EP 41: African Gold as a Russian means to help fund its fight in Ukraine

Summary:

In this episode, we explore the Wagner Group, a Russian private military company, and its activities in Africa, specifically its involvement in gold mining and its role in supporting various African regimes. We expose how Wagner’s gold extraction operations in countries like the Central African Republic, Sudan, Mali and beyond provide a significant source of revenue for Russia, potentially contributing to its funding of the war in Ukraine. We also examine the impact of Wagner’s actions on local populations and the challenges faced by international organizations and governments in curtailing its operations. In addition to detailing the Wagner Group’s activities, we discuss various efforts made by Western nations, including the imposition of sanctions and the provision of military support to African countries, in an attempt to counter Wagner’s influence in the region.

Questions to consider as you read/listen:

1. How does Russia's use of African gold influence the war in Ukraine
2. What is the extent of the Wagner Group's impact on African nations?
3. What strategies are being implemented to counter the Wagner Group's influence?

Long format:

 African Gold as a Russian means to help fund its fight in Ukraine

In today’s episode and blog I want to focus on another source of Russia’s war economy that does not get as much publicity and attention as crude sanctions or LNG sanctions.

See our other episodes for information on oil and LNG sanctions:

About the lack of effectiveness of Russian oil sanctions:

https://www.geopoliticsunplugged.com/audio/ep19-are-russian-crude-oil-sanctions-working/

About the success and effectiveness of Russian LNG and natural gas sanctions

https://www.geopoliticsunplugged.com/audio/episode-14-the-health-of-the-russian-lng-sanctions/

Russia is getting a fairly significant amount of gold from Africa facilitated by the Wagner Group. That gives us quite a few questions.

1. How much control does Russia have over African gold production through groups like the Wagner group?
2. Is it just restricted to the Sahel region?
3. How “big” is the problem? What if anything is being done about it?

WHO:

The Wagner Group (Russian: Группа Вагнера, romanized: Gruppa Vagnera), officially known as PMC Wagner (ЧВК «Вагнер»), is a Russian state-funded private military company (PMC) controlled until 2023 by Yevgeny Prigozhin, a former close ally of Russia's president Vladimir Putin. You may remember Prigozhin swan song when he marched off the front lines of Ukraine with his troops towards Moscow. The steam went out. And… eventually Prigozhin’s steam went out by way of most likely an act of sabotage or bomb on a plane that he was on. Funny how that happens. His troops were in Belarus and now have been more or less fully re-assimilated into the Russian sphere of influence.

WHAT:

Wagner is active in countries with rich gold resources, and the group's operations extend beyond military support to include disinformation, suppression of political opposition, and silencing independent media. Here are some of their top actions:

1. Central African Republic (CAR):

-Ndassima Gold Mine: Wagner has been granted exclusive rights to operate the Ndassima mine, the largest gold mine in the country. Wagner Group was granted exclusive rights to operate the Ndassima Gold Mine in the Central African Republic (CAR) as part of a broader arrangement in which the mercenary group supports the authoritarian regime of President Faustin-Archange Touadera. This agreement was part of a quid pro quo that involved Wagner providing military and security services in exchange for access to lucrative natural resource extraction opportunities, especially gold.

-Human Rights Abuses: Wagner has displaced local miners, sometimes through violence, and is involved in brutal tactics, including attacks on civilians, to maintain its control.

2. Sudan:

-Unreported Gold Market: Wagner controls major gold refining and smuggling operations. Russian military transport flights have been identified smuggling gold out of Sudan.

-Key Activities: Wagner is the dominant buyer of unprocessed Sudanese gold and plays a major role in smuggling processed gold out of the country. It has reportedly moved nearly $2 billion in unreported gold out of Sudan annually.

-Political Role: Wagner has supported military factions, including aiding the former dictator Omar al-Bashir in suppressing protests and working closely with the military since his removal.

3. Mali:

-Military Support: Wagner is paid an estimated $10.8 million per month to support the ruling military junta led by Colonel Assimi Goïta. They are also involved in destabilizing rebel groups and suppressing democratic movements.

-Mining: Wagner operates more indirectly in Mali’s gold industry, but it benefits financially from the country's reliance on Western gold mining companies, which pay substantial taxes to the junta. Wagner assists the junta in controlling the state and extracting revenues.

-Expansion: Wagner is reportedly involved in building a new mega-refinery, which will handle gold produced by international companies.

4. Other Potential Operations:

-Libya: Wagner has been involved in supporting military factions, particularly Khalifa Haftar’s forces. While Wagner's direct exploitation of gold in Libya is not well-documented, its strategic presence in southern Libya gives the group leverage over gold smuggling routes from Africa. Gold from Sudan, in particular, is often smuggled through Libya, taking advantage of the country's porous borders and weak governance in certain regions. Wagner's military operations have likely facilitated the safe passage of gold and other resources, indirectly benefiting the group's financial interests.

