Tanzania’s mining regulator has mandated that all gold mining firms and traders sell at least 20% of their gold to the country’s central bank. This directive, which took effect in October following the enactment of new mining regulations, is part of a broader strategy by the Bank of Tanzania (BoT) to diversify its reserves and safeguard the national economy from external shocks.

This initiative comes at a critical time for Tanzania, one of Africa’s largest gold producers, as the nation grapples with a depreciating shilling and volatile global commodity markets. The directive underscores the government’s determination to strengthen its economic fundamentals while simultaneously seeking to ensure that the lucrative gold sector continues to contribute significantly to foreign exchange earnings.

Strengthening Foreign Exchange Reserves

The Bank of Tanzania’s gold-buying programme, which began last year, has been a central pillar in the government’s efforts to diversify its foreign exchange reserves. In the 12 months leading up to June 2024, the BoT purchased 418 kilograms of gold. However, recognizing the mounting pressures on the Tanzanian shilling—which has depreciated by nearly 8% against the US dollar this year—the central bank has set a far more ambitious target for the current financial year: the acquisition of six metric tons of gold.

With Tanzania’s foreign exchange reserves currently standing at $5.29 billion, sufficient to cover approximately 4.3 months of imports, officials believe that increasing gold reserves will provide an essential buffer against further currency depreciation and external economic shocks. By tapping into the country’s abundant gold resources, the BoT aims not only to stabilize the shilling but also to enhance the overall credibility of its monetary policy.

A New Regulatory Framework for the Mining Sector

The directive to sell 20% of their gold comes as part of sweeping new mining regulations introduced by the Tanzania Mining Commission. The revised regulatory framework is designed to improve oversight, increase transparency in the mining sector, and ensure that a greater share of the nation’s mineral wealth benefits the broader economy. Under the new rules, miners and traders are required to channel their reserved gold to two major mineral refineries: Eye of Africa Ltd in Dodoma and Mwanza Precious Metals Refinery Ltd in Mwanza.

These refineries have been strategically selected due to their state-of-the-art facilities and robust operational capabilities, which will ensure that the gold purchased by the central bank is processed efficiently and in accordance with international standards. By centralizing the purchase and processing of gold, the government hopes to reduce leakage in the value chain and ensure that the proceeds from gold sales contribute directly to national development objectives.

The Economic Rationale: Currency Stabilization and Investor Confidence

The impetus behind the BoT’s aggressive gold-buying programme is twofold. Firstly, increasing gold reserves serves as a hedge against external economic vulnerabilities. In times of global market instability, gold has historically been seen as a safe-haven asset. By accumulating gold, the central bank is effectively building a strategic reserve that can be leveraged to support the national currency if needed.

Secondly, the move is expected to instill greater confidence among investors. With robust foreign exchange reserves, Tanzania can better manage external shocks, reduce inflationary pressures, and create a more stable investment climate. The measures are already resonating positively in other areas of the economy, as reflected in recent performance in Tanzania’s bond and equity markets.

Robust Market Developments: Equity and Bond Market Growth

Recent market activity in Tanzania has been notable, with significant growth observed in both the equity and bond markets. From January to September 2024, the total capitalisation of the Tanzanian stock market surged from $5.86 billion to $7.13 billion—a remarkable 22% increase. This upswing is attributed to improved investor sentiment driven by stable macroeconomic conditions and strong performances in key sectors such as banking and beverages.

The bond market has also seen robust activity. The value of outstanding government bonds increased by 18.5%, rising from $8.12 billion in January to $9.62 billion in September 2024. These positive trends highlight the broader confidence in Tanzania’s economic policies and its commitment to structural reforms.

However, not all market segments have experienced similar dynamism. The market for sustainable bonds remained static at $184.03 million, signaling a potential area for future growth. As global trends increasingly shift towards sustainability, there is an opportunity for Tanzanian issuers to tap into this market by developing bonds that finance environmentally and socially beneficial projects.

Impact on Key Market Players

The directive affecting the gold sector is unfolding alongside notable movements in the stock prices of several major Tanzanian companies. For instance, CRDB Bank, one of the country’s largest financial institutions, witnessed its stock price rise by 39.13%, moving from $0.18 to $0.25. Similarly, East African Breweries Limited, a cross-listed company, experienced an impressive 82.97% surge in its share price, jumping from $0.73 to $1.34.

In the insurance sector, Jubilee Holdings Limited (JHL) recorded a 22.64% increase in its share price, from $1.18 to $1.45, reflecting positive investor sentiment toward the broader financial services industry. Cross-listed banks such as KCB Bank have also performed strongly, with its share price more than doubling—from $0.14 to $0.29—an indication of the growing confidence in Tanzania’s financial sector. Meanwhile, domestic companies like NICO saw their stock prices rise by 50%, from $0.20 to $0.30.

However, not all sectors fared as well. Swissport Tanzania, operating in the aviation sector, saw its stock price decline by 16.67%, from $0.53 to $0.44, possibly due to heightened competition and broader industry challenges. These mixed performances underscore the nuanced impact of macroeconomic policies on different sectors of the economy.

Tanzania’s Gold Sector: A Pillar of the National Economy

Tanzania has long been recognized as one of Africa’s foremost gold producers. The country is home to major international mining giants such as AngloGold Ashanti Plc and Barrick Gold Corp, whose operations have historically contributed significantly to foreign exchange earnings. Gold exports remain a critical source of revenue, helping to finance imports and stabilize the balance of payments.

The new mandate to sell 20% of their gold to the central bank represents a strategic shift aimed at ensuring that a larger share of this valuable resource is managed by state institutions. This move is expected to enhance the government’s ability to respond to external pressures, particularly in a global environment where commodity prices can be highly volatile.

