Ghana’s Gold Board: Avoiding the COCOBOD Trap – A Financial Professor’s Warning

Ghana’s ambitious move to establish a Gold Board to regulate and stabilize its gold sector has been met with a critical warning from an international finance expert. Professor William Kwasi Peprah, an Associate Professor of Finance at Andrews University in the United States, has praised the legislative intent but issued a stark caution: without meticulous operational design and dedicated financial buffers, the Gold Board could replicate the financial and operational struggles historically associated with COCOBOD, the Ghana Cocoa Board. This analysis delves into the professor’s core arguments, the economic principles at stake, and the actionable steps required to ensure the Gold Board becomes a pillar of stability rather than a future liability.

Introduction: A Vision at a Crossroads

Ghana, a significant gold producer, is institutionalizing its gold trade through the proposed Gold Board. The stated goal is to bring order, maximize state revenue, and insulate the domestic market from wild international price swings. However, the journey from a well-crafted law to a resilient institution is fraught with peril. Professor Peprah’s intervention, based on a detailed interview on Joy News’ PM Express, frames this not as a theoretical debate but as a practical lesson from Ghana’s own economic history. The central thesis is clear: the Gold Board’s success hinges entirely on its operational architecture, particularly its financial management tools. The absence of a specific, ring-fenced stabilisation mechanism for gold is identified as the single greatest threat to its longevity and efficacy.

Key Points: The Professor’s Core Warnings

Based on the expert analysis, the critical takeaways for policymakers and stakeholders are:

• The Law vs. Implementation: The legislative framework for the Gold Board is conceptually sound, but its operationalization presents the real risk of failure.
• The Missing Stabilisation Fund: Ghana has stabilisation funds for cocoa (COCOBOD-related) and petroleum, but gold is being treated differently. A dedicated gold stabilisation account is non-negotiable to manage price volatility.
• Understanding the Gold Price Cycle: Current high prices are driven by global “fear,” inflation hedging, and US dollar devaluation—factors that are cyclical and temporary. Planning for a downturn is essential.
• Financing Model Scrutiny: The reliance on government budgetary allocations and the potential exit of Bank of Ghana financing create vulnerability. The model of accepting advance payments from buyers must be stress-tested.
• Revolving Fund ≠ Stabilisation Fund: A common pitfall is conflating a working capital (revolving) fund with a true price-stabilisation reserve. They serve fundamentally different purposes and must be legally and financially separate.
• The Macroeconomic Risk: Failure to build buffers could devastate Ghana’s trade balance and fiscal health when gold prices inevitably correct.
• The COCOBOD Precedent: The warning is explicit: without corrective design, the Gold Board risks inheriting COCOBOD’s legacy of financial strain and operational challenges.

Background: Ghana’s Experience with Commodity Boards

The COCOBOD Legacy

To understand the warning, one must understand the reference point. The Ghana Cocoa Board (COCOBOD) has a complex history. Established to stabilize farmers’ incomes and control the cocoa sector, it has at times faced significant financial pressures. These pressures often stem from the very volatility the board is meant to manage—falling international prices combined with fixed producer prices, marketing costs, and debt servicing. While COCOBOD has also had periods of success, its financial struggles are a textbook case in Ghana of how a commodity stabilization agency can become a fiscal burden if its funding mechanisms and pricing policies are not sustainably aligned with global market realities. The professor’s warning draws a direct parallel: a gold stabilization agency without a dedicated, well-capitalized fund is prone to the same cyclical crises.

Existing Stabilisation Frameworks

Ghana is not without precedent in managing commodity revenue volatility. The country has established frameworks for other key resources:

• Petroleum Stabilisation Fund: Created to manage oil revenue volatility, saving during boom periods to smooth fiscal spending during busts.
• Cocoa Stabilisation Mechanisms: Historically linked to COCOBOD’s operations, these have aimed to protect farmer incomes and board finances from price shocks.

