An African country resorts to bartering gold for fuel with a Gulf oil company

Ghana is in talks with “ENOC” company UAE, on a barter arrangement that will enable the West African country to buy fuel with gold.

Vice President Muhammadu Baumea’s economic advisor, Kabiru Mahama, said the government had reached an “interim” agreement with the UAE oil company.

This comes as Ghana, Africa’s second largest gold producer, last week ordered large mining companies to sell 20% of the metal it refines to the central bank as of January 1, as it builds up bullion reserves to use in fuel imports and reduce demand for dollars. After its currency fell by 57% this year, according to “Bloomberg”.

“We are open to all interested international oil trading companies,” Mahama said in a phone interview on Friday. He added, “As of next October, all our oil products needs will be replaced with gold.”

The Ghanaian cedi was the worst performing currency in the world this year, fueling inflation and depleting the country’s foreign exchange reserves. Meanwhile, the government of President Nana Akufo-Addo, which has lost access to international capital markets this year due to ballooning debt and loan servicing costs, plans to require international bondholders to accept losses on their investments to pave the way for a bailout from the International Monetary Fund.

In turn, Bank of Ghana head of financial markets, Steve Obata, said in an interview on Monday: “ENOC is interested in providing us with refined oil in exchange for gold.”

He added, “Depending on the quantities they commit to giving us, we will give them the equivalent in gold. This is a government-to-government programme.”

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Ghana spends about $10 billion annually on imports, 48% of which is spent on fuel purchases. The government expects the gold swap for refined crude to help rebuild total international reserves, which fell to $6.7 billion at the end of October, enough to cover just 2.9 months of imports, from $10.8 billion a year earlier.

The currency drop accelerated inflation to 40.4% in October. That prompted the central bank to raise borrowing costs by 250 basis points to 27%, the highest level in more than 19 years.

The Bank of Ghana will purchase gold from mining companies in Sidis. Ghana started buying gold last year – for the first time in 60 years – to boost its foreign exchange reserves.

“If we implement it according to our vision, it will fundamentally change our balance of payments,” Baumea said in a Facebook post. He pointed out that the demand of oil importers for the dollar “in the face of dwindling foreign exchange reserves leads to a decline in the value of the cedi and an increase in the cost of living with the rise in fuel, transportation and utilities prices.”

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