The government’s move to trade gold in exchange for oil has been met with a hefty dose of criticism from some industry players and experts in the sector.
The latest to wave a red flag at the program is a Member of Parliament and Ranking Member on the Mines and Energy Committee of Parliament Hon. John Jinapor who described the move as a “lazy man’s” approach which has the potential to rather worsen government’s unsustainable debt burden. The Hon. Member of Parliament made this assertion in an interview on Accra Fm.
The Precious Minerals Marketing Company (PMMC) and the Minerals Commission (MinCom) have been tasked by the Minister for Lands and Natural Resources (MLNR) to see to the implementation of the “Gold 4 Oil” directive which took effect on the 1st January 2023.
The implementation per the structure of the directive automatically prises Licensed Gold Exporters (LGE) out of business as PMMC becomes the sole buyer of Gold from Artisanal and Small Scale Miners (ASM). This implies that LGEs have effectively been banned from providing any intermediation in the Gold supply chain
This directive also effectively means that no LGEs is allowed to export Gold and therefore would not attract investment from foreign buyers of gold.
Again, the directive effectively means that no LGEs is allowed to export Gold and therefore would not attract investment from foreign buyers of gold.
Risk Involved In The State Taking Up Gold Supply Chain
Hitherto, when the LGEs bought and exported gold, all the risk in the supply chain were borne by the LGEs some of which included Financial risk which is the cost of capital or borrowing advanced to pre-finance the operations of ASM, Price risk in terms of fluctuations in gold prices (Gold price is not static), purity risk which includes refinery cost and refinery losses and others.
Another is the administrative risk which is the cost of meeting other operational cost including running offices at various buying centers. Currently ASM operate in thirteen (13) out of sixteen (16), administrative regions and several hundreds of gold mining sites in the country.
Job, Forex And Investment Losses
The jobs of thousands of people engaged in the gold exporting activity will be lost when the policy is implemented. Forex from Gold export will dwindle and investment inflows into the Gold dealership activity will be lost.
Foreign Direct Investment of about US$2billion brought into the country annually for ASM gold mining and gold dealership activities will be lost as the policy has kicked start.
Gold production by ASM which is about 36% of total National Gold production will decrease.
Smugglers will have a ‘field day’ as they will step in at locations where the PMMC is absent because there will be no LGEs to provide the needed financial intermediation.
Existing pre-finance agreements between investors, exporters and ASM will lead to litigations as a result of non-performance by LGEs.
What Gov’t Stands To Loose
Government would have to provide the PMMC with taxpayer’s money in the range of US$100 million per month to pre-finance the purchases of gold based on the current production and export of two (2) tons per month.
PMMC depending on the pricing mechanism adopted will be exposed to foreign exchange risk. Gold is purchased using the Forex Bureau exchange rate and if the Central Bank is releasing funds to PMMC at BOG rate there will be a differential even at the point of purchase and this loss will accrue to BOG.
PMMC will lose assay fee of 0.256% of the value of Gold which will accrue to about US$3million annually.
Minerals Commission will lose Small Scale Mining Sustainability Fee (SSMSF) which is 0.2% of total value of gold exported by LGEs. This fee is meant to sustain small scale mining in the country.
Ghana Revenue Authority will also lose the withholding tax of 1.5% of the value of gold exported.
PMMC’s directive that it will buy Gold only in Accra and Kumasi will not help the initiative; especially when it is currently buying in only Kumasi. What happens to the Markets in other centers of the country?
Also, PMMC’s directive that it will only buy a minimum of five (5) kgs of gold will not be beneficial to miners and LGEs and PMMC itself. Five (5) kg of gold is valued at about US$300,000 and how many LGEs have that money to buy gold. How many LGEs will stockpile gold to five (5) kg before selling and with price fluctuations in the gold trade seller will not stockpile gold before it is sold.
Meanwhile the table below show a clear picture of what government through the GRA and the Minerals Commission were making annually through withholding tax and the Small Scale Mining Sustainability Fund (SSMSF) without breaking a sweat.
Table: Data on Gold exported by LGEs from 2017 – 2022
|Period||Net Weight (kg)||Value (US$)||Withholding Tax (GHC)||SSMSF (GHC)|