Via ScienceDirect, a new journal article examining the ugly side of the Africa-UAE (United Arab Emirates) gold trade: gold export misreporting and smuggling.

Introduction

Several African countries are gold producers, the leading gold producers in Africa currently being Ghana, South Africa, Sudan, Mali, and Burkina Faso.¹ For some countries, gold accounts for a considerable proportion of their export revenues. For instance, in Mali, in 2021 gold accounted reportedly for 80% of the country’s total exports, and for nearly 10% of its GDP.² In Ghana, gold contributes over 90% of total mineral exports and accounts for nearly half of the country’s total export value.³ A few countries have long been destinations of gold exports from around the world, including among others, the USA, Switzerland, China, Hong Kong, and the United Kingdom (UK). A new player, the United Arab Emirates (UAE), has emerged recently in the world’s gold trade. While two decades ago, UAE was not even among the world’s top one hundred gold-importing countries (Blore and Hunter, 2020), today it has become one of the world’s major gold trading hubs and has since attracted gold from all over the world. From a total gold import value of $ 36.8 million in 2000, it reached $ 48.2 billion in 2021. The problematic thing however with UAE’s gold imports is the source of its gold. Traditionally, gold importers usually follow some standards regarding the source of gold and how it was produced, they mind whether gold originated in a conflict-affected or high-risk country or if it is associated with gross human rights violations. However, UAE follows few of these standards; there is little or no scrutiny on the origin of gold entering UAE (Blore and Hunter, 2020). According to World Integrated Trade Solutions (WITS), in 2021 UAE imported 970.4 tons of gold from 110 countries, mainly located in Africa, South America, or South Asia. Most of the imported gold is more likely to be from artisanal and small-scale gold mining (ASGM) given the origin (Blore and Hunter, 2020). UAE is the major destination of gold from Africa. For instance, in 2021, out of the 970.4 tons of UAE’s total gold imports, 57.0% (553 tons) were sourced from Africa. Among the top 11 countries where UAE sourced its gold in 2021, 9 are African countries (Mali, Sudan, Niger, Guinea, South Africa, Uganda, Zimbabwe, Ghana, and Tanzania), some of them are armed conflict-affected countries. As Blore and Hunter (2020) point out, gold from ASGM is usually linked with illegal armed groups and gross human rights violations, in conflict-affected countries. It is reported⁴ for instance that Uganda recently apprehended a cargo ship containing 2 tons of gold which belonged to one of the rebel groups operating in the Great Lakes region. Even in relatively politically stable countries, ASGM is characterized by weak or absence of government oversight, illegal exportation, and smuggling. Since little or no checks are done to verify the origin of gold, UAE becomes the destination choice for conflict and smuggled gold, receiving hence gold of dubious origins. The dirty gold is then laundered through refineries to become UAE’s gold. The refined gold bars are thereafter exported to other world’s gold hubs as UAE’s gold (Blore and Hunter, 2020). According to Interpol (2021), gold smuggling key facilitators include among others, fraud, weak law enforcement, corruption, and disparate regulatory frameworks. Fraud involves forging or falsifying documents which modify the origin of the gold or under-declare it, while corruption of law enforcement officers facilitates gold smuggling at the borders and airports.

With smuggling and illegal exportation characterizing much of the Africa-UAE gold trade, discrepancies are to be expected in the volumes and values of gold trade as reported by UAE and its African trading partners. Thus, large discrepancies have recently been reported⁵ in the gold trade as reported by UAE and its African trading partners. However, there is currently no study that puts a figure on the magnitude of this illicit practice, and what could be driving it. The classic motive of trade misinvoicing is often to evade taxes, duties, or capital controls, but it can also be a trade-based technique for smuggling or money laundering (The Economist, 2014).⁶ According to UNCTAD (2016), the costs related to trade misinvoicing include lost foreign exchange, lost tax revenues, and unfair distribution of the gains from trade.

