Ghana to buy oil with gold instead of US dollar

Ghana's government is working on a new policy to buy oil products with gold rather than US dollars, Vice-President Mahamudu Bawumia said on Facebook on Thursday.

The move is meant to tackle dwindling foreign currency reserves coupled with demand for dollars by oil importers, which is weakening the local cedi and increasing living costs.

Ghana's Gross International Reserves stood at around US$6.6 billion at the end of September 2022, equating to less than three months of imports cover. That is down from around US$9.7 billion at the end of last year, according to the government.

“If implemented as planned for the first quarter of 2023, the new policy will fundamentally change our balance of payments and significantly reduce the persistent depreciation of our currency," Bawumia said.

Using gold would prevent the exchange rate from directly impacting fuel or utility prices as domestic sellers would no longer need foreign exchange to import oil products, he explained.

"The barter of gold for oil represents a major structural change," he added.

The proposed policy is uncommon. While countries sometimes trade oil for other goods or commodities, such deals typically involve an oil-producing nation receiving non-oil goods rather than the opposite.

Ghana produces crude oil but it has relied on imports for refined oil products since its only refinery shut down after an explosion in 2017.

Bawumia's announcement was posted as Finance Minister Ken Ofori-Atta announced measures to cut spending and boost revenues in a bid to tackle a spiraling debt crisis.

In a 2023 budget presentation to parliament on Thursday, Ofori-Atta warned the West African nation was at high risk of debt distress and that the cedi's depreciation was seriously affecting Ghana's ability to manage its public debt.

The government is negotiating a relief package with the International Monetary Fund as the cocoa, gold and oil-producing nation faces its worst economic crisis in a generation.

 

Iran-Pakistan explore ways to expand trade

In a meeting between Consulate General of Iran in Karachi Hassan Nourian and Head of Tehran Chamber of Commerce, Industries, Mines and Agriculture (TCCIMA) Masoud Khansari, the officials discussed ways of expanding trade relations between Iran and Pakistan.

In this meeting, which was held at the place of TCCIMA on Monday, important issues such as the unfamiliarity of the businessmen of the two countries with the production capabilities, goods and services of each other, the existence of some communication and commercial monopolies, the decrease in the number of business delegation exchanges due to the pandemic, and the need for cooperation in holding exhibitions as well as more attention to border crossings were raised and discussed.

Referring to the volume of trade between Iran and Pakistan, Nourian said, “Informal trade between the two countries is large, and many Iranian products are traded in the Pakistani market using national currencies; trade through third countries and even smuggling also takes place, and it is estimated that the actual trade between the two countries is much higher than what is recorded in the official statistics.”

“For a long time, establishing a barter trade mechanism between the two countries has been discussed for developing mutual trade, and in this regard, a memorandum of understanding has also been signed between Zahedan Chamber of Commerce and Quetta Chamber of Commerce and Industry, but nothing special has happened in terms of implementation, and it seems that more focus and effort should be put on this issue,” the official added.

Referring to the holding of an exhibition in Karachi in late December, Nourian called on the Iranian chambers of commerce to make the necessary arrangements for the maximum presence of Iranian companies in this event.

Khansari for his part stated that TCCIMA will take the necessary measures to ensure the presence of private sector companies in the Karachi exhibition.

He further noted that TCCIMA is going to send an official invitation to Karachi Chamber of Commerce to send a business delegation to Tehran.

Deliberations on payment mechanism in Afghanistan-Pakistan trade

During the first deliberation session on barter trade and other irritants facing Afghanistan-Pakistan trade, members from various relevant trade bodies and Chambers, the house unanimously resolved, “It is better to use banking channels for financial transactions”. 

The barter can be added as an alternative, umpteenth number of countries trade with Afghanistan and use third party payment method via international corresponding banks and face no sanctions and problems from any international agency like FATF.

These countries include CARs, Turkey, South Korea and some Far eastern countries, UAE, some European countries, China and India. The foremost action expected from State Bank of Pakistan is to discuss this with international corresponding and local commercial banks with support of Ministries and OFAC (A US Treasury sub agency) to remove barriers for Pakistan to bring in much needed foreign currency. This has been pending since a year and business community has voiced the issue at all levels.”

Later house deliberated all aspects relating to barter trade mechanism with Afghanistan and agreed that the process shall be developed carefully keeping in view the matters of credibility, integrity, efficiency, legality, government’s role, dispute resolution and arbitration, matters of sales tax refund and duty drawback, readiness of PSW, FBR, Pakistan Customs and where necessary the role of SBP to amend the needed clauses to support barter trade mechanism.

The house suggested that barter trade shall be started on trial basis for 3 months and re-evaluated for its feasibility. The matters of deficit and surplus, starting with zero rated categories like pharma and food items, relaxing and reducing duties on Afghan products to bring competitiveness with other countries like India and identification of 10 or more items initially for barter from both sides to ensure balance of trade were discussed.

To manage payments, it will require escrow account which must have multiple signatories to ensure transparency and formation of check and balance system.

Sales tax refunds and duty drawback are already a big issue in case of trade via land which will enhance in case of barter, to counter this, Jawed Bilwani, President PAJCCI, suggested to process barter trade under “Export Processing Zones” mechanism to make it better organized and easily monitored with less stress for business community.

The legality and framework for this alternate will be worked out and proposed to the Ministry accordingly. Additionally a SRO needs to be finalized prior to ensure the mechanism of Sales tax refund and duty drawbacks without further regulatory requirements else the interest of business community in this arrangement will be lost and a lucrative trading opportunity will not realize the full potential.

