Gold fever.

Gold is back in demand - in a big way. Rushing headlong to satisfy this craving for the yellow metal are not only the major transnationals but also scores of more nimble, smaller outfits. And Africa is at the centre of the gold rush

Despite growing attention to wards diamonds and copper, the metal which continues to command global attraction is gold - currently the most lucrative investment within the mining industry.

Last year the demand for gold reached an all-time high of 3,642 tonnes, beating the 1992 record by 69 tonnes. And today, it's not just transnational corporations that are searching for this ever-alluring yellow metal: Smaller, more aggressive companies have also joined the race. But why the sudden gold rush?

There are several possible explanations. For years, gold has been perceived as a fail-safe currency worldwide. The biggest use for refined gold is still jewellery. In 1995, no less than 85% was employed for this purpose. The strongest demand comes from Asia and the 'tiger economies'. India, where a burgeoning middle class has added to gold sales, is no exception.

Expanding market

The metal is almost indestructible and therefore, easily recycled: 90% of all gold mined can be re-used. It is so malleable that just one ounce is needed for 50 miles of gold wire. Unrivalled as a conductor of electricity, it is in big demand in the expanding market in telecommunications, computers and automobiles.

It is no wonder, therefore, that more companies are seeking to stake their claim in multi-faceted gold. However, a more significant explanation lies in the recent changes to mining laws which have been implemented by governments throughout the developing world.

Out of a total of 70 countries, 31 of these are African. Given that Africa is estimated to have 31% of the world's gold resources, a successful strategy for investment is vital. African governments have opened their eyes to the fact that foreign companies will only invest in the continent's gold resources if the incentives are good enough.

Countries such as Ghana have picked up on this and duly altered or even lifted various laws. For example; taxes have been reduced, foreign ownership restrictions jettisoned, and the repatriation of profits - boosted. Gold exports are now the star performer of the Ghanaian economy. If the aim is to pump up production and export earnings, the strategy is sound.

And the benefits of foreign investment in gold mining don't stop there. Other knock-on effects include job creation and the development of a country's infrastructure in the form of schools, hospitals, roads and power plants. Such advantages would be hard for any country to snub.

But what of Africa's significant informal and often illegal mining sector? It is estimated that the small scale sector produces up to 20% of gold. More than 1.5m people work in this sector in the sub-Saharan region. In Zimbabwe alone, the figure stands at about 100,000. In Tanzania, Sierra Leone and the Central African Republic, the total gold output comes from informal mining.

Environmental impact

It follows that shifts away from state-controlled mining towards foreign operators have led to a corresponding dependence on these companies. Some critics argue that the influx of new 'junior' companies is resulting in a fall in environmental protection, site rehabilitation and social responsibility to surrounding communities.

Others insist that these companies, which often join into partnership agreements with larger ones like Anglo-American and Ashanti Goldfields Limited, go where the deposits are richest, use the best technology available and stick closely to strict environmental standards.

But there is a more important issue at stake either way. First, it is imperative that economic and environmental safeguards are made concrete in order that African countries can maximise benefit from the new wave of investment. Second, given that small scale mining comprises a crucial sector of the industry, certain regulations and developments warrant attention. For example, regulation, credit, training, government backing, improved miners' rights and the adoption of non-polluting technology.

In Ghana, during the late 1980s, the Government introduced a set of laws for informal mining which have been praised by the World Bank and several non-governmental organisations.

The registration and licensing of miners - be they individuals, small groups or cooperative societies - became a requirement. Illegal purchases of gold is now a penal offence, and the use of mercury in gold production is under regulation.

In Zimbabwe, the Ministry of Mines introduced regulation and legalised gold panning in the early 1990s. It provides information on mineral resources, prospecting, mining exploration and ore processing. The Ministry is also working with several development agencies, a miners' association and the UK-based Intermediate Technology group to help build a mining centre which provides training and advice. Other African governments would do well to take a step in the same direction.

In many ways, opportunities have never been so good. For South Africa's gold is beginning to tarnish. Plagued by low productivity and ageing gold mines, the industry's output dropped to below 600 tonnes in 1994 for the first time in three decades. And it has plummeted further since. Contributions to the country's foreign exchange earnings from gold fell in 1995, from 28% to 21%. This represents a loss of about $737m. (See following story).

Clearly, the time is ripe for gold-producing African countries to capitalise on one of the most lucrative natural resources that exists.

While this may require an element of dependency on foreign companies, surely this is a better means of economic growth than relying on foreign aid packages.