There exist several studies that examined aggregate trade misinvoicing in Africa (see for example, Ndikumana and Boyce, 2012; de Boyrie et al., 2007). However, even those that analyzed trade misinvoicing at a disaggregated level (see for example, UNCTAD, 2016) rarely focus on a single important commodity like gold. Moreover, to suggest ways of reducing the misinvoicing in the UAE-Africa gold trade, there is need to examine its drivers. Several factors can drive trade misinvoicing according to existing evidence; these include economic uncertainties, political instability and wars, capital controls, high taxes and tariffs, and institutional factors (see for example, Buehn and Eichler, 2011; Patnaik et al., 2012). However, factors driving misinvoicing in the UAE-Africa gold trade remain unknown. This study therefore seeks to shed light on gold export misinvoicing in the UAE-Africa trade by estimating the magnitude and examining the factors driving the phenomenon. In addition, given the prevalent reported phenomenon of gold smuggling from Africa to UAE (Blore and Hunter, 2020), this study seeks also to examine the drivers of gold smuggling from Africa to UAE, captured by the instances where gold export was not recorded at all at the African country of origin, while UAE reported gold imports.

This study hypothesizes that financial incentives through tax fraud and gold price are key drivers of gold export misreporting and smuggling, and that increased governance would reduce gold export misreporting and smuggling.

The rest of the paper is structured as follows; Section 2 presents some stylized facts regarding Africa-UAE gold trade; Section 3 gives the literature review; Section 4 presents the methodology; results are presented and discussed in section 5; and Section 6 concludes the study.

Section snippets

Africa-UAE gold trade: Some stylized facts

Table 1a, Table 1ba and 1b shows the most significant African sources of the UAE’s gold imports in the recent period (2010–2021). One can notice that UAE sources its gold from several African countries, irrespective of the status of country of origin, conflict-affected, high-risk country or not. Since gold originating from conflict-affected countries is usually associated with rebel groups’ movements and gross human rights violations, gold trade is subject to some standards; the origin matters

Literature review

The empirical literature on the drivers of export misinvoicing is scanty. The potential drivers found in the empirical literature include parallel market premium, capital account liberalization, tax on income and profits, tax on exports, real exchange rate, and per capita income (see for instance Buehn and Eichler, 2011; Patnaik et al., 2012). A higher parallel market premium is expected to increase the amount of export underinvoicing, and decrease export overinvoicing (Buehn and Eichler, 2011

Methodology of estimating trade misinvoicing

Trade misinvoicing is an old phenomenon. Bhagwati (1964) discovered that there were discrepancies between the amounts of imports reported by a country and exports reported by its trading partners. According to Ayogu (2019), the discrepancies in some instances have been so large and persistent that they cannot be merely attributed to data recording errors. In this study, the amount of gold export misinvoicing is estimated using mirror data, by comparing gold exports to UAE (in values) as

Magnitude of gold export misreporting in the Africa-UAE trade

Analysis of gold trade between Africa and UAE indicates substantial discrepancy between gold exports to UAE reported by African countries and gold imports from Africa reported by UAE. For some years, there seems to be even pure smuggling, in that gold export was simply not recorded at all at the country of origin, while UAE reported gold imports. As UNCTAD (2016) notes, high-value products such as gold may be more vulnerable to misreporting and smuggling, especially when it is from artisanal

Conclusion

United Arab Emirates (UAE) has become one of the major world’s gold hubs. From a total gold import value of $ 36.8 million in 2000, it reached $ 48.2 billion in 2021. UAE sources most of its gold from Africa. For instance, in 2021, 57 % of UAE’s total gold imports were sourced from Africa. This paper examines the magnitude and patterns of gold export misinvoicing in the Africa-UAE gold trade. Africa-UAE gold trade is found to be characterized to a greater extent by misreporting and smuggling.

Ethical statement

This study is the author’s own original work, and is not currently being considered for publication elsewhere.

Statement of informed consent

There are no human subjects in this article and informed consent is not applicable.

Data statement

The data on Africa-UAE (United Arab Emirates) gold trade used in this study, were obtained from the UN-COMTRADE database of the United Nations Conference on Trade and Development (UNCTAD).

CRediT authorship contribution statement

Arcade Ndoricimpa: Conceptualization, Data curation, Formal analysis, Investigation, Methodology, Project administration, Software, Validation, Visualization, Writing – original draft, Writing – review & editing.

Declaration of competing interest

None.

Acknowledgements

This paper was written when the author was an Iso Lomso fellow with the Stellenbosch Institute for Advanced Study (STIAS), Wallenberg Research Centre at Stellenbosch University, in South Africa. The author would like to thank STIAS for the fellowship.