 

Barter trade shall only be used as alternate and shall not include products and companies which are already trading in dollars. Use of foreign exchange companies was not well received as it will increase the element of illegal payments and may fall under FATF regulations.

PSW & FBR system must have special module under this category for efficient management and to be linked with PAJCCI to reduce duplication of efforts and paper work while verifying transactions and arranging payments.

Zubair Motiwala said, “Detailed report of the session will be shared with participants, further cross border sessions will be held in coming weeks and later with Afghan side as joint session to finalize the proposal to be presented to both governments”.

He stated that PAJCCI strongly believes that using established banking procedures is preferable for trading but will use its experience to bring about viable barter trade mechanism while keeping in view all legal and practical requirements.

 

Tehran and Karachi hold joint webinar on trade expansion

Recently, Tehran Chamber of Commerce, Industries, Mines, and Agriculture (TCCIMA), and Karachi Chamber of Commerce and Industry (KCCI) held an Iran-Pakistan business forum via webinar.

During the online event, the two sides discussed expansion of economic ties and expressed readiness for the implementation of a free trade agreement between the two countries.

In this regard, Pakistan’s Ambassador to Tehran, Rahim Hayat Qureshi talked about his country’s efforts to finalize the free trade agreement. TCCIMA Head, Masoud Khansari called the agreement an important step towards the US$3 billion goal in trade relations between the two countries.

The webinar presented an opportunity to the two countries’ business owners active in various areas including energy, tourism, transportation, food, agriculture, pharmaceutical, health, clothing, textile, and leather to share ideas and explore collaborative capacities.

Speaking in the event, Khansari pointed to the barter trade as a good solution for the current problems in the way of expanding the trade relations between the two sides and noted that the two sides are working on the matter.

He announced the formation of a joint working group between the private sectors of the two countries to identify obstacles and challenges in the way of trade between the two countries and to eliminate them.

“By establishing dialogue and sharing solutions by the private sectors of the two countries, achieving the US$3 billion trade will be possible,” Khansari stressed.

Strengthening the transport infrastructure between the two countries, using the two countries’ national currencies for trade, forming joint ventures for establishing industrial parks in border areas, and finally establishing joint banks were among the solutions offered by the head of TCCIMA for boosting trade between the two sides.

Referring to the opening of the new border between Iran and Pakistan last week, the Pakistani ambassador for his part noted that the governments of the two countries are working to establish more common borders and border markets in the future.

Pakistan has a relatively large consumer market with a population of over 200 million. According to the World Trade Organization, imports constitute over 66 percent of Pakistan’s trade.

Expansion of trade with Pakistan, and boosting exports to this neighboring country is one of Iran's priorities.

Iran to promote barter trade for boosting exports

Iran aims at implementing ‘oil for goods’ barter trade program. Under this program country’s private and government owned export companies will be given oil to sell to potential buyers and import basic goods in return.

The details of this plan were announced by the Oil Minister Bijan Namdar Zanganeh in a joint meeting with the Governor of the Central Bank of Iran (CBI) Abdolnasser Hemmati, the Industry, Mining, and Trade Minister Alireza Razm Hosseini, and the Agriculture Minister Kazem Khavazi.

In the meeting, Zanganeh informed that President Hassan Rouhani has accepted the proposal to create a Single Window System to carry out all the necessary processes for the mentioned program, adding: "We will start operations next week.”

CBI Governor Hemmati also supported the idea and announced plans for increasing the use of oil for goods agreements between Iran and other countries.

"The use of barter exchanges of oil for basic goods needed by the country will be expanded along with current methods of trade, to increase the volume of foreign trade and for a better usage of domestic production facilities," Hemmati wrote in an Instagram post.

To disseminate more details on the matter, the Tehran Times conducted an interview with the Secretary of Iranian Oil, Gas and Petrochemical Products Exporters' Union (OPEX) Hamid Hosseini.

According to Hosseini based on the Oil Ministry decision, several capable candidates among the country’s top export companies will be chosen after assessments by the mentioned ministry and the Industry, Mining and Trade Ministry, and will be authorized to use the mentioned single window system to export oil in exchange for importing the country’s necessary commodities.

“The government should provide the export/importers a list of the country’s needed commodities and allow them to export goods (in this case oil) provided that they import only the commodities determined by the government,” Hosseini explained.

Iran has experience in this regard and this barter trade program has been used several times in the country, for instance, a program exactly like the one recently proposed, was implemented in the Iranian calendar year 1370 (started in March 1991), the official added.

“In the program implemented that year the government allowed traders to export whatever goods they could manage but expected them to import only the commodity items specified by the government,” he explained.

In the current scheme, the government has started with crude oil at the first stage, and traders are only supported to export crude oil in exchange for other commodities, according to the official.

Hosseini noted that the supply of essential goods and raw materials required by the production sector is the government's priority in the mentioned barter agreements.

Underlining the CBI governor’s remarks on the matter, he noted that barter trade has been, for long, a way to deal with sanctions while developing the countries' foreign trade.

It should be noted that Iran is already exporting significant amounts of oil despite the US sanctions and other external problems like the pandemic.

The latest reports on Iran’s oil exports indicate that the country increased oil exports sharply in September in defiance of the US sanctions.

Data from Tanker Trackers and two other firms indicated exports were rising in September, although the figures fall into a wide range of between 400,000 bpd and 1.5 million bpd, Reuters reported.

It is expected that this method, along with other ways of exporting oil, which the country is currently using, would increase Iran’s foreign trade significantly in the near future.