
i.“Development Indicators.” World Economic Outlook. International Monetary Fund, Oct. 2013.
ii. Trying to Pull Together.” Te Chinese in Africa. Te Economist, 20 Apr. 2011. Web. 3 Mar. 2014.
iii. Ibid.
iv. “Ghana Arrests Chinese for ‘Illegal Mining.’” China. BBC News, 6 June 2013. Web. 2 Mar. 2014.
v. Ibid.
vi. “Ghana Deports Tousands in Crackdown on Illegal Chinese Goldminers.” World News. Te Guardian, 15 July 2013.
vii. “Ghana Deports Tousands in Crackdown on Illegal Chinese Goldminers.”
viii. “Mineral Rents (% of GDP).” Data. Te World Bank, 2011.
ix. Ibid.
x. Ibid.
xi. Blas, Javier. “Mahama Vows to Diversify Economy as Ghana Tackles Fiscal Turmoil.” Financial Times, 4 January 2014.