-Madagascar: There are indications that Wagner may be expanding its influence. While gold mining in Madagascar is less industrialized compared to some African countries, there are extensive artisanal mining operations across the island. Wagner’s interest in Madagascar likely stems from its potential to exploit these resources, much like it has done in other African countries where it combines political support with resource extraction deals.

-Burkina Faso and Democratic Republic of the Congo (DRC): There are reports suggesting Wagner’s potential interest in expanding operations in these resource-rich but unstable regions, though the extent of current operations remains unclear. Burkina Faso has well been a hot mess and is politically unstable with a series of coups or near coups. That type of instability is well suited for Wagner’s special brand of joy spreading. Burkina Faso  is one of Africa’s largest gold producers, and the industry is vital to its economy. The country is home to several industrial gold mines as well as a large number of artisanal mining operations. Gold mining represents a significant revenue stream, making it an attractive target for Wagner's model of resource exploitation. The DRC is attractive to anyone as the country has vast deposits of gold, much of which is mined in the eastern regions, such as Ituri, South Kivu, and North Kivu provinces, which are also areas of ongoing conflict. Gold mining in the DRC is largely informal and involves a high degree of artisanal mining, making it difficult to regulate and susceptible to exploitation by armed groups.

WHY DOES THIS MATTER?

Since its invasion of Ukraine in 2022, Russia has made more than $2.5 billion from trade in African gold, according to the Blood Gold Report. To put this in perspective

As of January/February 2024 reports, the best estimate is that military operations in Ukraine have cost Russia up to $211 billion and the country has lost $10 billion in canceled or paused arms sales.

So this gold grab is paying for more than 10% of the war in Ukraine. Not bad. But that’s not the entire story is it?

According to most estimates, every day of the war in Ukraine costs Russia $500 million to $1 billion.

According to another February 2024 report, the war had cost Russia an expected $1.3 trillion in previously anticipated economic growth through 2026 and about 315,000 Russian troops.

Russian central bank maintains an interest rate of 19%, while claiming that annual inflation is only 9.1%. These are published figures with a lot of economists saying the best case is to add at least another 3% to that.

According to an October 2024 report, including all the hidden costs, Russia will probably spend about $190 billion, or 10% of GDP, on the war this year, and that figure presumably represents the peak, given the constraints imposed by Western financial sanctions.

<<<As an aside, for comparison, Ukraine has held Russia in a stalemate by spending about $100 billion per year on the war – half from its own budget, and half in kind through arms donated from abroad. https://www.ifw-kiel.de/topics/war-against-ukraine/ukraine-support-tracker/ ) >>>

WHAT IS BEING DONE ABOUT WAGNER AND RUSSIA IN AFRICA?

Honestly, not terribly much that has a major impact. If you are an outlaw, rules don’t apply, right?

The United States, European Union, and the United Kingdom have imposed targeted sanctions on Wagner Group, its key members, and associated companies. These sanctions aim to disrupt Wagner’s ability to operate by freezing assets, restricting their access to financial markets, and blocking any transactions with entities linked to the group. For example, the U.S. Department of the Treasury has sanctioned Wagner’s leaders and affiliated companies involved in resource extraction, including gold, diamonds, and other natural resources. Some Western governments, notably the U.K. and the U.S., have been considering designating Wagner as a terrorist organization. This designation would make it easier to prosecute Wagner operatives and impose stricter sanctions on individuals and companies associated with the group. While this effort has not yet fully materialized, it remains an ongoing topic of discussion, as designating Wagner as a terrorist group would significantly complicate its operations by restricting its financial transactions and making it illegal for any entities to provide support to Wagner. Some Western countries, particularly France and the United States, are increasing military and counterterrorism support to African nations to provide alternatives to Wagner’s security services. This includes training and equipping local forces in regions like the Sahel, where countries like Mali and Burkina Faso have turned to Wagner for help in fighting insurgencies.

Sources:

https://www.project-syndicate.org/commentary/russia-war-economy-weakening-under-sanctions-by-anders-aslund-2024-10

https://apnews.com/article/mali-wagner-mercenaries-russia-abuses-b03cf8fe6d9ddbbcdb2d012464944906

https://bloodgoldreport.com/

https://www.reuters.com/world/europe/russia-operations-ukraine-have-probably-cost-up-211-billion-us-official-2024-02-16/

https://www.defensenews.com/pentagon/2024/02/16/ukraine-war-has-cost-russia-up-to-211-billion-pentagon-says/

https://www.cfr.org/in-brief/what-russias-wagner-group-doing-africa

https://www.state.gov/the-wagner-groups-atrocities-in-africa-lies-and-truth/

https://www.bbc.com/news/world-africa-68322230

https://www.brookings.edu/articles/whats-ahead-for-the-wagner-group-in-africa-and-the-middle-east/

https://acleddata.com/2022/08/30/wagner-group-operations-in-africa-civilian-targeting-trends-in-the-central-african-republic-and-mali/

https://crsreports.congress.gov/product/pdf/IF/IF12389