Gold and monetary policy

By Obadiah Mailafia

TODAY, Monday, November 16, South-South Governors are scheduled to meet over the subject of Zamfara gold. Not too long ago, it was announced that the Government of Zamfara State will be “selling” N2 billion worth of gold to the Central Bank of Nigeria, pursuant upon the Presidential Artisanal Gold Mining Development initiative, PAGMI. The angst of the South-South Governors centres on why Zamfara is free to sell its gold to CBN while they are not free to sell their own oil in the same manner.

Several commentators have raised issues with that policy. Last week, the Federal Ministry of Mines and Steel Development made a release aiming to clear the air. They pointed out that Zamfara State had registered a mining company that was mobilising local artisanal miners as a means of finding just and lasting solutions to the insecurity associated with illegal gold mining. They reemphasised the fact that the 1999 constitution and the Minerals Act 2007 place solid minerals in the Exclusive Legislative List. But the controversy is unlikely to disappear any time soon.

I have advised potential investors on the regulatory nightmare underpinning our mining sector. While solid minerals legally belong to the Federal Government, the land belongs to the local communities under the Land Use Act 1978. Local communities that engage in mining activities are technically engaging in illegal activities. Under our laws, the land is theirs but the gold is not.

But the Federal Government cannot access the gold without negotiating with the communities who are the owners of the land. Few investors would want to go into such a regulatory jungle. This partly explains why the solid minerals sector remains in such a low state of development in our country.

Compared to countries such as South Africa, Russia, Australia and Ghana, our gold endowments are relatively modest. Most of the deposits are located in the North, particularly Zamfara and Birnin Gwari in Kaduna State. There are substantial deposits also in Kogi and Osun states.