Ghana Seeks to Shift From Dollar to Purchase UAE Fuel With Gold, Officials Say

Ghana, known in colonial times as Africa's Gold Coast, is the continent's second-largest gold producer. The West African country spends around $4.8 billion (48% of its import expenses) every year on fuel.

The Ghanaian government has plans to exchange gold for fuel provided by Emirates National Oil Co. (ENOC) with a “tentative” agreement being reached with the Dubai-based state petroleum company, declared Kabiru Mahama, an economic adviser to the Vice President of Ghana.

The West African state seeks to stabilize its economy by reducing demand for dollars after the cedi, the Ghanaian currency, fell by 57% in 2022. The plunge led to a 40.4% rise in inflation in October, with the cost of living increasing alongside fuel prices. Ghana's central bank raised borrowing costs by as many as 250 basis points to 27%, which had not happened in almost 20 years.

The crisis caused a yearly decrease in the country's international reserves from $10.8 billion to $6.7 billion at the end of October 2022. This money is only enough to cover 2.9 months of oil imports to Ghana.

To refill the shrinking reserves, the Ghanaian government began buying gold last year – for the first time since the 1960s. Recently, the country's government issued an order, according to which large mining companies must sell 20% of the gold refined to the central bank for cedis from January 1, 2023. The state is creating reserves for securing imported fuel.

“We’re open to any international oil-trading company that is interested,” Mahama told media, adding: “Starting next October, all our oil-product needs would be swapped for gold.”

According to Ghanaian officials, Dubai, a known center for exchanging gold, is willing for the barter the deal.

“ENOC is interested in giving us refined oil for gold,” Steve Opata, head of financial markets at the Bank of Ghana, told media on Monday. “Depending on what quantities they are committed to giving us, we will give them the equivalent in gold. This is a government-to-government program,” he said.

In a Facebook post, Ghanaian Vice President Mahamudu Bawumia explained the importance of the barter decision.

“If we implement it as envisioned, it will fundamentally change our balance of payments,” he said, noting that oil importers' demand for dollars “in the face of dwindling foreign-exchange reserves results in the depreciation of the cedi and increases in the cost of living with higher prices for fuel, transportation and utilities.”

Recently, the International Monetary Fund reduced Ghana's projected growth rate for 2022 from 5.2% to 3.2%. The inflation problem aggravates the country's debt crisis. The state has 30% interest rates as well as a 35% lending rate, both indexes are the highest in Africa. Ghana plans to negotiate with international bondholders on investment loss acceptance and then arrange loans from the IMF in exchange for a set of economic recommendations.

The world energy crisis has had an especially negative impact on developing economies, with oil rising in price more than 10% since the beginning of 2022 and the price of US dollar (particularly used in fuel trade) also increasing by more than 10% due to the US Federal Reserve tightening its monetary policy.

The Western sanctions against Russia, risks of secondary sanctions as well as the Russian oil price cap are other factors which complicate logistics and settlements, forcing developing countries to compete with developed ones for the energy supplies coming outside of Russia.

Ghana's decision on barter comes as part of a de-dollarization trend in world trade, with Iran already supplying Venezuela with petroleum products, light oil, gas condensate as well as refinery equipment in exchange for gold.