By integrating gold reserves more tightly with national monetary policy, the BoT is not only hedging against currency depreciation but is also positioning the country to take advantage of favorable market conditions. As global demand for gold continues to rise amid economic uncertainties, Tanzania’s enhanced reserves could serve as a critical asset in its overall financial strategy.

Reforms in the Mining Sector: Increasing Transparency and Accountability

The directive issued by Tanzania’s mining regulator is part of a broader series of reforms aimed at increasing the mining sector’s contribution to the national economy. In recent years, the government has revised mining laws and enhanced oversight of mineral exports to curb illicit practices and ensure that revenues from mining are maximized for public benefit.

These reforms have been welcomed by both domestic and international investors, as they are seen as a step towards creating a more transparent and accountable mining environment. Enhanced regulatory oversight is expected to attract further investment into the sector by reducing risks and ensuring that mining operations adhere to international best practices.

Furthermore, the focus on transparency is complemented by initiatives to modernize the sector’s infrastructure. Investments in technology and digital monitoring systems are being implemented to track the movement of minerals from the mine to the market. Such measures are designed to ensure that the benefits of mining are fully captured by the Tanzanian economy, contributing to sustainable development and long-term economic stability.

Broader Economic Implications

The gold directive and associated market developments are part of a larger economic narrative in Tanzania. The country’s efforts to diversify its foreign exchange reserves and stabilize its currency are critical in the context of global economic uncertainties. With inflationary pressures and geopolitical risks affecting economies worldwide, Tanzania’s proactive measures serve as a model for other emerging markets facing similar challenges.

By leveraging its natural resources—particularly gold—as a tool for economic stabilization, Tanzania is taking decisive steps to build a more resilient economy. This strategy not only addresses immediate currency pressures but also lays the groundwork for sustained economic growth by creating a robust buffer against external shocks.

Additionally, the growth in the equity and bond markets is indicative of an improving investment climate. With increasing investor confidence, both domestic and international, Tanzania is well-positioned to attract further capital into key sectors. The surge in market capitalisation and government bond values reflects the successful implementation of reforms and the overall optimism about the country’s economic prospects.

International Perspectives and Future Prospects

International observers have noted Tanzania’s strategic use of its gold resources as part of a broader trend among emerging markets to diversify their reserve assets. In a global economy where traditional reserve currencies face challenges, many countries are looking to precious metals like gold as a more stable store of value. Tanzania’s move to mandate a 20% sale of gold to the central bank is being seen as both a defensive measure and a proactive strategy to leverage natural resources for economic security.

Looking ahead, the BoT’s target of acquiring six metric tons of gold in the current financial year represents a significant ramp-up of its buying programme. If successful, this initiative could have far-reaching implications for the country’s monetary policy, offering a reliable source of reserves that can be used to manage liquidity and support economic stability in turbulent times.

Moreover, the success of this initiative could stimulate further reforms in the mining sector, encouraging other resource-rich nations to adopt similar strategies. By demonstrating that state-managed gold reserves can be an effective tool for economic stabilization, Tanzania is likely to inspire policy discussions and potential regulatory changes across the region and beyond.

Challenges and Opportunities in the Gold Market

Despite the optimistic outlook, the gold market is not without its challenges. Global gold prices are subject to fluctuations driven by factors such as geopolitical tensions, changes in investor sentiment, and shifts in demand from key markets like China and India. For Tanzania, managing these price volatilities will be crucial to ensuring that the benefits of the gold-buying programme are fully realised.

However, the long-term prospects remain positive. As the world grapples with economic uncertainties and inflationary pressures, gold is increasingly seen as a safe haven asset. This perception is likely to support sustained demand for the metal, thereby reinforcing the value of Tanzania’s reserves. In addition, technological advancements in mining and refining processes could lead to improved efficiencies, reducing operational costs and increasing the overall profitability of the sector.

Conclusion

Tanzania’s directive ordering miners to sell 20% of their gold to the central bank marks a bold step in the country’s ongoing efforts to diversify its foreign exchange reserves and stabilize its currency. Driven by pressures on the Tanzanian shilling and a volatile global economic environment, the move is part of a comprehensive strategy that leverages the nation’s significant gold resources to bolster economic resilience.

Alongside robust developments in the equity and bond markets, this initiative reflects a broader commitment to reforming the mining sector and enhancing the overall investment climate. With major players like AngloGold Ashanti and Barrick Gold already contributing significantly to the economy, and with improved regulatory oversight ensuring transparency and accountability, Tanzania is poised to capitalize on its natural resource wealth while simultaneously building a more stable and sustainable economic future.

As the Bank of Tanzania aims to purchase up to six metric tons of gold in the current financial year, market watchers and investors alike will be keenly observing the programme’s impact. Success in this initiative could not only strengthen Tanzania’s monetary policy but also set a benchmark for other emerging markets seeking to use their natural resources as a foundation for long-term economic stability.

In an environment where global uncertainties persist, Tanzania’s proactive approach serves as a compelling example of how strategic resource management, combined with rigorous regulatory reforms, can pave the way for sustained growth and investor confidence. With ongoing improvements in market capitalisation, government bonds, and key corporate performances, the nation’s economic outlook remains bright.

Ultimately, by harnessing its gold reserves, modernising its mining sector, and reinforcing its broader economic policies, Tanzania is positioning itself as a resilient and dynamic economy ready to meet the challenges of the 21st century. As the directive takes hold and its effects ripple through the financial markets, Tanzania’s journey towards a more stable and prosperous future continues—one gold bar at a time.

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Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

24th February, 2025