Ghana’s strategy of paying premium prices for gold to combat smuggling could backfire spectacularly, transforming the country into a regional hub for illicit gold trade rather than solving the problem it aims to address.
This warning comes from Benjamin Boakye, Executive Director of the Africa Center for Energy Policy (ACEP), who argues that offering higher gold prices than neighbouring countries creates dangerous incentives that could worsen both gold smuggling and foreign exchange problems.
His analysis, published this week, challenges the government’s justification for the Bank of Ghana’s (BoG) controversial gold purchasing programme.
The core concern centres on how smugglers respond to economic incentives across borders. ACEP research shows that artisanal and small scale mining gold has historically moved toward jurisdictions with lower export charges throughout West Africa due to weak enforcement. By positioning itself as the highest paying destination, Ghana has inadvertently reversed this flow.
Rather than keeping Ghanaian gold within national borders, the premium pricing policy risks attracting gold from neighbouring countries to be sold locally, with payments made in cedis, converted into foreign exchange, and illegally repatriated. This transformation poses a dual threat to the economy.
What begins as a gold smuggling challenge rapidly mutates into a foreign exchange smuggling crisis. Premiums paid in cedis get converted into foreign exchange and illegally repatriated, increasing pressure on the currency and compounding losses on the central bank’s balance sheet. Without intervention, Boakye warns, the macroeconomic consequences could prove severe in the near term.
The situation mirrors Ghana’s cocoa smuggling problem, where domestic cocoa crosses into neighbouring countries seeking higher prices. The gold premium policy essentially creates the reverse scenario, pulling precious metals across borders into Ghana.
ACEP and JoyNews investigations have demonstrated how gold exits Ghana through airports with involvement from state officials, revealing that smuggling networks operate openly within the sector. Boakye argues that smuggling stems from weak enforcement and official complicity, not insufficient financial incentives for miners.
The policy’s fundamental flaw lies in attempting to solve a governance failure through financial compensation. Instead of strengthening regulatory enforcement and tackling corruption, the government rewards illegal operations with premium payments.
Producers themselves rarely engage in smuggling; the appropriate response should target enforcement, not additional payments.
Ghana’s small scale gold sector presents particular concerns. In 2024, Ghana generated approximately 18 billion cedis from mining, with 98 percent coming from large scale operations despite these mines producing only about 45 percent of total gold output. This disparity reveals massive revenue leakage from the small scale sector.
Had Ghana applied minimum legal fiscal requirements, royalties alone would have generated roughly 330 million dollars from small scale gold. With taxation at half the rate applied to large scale mining, total fiscal take could have reached about 800 million dollars.
Instead, the country forfeits these revenues while absorbing the International Monetary Fund reported 214 million dollar trading loss from the Bank of Ghana’s gold programme.
The premium pricing policy creates additional foreign exchange market distortions. By monopolizing gold sector foreign exchange inflows, the central bank deprives commercial banks of direct dollar flows that historically helped moderate pressure on reserves and supported market liquidity.
This forces the Bank of Ghana to inject billions of dollars into markets to maintain currency stability, creating what Boakye describes as a self reinforcing policy loop.
Beyond economic damage, the situation threatens Ghana’s international reputation. The country risks becoming known as a clearing house for both illicit gold and illicit foreign exchange simultaneously.
Boakye’s analysis comes amid widespread public enthusiasm over the cedi’s unprecedented recent performance. He cautions against attributing currency stability solely to the gold purchase programme, noting that record high global gold prices, rising production from new mines like Namdini and Ahafo North, and incremental fiscal improvements all contributed significantly.
The policy’s timing during a commodity boom cycle particularly concerns analysts.
Ghana experienced severe fiscal stress during the 2014 to 2015 downturn when oil and gold prices declined sharply. If the system books losses during boom conditions, consequences during future downturns could prove catastrophic.
ACEP calls for urgent policy reversal anchored in credible oversight, strict enforcement of existing laws, and unambiguous commitment to securing the state’s rightful mineral revenues.
The organization recommends discontinuing premium payments, strengthening regulatory compliance, and ensuring small scale operators meet fiscal obligations as conditions for retaining mining licenses.
Without decisive government action including tightened border controls and fundamental policy reconsideration, Ghana faces the prospect of becoming a regional entrepot for illicit precious metals trade, undermining both monetary policy and economic stability.
