Rising Gold Prices but Lower Incomes for Gold Miners: Evidence on Market Imperfections from Burkina Faso during COVID-19

Abstract

Abstract Although artisanal gold mining is known for human rights violations and environmental degradation, it is an increasingly important economic activity in many African countries, with a high potential to alleviate poverty. Due to increased demand for gold investment during the COVID-19 pandemic, the monthly international gold price has increased by 20% from January to May 2020. To understand how the COVID-19 pandemic has influenced gold miners, we analyse a panel survey of about 170 artisanal gold miners interviewed 2 months before the first case of COVID-19 in Burkina Faso. Follow-up surveys were done early in the pandemic and about 1 year after baseline. Various pre-existing local market failures caused local gold prices to decrease by 20%–30% from January to May 2020, when international gold prices noticeably increased. Market failures include oligopsonistic market conditions on the mines, which worsened due to travel restrictions that disrupted trading routes, reduced local traders' liquidity and made it difficult for traders to reach mines. Moreover, we find that miners have very little knowledge of international gold prices, and due to insecurity and credit constraints, they are unable to wait for local prices to recover. Once travel restrictions were lifted, the local gold price recovered close to the global gold price. To make local markets more competitive and ensure that miners benefit from rising international gold prices, governments could broadcast world gold prices on local radio, increase trading opportunities and provide access to credits for miners.