EXPLAINER: How has Bawumia's 'game-changing solution' to cedi depreciation fared?

The year 2022 has undoubtedly been one of the toughest years economically for Ghana, with many of the country’s economic indicators hitting unprecedented lows.

Many economists attributed the meltdown of Ghana's economy in 2022 to the depreciation of the country's currency, the Ghana cedi, which they say was the cause of the continuous increase in the prices of fuel products and other goods and services.

So basically, the solution to Ghana's problems was reducing the country's demand for foreign exchange. But the use of monetary policies by the Bank of Ghana to attain this objective did not work as the cedi continued to depreciate throughout the year.

Then came the idea of using Ghana's gold for the purchase of oil, proposed by the head of the country's Economic Management Team, Vice President Mahamudu Bawumia. The purpose of this policy was to reduce the demand for foreign currency (particularly the US dollar) caused by the importation of oil products.

But not every Ghanaian accepted the Gold-for-Oil policy, with some saying that it is a way the government wants to reintroduce its rejected Agyapa Royalties deal, which sought to collateralise Ghana’s mineral resources.

The article takes a look at what this "Gold for Oil" policy is and why some experts are against it.

The Gold-for-Oil policy

Vice President Mahamudu Bawumia in November 2022 first announced the government’s plan to undertake the Gold-for-Oil initiative. The deal hinged on buying oil products with Ghana’s gold instead of the US dollar.

Dr. Bawumia explained on Facebook that using gold to buy oil would help Ghana's dwindling foreign reserves while also reducing demand for US dollars from oil importers.

“It will fundamentally change our balance of payments and significantly reduce the persistent depreciation of our currency,” the vice president wrote.

Under the policy, the government believes that using gold to purchase oil products would also bring stability to the exchange rate market and ensure domestic oil operators do not solely depend on foreign exchange to import products.

The government, through the Bank of Ghana (BoG), is expected to purchase gold from mining firms in Ghana. The BoG will then use the gold through 3rd parties to purchase the oil on behalf of bulk oil distributors in the country and thus eliminating the use of foreign currencies by these oil distributors to import their products.

The move is expected to save the nation $400 million which is required by bulk oil distributors to import oil products into the country every month.

Concerns raised on the feasibility of the policy:

Some experts in the oil and gas sector, including the former Deputy Minister for Energy, John Abdulai Jinapor, have raised issues about the feasibility of the policy.

In a Facebook post sighted by GhanaWeb, Jinapor described the government’s Gold-for-Oil policy as nothing less than a farce.

The former deputy energy minister, who is the current Member of Parliament for Yapei Kusawgu, said that the policy, just like the government’s Sinohydro deal, will eventually end up on the nation’s accounting debt.

The current deputy energy minister, Andrew Egyapa Mercer, who is reported to have said that the first consignment of oil the government brought into Ghana under the Gold-for-Oil policy was not paid for with gold as expected, has also raised concerns about the feasibility of the policy.

Egyapa Mercer is reported to have said that the government could not exchange gold for oil because the company it dealt with initially could not exchange gold for oil.

“The policy actually started with an intent to do strict barter for gold and petroleum products, but it became apparent that any of the international oil trading companies that do not have a commodity wing to deal with gold on their behalf will be excluded from the policy.

“We developed the policy such that we were operating two streams; one was direct barter and the second was monetising the gold so we can pay for IOTs that were not other commodity focused but solely petroleum products,” he is quoted as having said on Citi News.

Issues of transparency:

Another concern some experts in the oil and gas sector have raised is the issue of transparency.

Even though Vice President Mahama Mahamudu Bawumia has said that delivery of the first 40,000 batch of oil under the Gold-for-Oil policy shows that it will work, the exact quantum of gold used in the transaction has not been disclosed by the Bank of Ghana.

The Executive Secretary of the Chamber of Petroleum Consumers Ghana (COPEC), Duncan Amoah, has asked the government to be open about the real details of the Gold-for-Oil policy.

According to him, the government must be clear on whether it is using public funds to purchase the fuel or not.

“I think after this revelation, the ministry of energy, ministry of finance, Bank of Ghana, the government itself should come clean and tell Ghanaians that, look we are going to use your public funds to now go into the realm or arena of forex trading… We do think that whatever details or the nitty-gritty of the gold-for-oil policy should be communicated so that we all depart from this gold-for-oil mantra and deal with the reality of the issue,” he was quoted by citinewsroom.com.

Legitimacy of the policy:

The co-chair of the Ghana Extractive Industry Transparency Initiative (GhEITI), Dr Steve Manteaw, has raised issues about the legitimacy of the Gold-for-Oil policy.

According to him, since the government is directly involved in the policy, it should have gotten parliamentary approval before implementing it.

“… we will be trading with a third party, rumours also say that the first tranche of the 40,000 (tonnes) is a Russian company that brought the money, which means that, there’s going to be an agreement between the company and the nation.

“And such an agreement is an international transaction and per the Constitution’s Article 181, such deals need parliamentary approval.

“Also, the person who will be supplying the petroleum product to Ghana will go through some level of agreement and such trading agreement needs parliamentary approval,” he said in an interview on Neat FM monitored by GhanaWeb.

Alex Mould, a former Chief Executive Officer (CEO) of the Ghana National Petroleum Corporation (GNPC), has also raised similar concerns.

Issues of criminality:

Issues of criminality have also been raised regarding the implementation of the policy.

Dr Steve Manteaw questioned the source of the money the government will be using to implement the policy.

According to him, the God-for-Oil policy was not stated in the 2023 budget, therefore, questions must be raised as to how the Bank of Ghana intends to come up with the money to purchase the gold it will be used for the policy.

“I don’t know if parliament is sleeping or what, because parliament needs to invite those leading the process to interrogate them in parliament so that if there are any policy documents, they can take and investigate properly into the deal because we’re tired of corruption activities in this country,” he said.

IB/BOG