An African Fort Knox to kick out the middleman? Egypt is moving to end a decades-old practice of exporting raw gold only to buy it back as refined bullion. The Central Bank of Egypt and Afreximbank inked an MoU to establish a pan-African gold bank and an internationally accredited refinery in an Egyptian freezone, according to a statement from the CBE.

“It’s inconceivable that refining and purification happened outside… The gold is ours, why should we send it out and bring it back?” economist Hany Tawfik tells EnterpriseAM. Currently, miners like Centamin often ship ore abroad for processing. By “carrying out the process from A to Z” in an Egyptian freezone, the state and regional producers can capture additional value-added earnings from their gold, which currently goes to refineries in the Gulf, Europe, and North America.

Why it matters

More than just refining: The gold bank will provide advanced logistical solutions for member countries regarding gold storage, financial analyst Ahmed Ezz El Din told us. The establishment of the bank is also expected to reduce the gap between local and international gold prices, he added — “current price discrepancies are not solely due to the EGP / USD exchange rate, they are also influenced by the availability and quality of the commodity. The bank will increase supplies and better regulate supply and demand mechanisms.”

The move also aims to bolster monetary sovereignty. The initiative is about more than just a “bold declaration that Africa’s gold must serve African people,” Afreximbank Chairman George Elombi said. It also aims to strengthen “the continent’s resilience, [minimize] vulnerability to external shocks, [and] improve currency stability and convertibility,” he added.

The challenge will be in the speed of implementation and securing the international accreditation for the refinery, economist Hany Abou El Fotouh tells us. “Without this accreditation, converting this gold into global liquidity will be difficult.”

Could the bank help us secure cheaper financing? “Having a documented and liquid gold reserve in a specialized bank raises a country’s credit rating and reduces borrowing costs,” Abou El Fotouh said. “When international lenders see a tangible guarantee of world-class gold, they forgo the high risk premiums typically imposed on emerging markets.”

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