Gold worth $19.5bn ‘unaccounted for’
A veritable mountain of Ghanaian gold is the most likely reason for what looks like $19.5 billion (R272 billion) in unexplained illicit financial flows out of South Africa.
Earlier this year, a report by the UN Conference on Trade and Development (Unctad) made the startling accusation that almost all of South Africa’s gold had been “smuggled” out of the country between 2000 and 2014 – gold worth $113 billion in 2014 money terms.
The finding has been partially debunked a number of times and has sparked a heated debate in the international research community around illicit financial flows.
Estimates that Africa loses enormous amounts of money to the practice of export underinvoicing have become widely accepted, but the flaws in the Unctad report show how far off the mark they can be.
A counter-report commissioned by the Chamber of Mines was released this week and admits that, of the $113 billion, identifiable mistakes still cannot account for $19.5 billion in gold exports.
The report, prepared by consultancy Eunomix, says that the existence of large-scale underinvoicing cannot be discounted, but that the figures should be interrogated for alternative explanations as well.
Eunomix’s Claude Baissac, one of the authors of the report, said they wanted to do more work to clear up what could have caused the apparent $19.5 billion hole in gold exports.
“It is in everybody’s interest that these discrepancies get cleared up,” he told City Press.
The chamber told City Press that it “intends, in principle” to commission this further research.
Baissac said it is hoped that all the supposed misinvoicing identified by Unctad could be interrogated before the annual Mining Indaba next year.
A senior official from Unctad is expected to attend and the chamber evidently wants to present a comprehensive rebuttal.
The chamber’s chief economist, Henk Langenhoven, told City Press that Unctad had committed to publishing a revised version of its contentious report after the criticisms levelled against it.
“They have not informed us what the revision will contain. The chamber has supplied Unctad with a copy of the Eunomix report and has requested Unctad, in light of its erroneous findings, to reconsider its conclusions,” said Langenhoven.
HOW DO YOU FIGURE?
The Unctad estimate was arrived at by comparing declared gold exports from South Africa captured in the UN’s trade database Comtrade to the corresponding gold imports from South Africa declared by trading partners.
This theoretically allows you to measure misinvoicing – when goods are exported at less than their actual value to evade taxes.
The practice is believed to be the foremost form of illicit capital flight globally, based on a growing body of research that has many detractors and defenders.
The problem with Unctad’s report is that up until 2010, South Africa classified its gold exports as monetary, which led to them not being captured by Comtrade at all.
Trading partners declared the gold, making it look like it had all been smuggled out.
From 2011 onwards, however, South African gold exports do show up in the Comtrade database, although the destination is still not declared. This led Unctad to still count them as smuggled. The chamber’s research used readily available local data on gold exports and subtracted this from the Unctad estimates.
This turned the $113 billion into $19.5 billion.
THE GHANAIAN CONNECTION
The $19.5 billion in unexplained “underinvoicing” of gold exports from South Africa seems to have a simple explanation.
The Eunomix report could not account for a suspicious surge in gold exports from South Africa since 2012, at least according to partner data in the Comtrade database. All of it was racked up in 2011, 2012 and 2013. One of Eunomix’s hypotheses is that it relates to the re-export of foreign gold that gets refined at South Africa’s Rand Refinery – the continent’s major gold refining operation jointly owned by the major mining companies.
Re-exported gold does not show up in the chamber’s gold production statistics or in the SA Reserve Bank’s economic data for net gold exports – the sources Eunomix used to counter the Unctad data. Baissac said they had not yet tested this theory. Trade statistics, however, show that it is most likely correct. South Africa’s trade statistics, readily available from the department of trade and industry, however, do record gold imports.
Crucially, the statistics show a monumental spike in gold imports around 2012 – the year that most of the missing $19.5 billion was racked up.
In 2010, South Africa imported R54.4 billion in gold, which is slightly higher than usual. In 2011, however, this ballooned to R105 billion. In 2012, gold imports rocketed up to R150 billion. Then, in 2013, it fell back to R50 billion, and in 2014 and last year, fell back to lower levels.
The chamber says it doesn’t keep data on imports destined for Rand Refinery and can’t comment on the reason for this remarkable but short-lived surge in imports.
Virtually all of the unusual gold imports, however, come from a handful of African countries where South Africa’s major multinational gold mining companies have big operations.
Most of the gold came from Ghana, where AngloGold Ashanti and Gold Fields have mines. The second-largest amount came from Mali, where the two also have mines.
The third-largest surge in imports came form Tanzania, where AngloGold also has a mine.