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Undervalued exports of gold and cocoa from Ghana in 2011-17 amounted to US$8.8 billion

By Mark Ford on February 2, 2022

Mispricing of gold and cocoa exports from Ghana has contributed to significant tax base erosion from one of Africa’s most resource rich countries according to a new paper based on an innovative methodology for measuring abnormal pricing.

Instead of using aggregate trade statistics to measure mispricing, Abnormal pricing in international commodity trading: Evidence from Ghana uses transaction level data to build a picture that reveals that between 2011 and 2017, abnormally undervalued exports of gold and cocoa from Ghana amounted to US$8.8 billion.

Innovative methodology

In this paper, the researchers from the University of Ghana and Switzerland-based Graduate Institute of International and Development Studies sought to identify exports valued outside an assumed arm’s length price range that indicates fair market values.

Their baseline empirical approach, therefore, compares the valuation of transaction-level trade microdata with an appropriate market benchmark calculated using free-market prices adjusted for relevant product and market-specific factors identified by traders and regulators.

Using daily frequency, transaction-level data from Ghana Customs, their results indicated that abnormally undervalued exports of gold and cocoa from Ghana amounted to US$8.8 billion between 2011 and 2017 in constant prices assuming a base year of 2011 or US$4.1 billion in current prices.

Abnormal pricing

Approximately 11 per cent of exports of gold doré (which incorporate an alloy of gold and silver, and minor impurities), 1 per cent of cocoa bean exports and 7.2 per cent of cocoa paste exports appear abnormally undervalued the paper found.

It concludes that the corporate tax base erosion amounted to US$2.2 billion in constant prices assuming a base year of 2011 which corresponds to an average annual decrease of 0.3 per cent in Ghana’s tax-to-GDP ratio.

The paper by Ama Ahene-Codjoe and Angela Alu of the University of Ghana, Legon and Rahul Mehrotra of the Graduate Institute of International and Development Studies, Geneva, Switzerland and published by Elsevier on behalf of economic research centre Centre d’Etudes Prospectives et d’Informations Internationales, Abnormal pricing in international commodity trading: Evidence from Ghana can be found here.