By Channing Mavrellis, November 20, 2014
Whether South Africa’s Illegal Gold Mining Problem Is Measured in Revenue, Security Risks, or Human Lives—in the End, Everyone Loses
South Africa is the world’s fifth largest producer of gold, with the gold mining sector representing approximately two percent of South Africa’s GDP. Yet the country’s mineral wealth has proved to be a growing source of illegal activity and conflict.
There are approximately 14,000 illegal gold miners in South Africa, many of whom are illegal immigrants from Lesotho, Mozambique, and Zimbabwe. Illegal gold miners are known locally as “zama zamas,” which is variously translated as “We are trying” or “He who seizes the opportunity” or “Take a chance.” They operate in the estimated 4,000 to 6,000 abandoned mines in the Witwatersrand basin, but will also bribe security guards, policemen, or mine employees to gain access to active mines and/or to steal equipment. Credible estimates of the value of the illegal gold mining industry vary widely, ranging from US$500 million to US$2 billion annually.
Not included in these figures is the tax fraud involved in these activities. According to Naomi Fowler, criminal syndicates exploit the fact that value added tax (VAT) is not charged on mined gold whereas it is on processed gold. These syndicates then use techniques like trade misinvoicing to fraudulently certify illegally mined gold as legitimate second-hand scrap gold, which enables them to claim back VAT that they never paid.