The professor’s argument is that gold, as a major export earner and a commodity with notoriously volatile prices, logically deserves the same institutional safeguard. Excluding gold from this paradigm is a strategic oversight.

Analysis: Deconstructing the Gold Board’s Challenge

The Three Pillars of Gold Price Movement

Professor Peprah succinctly identifies the three primary global drivers of gold prices, which form the bedrock of the risk the Gold Board must manage:

1. Fear (Safe-Haven Demand): During geopolitical tensions, economic uncertainty, or financial market stress, investors flock to gold, driving prices up. The current period is characterized by significant global instability.
2. Inflation Hedging: Gold is traditionally seen as a store of value when fiat currencies lose purchasing power. Persistent inflation fears boost gold demand.
3. Currency Movements (Forex): The US dollar and gold have an inverse relationship. When the USD weakens, gold becomes cheaper for holders of other currencies, increasing demand and price. The professor specifically notes the devaluation of the US dollar as a current key driver.

The critical insight is that all three drivers are cyclical and exogenous. Ghana cannot control global fear, inflation trends, or US monetary policy. Therefore, it must build internal mechanisms to absorb the shock when these factors reverse.

The Financing Model: Revolving Fund vs. Stabilisation Fund

This distinction is the technical heart of the professor’s warning. A misunderstanding here could be fatal.

• Revolving Fund: This is essentially working capital. It’s used for the day-to-day operational cycle: using cash to buy gold, selling the gold, and using the proceeds to buy more gold. It facilitates trade but does not protect against price falls. If gold prices drop, the value of the inventory in the revolving fund falls, potentially crippling its ability to continue operations.
• Stabilisation Fund: This is a strategic reserve, capitalized from a levy on gold sales or windfall profits during high-price periods. Its sole purpose is to intervene when prices fall below a certain threshold. It can be used to support miners’ incomes, ensure continued government revenue, or even buy gold to support the market—actions that a simple revolving fund cannot finance.

The Gold Board’s proposed model, which includes accepting advance payments from buyers, is essentially a sophisticated revolving fund mechanism. Without a separate, legally mandated stabilisation fund fed by a portion of sales revenue, the Board will have no ammunition when prices fall, leading to the “next COCOBOD” scenario of financial distress.

The Macroeconomic Domino Effect

The professor’s final warning is macroeconomic. Ghana’s trade balance and fiscal receipts are heavily influenced by gold export earnings. A sustained drop in gold prices, unmitigated by a stabilisation fund, would:

• Reduce foreign exchange earnings from gold.
• Worsen the trade balance.
• Pressure the Ghanaian cedi.
• Reduce government revenue from gold-related taxes and dividends.
• Potentially lead to fiscal adjustments or increased borrowing.

Thus, the Gold Board’s stability is not just a sectoral issue; it is a matter of national economic security.

Practical Advice: Blueprint for a Resilient Gold Board

Based on the analysis, here is a actionable framework for policymakers to heed the professor’s warning:

1. Enact a Mandatory Gold Stabilisation Fund (GSF)

The legislation must be amended or regulations issued to establish a separate, independent Gold Stabilisation Fund. Key features:

• Funding Source: A fixed percentage (e.g., 10-20%) of all gold sales revenue must be statutorily allocated to the GSF during periods when the gold price exceeds a defined long-term average or reference price.
• Management: The fund should be managed by a committee with representation from the Ministry of Finance, the Bank of Ghana, the Gold Board, and independent technical experts. Its rules should be transparent.
• Trigger Mechanisms: Clear, pre-defined rules for when the fund can be drawn down. For example, if the gold price falls 20% below the reference price for two consecutive months, the fund can be used to subsidize miner payments or government receipts.
• Replenishment: The law must mandate that any drawdown from the GSF must be repaid from future sales revenues once prices recover.

2. Legally Separate the Revolving and Stabilisation Funds

These must be separate bank accounts with separate accounting. The law must explicitly prohibit the use of stabilisation fund assets for operational (revolving) purposes. This prevents the temptation to raid the savings during non-crisis periods.

