How the UAE’s demand for gold is fuelling instability in Africa

Hannah Wallace
Hannah Wallace

Middle East Expert, Associate Researcher at Tactics Institute

Buoyed by a recent spike in gold prices and the spread of illicit mining, hundreds of tons of gold flows out of Africa each year and onto the world market. The billions of dollars that flow back are fuelling instability across the continent, particularly in the Sahel, where armed gangs, militias and jihadists often traffic in black market gold.

The UAE as a growing hub for illicit gold

The UAE has emerged as one of the biggest importers of African gold and has come under increasing scrutiny from intergovernmental organizations, and investigative journalists as a result. Unlike neighbouring Saudi Arabia, the UAE has no domestic gold mining industry, relying instead on imports to meet stronger global demand. Dubai, home to the majority of the country’s gold refineries, is the epicentre of the trade. Dubai’s growing appetite for gold has been met with a willingness to import gold from producer countries known for their illicit gold mining operations. In 2020, Venezuelan gold was flown to Mali on Russia-owned planes in exchange for hard currency. The trade bypassed US sanctions that had been imposed on the Venezuelan government, with much of the gold ending up in the UAE.

Since 2006, most of the gold in Dubai’s souks and refineries has been sourced from African states, many of which are blighted by weak and ineffective governments and violent armed groups. According to customs data, UAE imports of African gold leapt 12-fold in a decade from $15.1 billion worth of gold in 2016, to $1.3 billion in 2006, making it the world’s biggest importer of African gold. More worryingly, of the $15.1, almost half came from 25 African countries that listed no exports, a clear sign of illicit activity. The total weight was 446 tonnes, in varying degrees of purity, up from 67 tonnes in 2006. Alongside oil and tourism, gold ranks among the country’s top exports, accounting for $26.4 billion in 2020.

The UAE’s growing share of the world gold trade — accounting for 11 % of global gold exports — and its funnelling of black market gold out of Africa is a toxic combination.  Increased global demand for gold in recent years has led to a proliferation in artisanal or small-scale mining (ASM) operations in Africa, many of which are unregistered and operating illegally. At ASM mines gold is extracted by hand, workers often toil in terrible conditions and child labour is common. The gold is then smuggled out of the country, depriving governments of tax revenue. At the same time, the illicit gold mines provide a vital source of hard currency for local economies.

While it is often difficult to trace the origin of gold once it has been refined, a comparison of the customs and trade data of the UN and individual countries reveals significant discrepancies, suggesting much of the gold that ends up in the UAE is of questionable origins. Despite evidence to the contrary, Dubai continues to claim that it adheres to “international benchmarks” for responsible sourcing.

Empowering armed and jihadist groups

According to the United Nations Comtrade Database, Dubai is the destination point for 95 per cent of gold from East and Central Africa, where countries such as the Democratic Republic of Congo, Sudan, Burkina Faso and the Central African Republic continue to be plagued by violence and instability.

Burkina Faso, Africa’s fourth-largest producer of gold, has seen a surge in Islamist violence in recent years, an issue blighting the vast Sahel region. Groups with links to al-Qaeda and the Islamic State have expanded into new territories, some of which contain the country’s biggest gold mines. The mines are particularly lucrative, serving as an important source of funds for weapons and the recruitment of fighters.

Smugglers backed by armed groups control the trade with gold mined and then transported to regional smuggling hubs, particularly Togo. From there it is shipped to dealers in Dubai, who sell it to domestic or foreign refineries. According to a Reuters report, Burkina Faso’s minister of mines, Oumarou Idani, highlighted the scale of illicit gold reaching the UAE each year. Idani claimed that of the 9.5 tonnes of gold the government estimates come from informal miners each year, a fraction of that — 200 to 400 kg — is declared to the authorities.

In June 2018, jihadist fighters stormed Solhan, an ASM site, and massacred more than 130 people in the country’s worst ever terrorist attack. This was followed by an attack in November 2019 in which 37 people were killed after militants ambushed employees working for the Canadian gold mining firm Semafo. Aware of the link between illicit gold production and the presence of extremists groups, Burkina Faso authorities moved to ban artisanal mining in certain areas of the country.

Lack of international accountability

The US-based, globally-minded Financial Action Task Force has been urging the UAE to crack down on criminal financial flows since early 2020, with little to show for it. One reason is that the UAE is a Western ally. As such, the US and its NATO allies fear too strong a push on black market gold could upset Abu Dhabi.

Largely driven by the UAE’s desire for gold by any means, the illicit trade in African gold is fuelling instability and locking the continent into a new gold rush that mainly benefits dangerous actors and armed groups.

While other major gold importing countries such as Switzerland and the UK have taken steps in recent years to ensure greater supply chain transparency and traceability, Abu Dhabi has been lagging behind. At the end of 2020, the UAE pledged support for a crackdown on the illegal gold trade. While this should be welcomed, the UAE must cooperate to a much greater degree with international law enforcement and ensure that words are met with concrete action.

Gold mining is just one of many illicit financial flows deriving the African continent of much needed financial investment, with much of the gold coming from jurisdictions with scarce resources for development. The UAE should be supporting African initiatives to clean up the unregulated gold mining trade, including establishing bilateral agreements such as the one currently being agreed between Nigeria and the UAE.

There are a number of gold-specific policies that the UAE should undertake says Jodi Vittori, a nonresident scholar in the Democracy, Conflict, and Governance Program at the Carnegie Endowment for International Peace. As the majority of gold is imported in hand luggage, Vittori suggests that UAE authorities could request legitimate export documents such as export licenses, certificates of origin, and proof of payment of any export taxes or royalties.

“Any gold coming into the UAE from high-risk zones should receive much greater scrutiny The UAE should also demand that all refineries adhere to the Dubai Good Delivery (DGD) good governance standards they set in 2012 and finally, UAE souks—regardless of whether they are in free zones or on the mainland—should be required to adhere to due diligence standards.”

 

 

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