It is emerging that Ghana’s policy to buy gold at a premium price to curb smuggling will rather deepen the problem it is attempting to address.
Ghana’s attempt to outbid smugglers by offering premium prices for gold may be setting the stage for a far bigger problem.
This is an assessment of the Executive Director of the Africa Center for Energy Policy, ACEP, Benjamin Boakye, who believes that the country is quietly turning itself into the most attractive gold destination in the sub-region, with consequences that could hit the economy faster and harder than expected.
Benjamin, in an article, demonstrated that the current gold pricing policy risks transforming Ghana from a victim of smuggling into a regional hub for it.
Explaining the reasons for this assessment, he indicated that when one country pays more for gold than its neighbours, gold will move there. Not because production suddenly increases, but because traders follow incentives. In this case, Ghana’s premium prices are likely to pull gold across borders from neighbouring countries, creating a new and more dangerous trade route.
“By offering premiums, Ghana has positioned itself as the most attractive destination in the sub-region. This creates a dangerous outcome. Rather than eliminating smuggling, Ghana risks becoming a regional hub where gold from neighbouring countries is sold locally,” he noted.
The situation just mimics how Ghana’s cocoa is smuggled to neighbouring countries in order to attract higher prices.
Under this premium price policy, gold produced outside Ghana can be brought into the country, sold locally at premium prices, paid for in cedis, converted into dollars, and then quietly sent back out.
He then fears that what begins as a gold smuggling issue quickly mutates into a foreign exchange smuggling problem.
Ben Boakye further explains, “Premiums are paid in cedis, converted into foreign exchange, and illegally repatriated. In effect, a gold smuggling problem is transformed into a foreign exchange smuggling problem, increasing pressure on the currency and compounding losses on the central bank’s balance sheet. If left unchecked, the macroeconomic consequences will be severe in the near term.”
Aside from denting the country’s image internationally as a gold smuggling hub, the situation puts fresh pressure on the cedi and forces the central bank to step in again to stabilise the market.
With Ghana’s already porous borders, the incentives already exist, and the premium prices will enhance it further. In addition to strong checks and a relook at the premium price policy, Ben Boakye calls on the government to be decisive.
Without an action, Ghana risks becoming a clearing house for illicit gold and illicit dollars at the same time.