3. Secure Sustainable, Predictable Financing

Over-reliance on annual budgetary allocations is a recipe for instability, as seen with the delayed 2025 funding mentioned. The Gold Board’s core operational capital should come from:

• Initial government equity.
• A portion of its own operational surpluses (from the revolving fund) retained for capital growth.
• Potential, but carefully structured, lines of credit from development partners, not as a primary source but as a contingency.

The Bank of Ghana’s exit from direct financing should be planned and replaced with these more sustainable models.

4. Institute a Robust, Transparent Pricing Mechanism

The price at which the Gold Board buys from local miners and sells to international buyers must be transparent and linked to a verifiable international benchmark (e.g., LBMA Gold Price). This prevents perceptions of rent-seeking and builds trust among all stakeholders—miners, buyers, and the public.

5. Develop a Clear, Phased Implementation Plan

Rushing to operationalize without the stabilisation fund and secure financing is the core risk. The rollout should be phased:

• Phase 1: Legal establishment, appointment of board, design of GSF rules and pricing formula.
• Phase 2: Capitalization of the revolving fund and initial GSF seed capital from the budget.
• Phase 3: Gradual commencement of operations with a limited set of approved buyers and sellers, testing all systems.
• Phase 4: Full-scale operation only after all financial safeguards are tested and operational.

FAQ: Addressing Common Questions

What is the primary purpose of a Gold Board?

The primary purpose is to act as a central authority and counterparty in the gold sector. Its goals typically include: stabilizing local gold prices for miners, ensuring quality and standards, maximizing state revenue from gold exports, and developing the domestic gold value chain (e.g., refining).

How is a Gold Board different from COCOBOD?

Conceptually, they are similar: both are commodity boards meant to stabilize a key export sector. The critical difference must be in design. A well-structured Gold Board must learn from COCOBOD’s financial history by incorporating a legally protected, dedicated stabilisation fund for gold and a more resilient financing model that is less dependent on volatile annual budget allocations.

Why can’t the Gold Board just use its regular operating money to handle price drops?

It can, but that is a reactive and unsustainable strategy. Using operational capital (the revolving fund) to subsidize prices during a downturn drains the lifeblood of the business—its working capital. This leads to a liquidity crisis, inability to purchase new gold, and eventual collapse, which is what happened in COCOBOD’s worst periods. A stabilisation fund is a pre-emptive, saved buffer specifically for this scenario.

What happens if the Gold Board fails to create a stabilisation fund?

The most likely scenario is a severe financial crisis when global gold prices fall. The Board would face an impossible choice: pay miners less (destroying the domestic supply chain) or operate at a massive loss (depleting its capital and requiring constant government bailouts). This would trigger the “next COCOBOD” narrative of an institution that becomes a fiscal drain rather than a stabilizer.

Is the current high gold price a reason to delay creating the stabilisation fund?

Absolutely not. It is the best possible reason to create it immediately. High prices generate the windfall revenues needed to capitalize the stabilisation fund at a low cost. Building the buffer during the boom is the fundamental principle of counter-cyclical fiscal management. Waiting for prices to fall means the fund will have to be built during a recession, which is far more painful and may be politically impossible.

Conclusion: A Test of Institutional Foresight

Professor Peprah’s warning is not a dismissal of Ghana’s Gold Board project but a vital prescription for its survival. The concept is sound; the execution is everything. The historical lesson from COCOBOD is not that commodity boards are inherently bad, but that they are dangerously fragile without built-in financial shock absorbers. The creation of a legally sound, financially robust, and independently managed Gold Stabilisation Fund is not an optional add-on—it is the central pillar of the entire initiative. Ghana has a golden opportunity to get this right during a period of high prices. The choice is clear: use this providence to build a fortress for the future, or risk repeating the past. The economic stakes, as the professor outlines, extend far beyond the gold mines and into the very stability of Ghana’s trade balance and fiscal framework.</p