How to reduce west Africa’s smuggling problem?
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If you're just starting your personal finance journey, Financially Inclined is exactly what you need. I'm Janeli Espinal, host of Financially Inclined, and each week we discuss money lessons you need to know. Listen to Financially Inclined wherever you get your podcasts. Welcome to Business Daily and welcome to the second of our programs looking at cross-border smuggling in Africa. Smuggling is going on.

Today, we're back in Ghana and we're looking at what the experts reckon could help to reduce the illegal trade.

Too often we see the answer being posited as almost purely law enforcement, when really we need to be looking at the economic incentives for smuggling, the price differentiations, the subsidies, the tax regimes, that can offer a slightly more sustainable approach. The economics of Africa's smuggling problem. That's here on Business Daily from the BBC. So I'm standing...

In a cattle market in a place called Wali Wali, which is in the northeast of Ghana. There's some goats ramming each other at one of their feet. Dozens of cattle. The cattle are standing around silently talking to each other. Hello. Whilst the guys debate which ones they're going to buy and trade. They bring them from the herders from the bush.

Once they bring them into the market, they sell a mid-profit. They are all into this market. Ahmed Jallo is with me. He's a journalist based in this area.

You've spoken to a lot of these people. You're hearing that there's a lot of smuggling going on. Yes, there's a lot of smuggling from Burkina Faso to Ghana, from the northeast and the upper east and the upper west. A lot of smuggling coming inside. And we heard about some of that livestock smuggling in yesterday's programme. Fuelled by war and looting to the north in neighbouring Burkina Faso, experts say that this could itself be adding to the risk of conflict in Ghana.

But livestock is just one of the illegal commodities that's being ferried across. One local man, we'll call him Abdul, he told me how routine it had been when he was young to make this a mainstay of economic survival.

As a child, we did so many things to earn a living. And one of the things I remember was helping one of my relatives to smuggle fuel across the border using donkey carts. Burkina Faso is just up the road. People would just routinely carry fuel up there.

Yes, so, you know, Burkina Faso is largely rural and there are no fuel stations there. So the best way to get fuel was to come to Ghana and buy much cheaper fuel and then transport it across the border to serve the rural communities in those areas. 14, 15. Wow, they're building more. What's this? So this is 21.

Now I suppose you might be wondering what me and a Ghanaian journalist, his name is Edward Adeti, are up to today near the border with Burkina Faso. We've already passed, what is it, three or four in the last couple of hundred metres. Here's another one. We're counting petrol stations, an awful lot of them.

How does it work then? What do they do?

Mostly they take this fuel through unapproved routes. And these unapproved routes are not really monitored because there are so many. So they take a pickup truck, they fill it with jerry cans, and then they go drive through the bush? Yes, at times they even load from filling stations direct. Those who are going to buy are waiting across the border. How much is the differential then? What's the difference between the price of fuel here and the price of fuel in Burkina?

The price in Burkina is high, higher than the price in Ghana. It's just a price difference that makes people smuggle oil from here. I'm Lucia Bird, Reef and Eat of the Lugo, Director of the West Africa Observatory at the Global Initiative Against Transnational Organised Crime. Even with a precise job title like that, Lucia Bird admits that she isn't totally sure just how much smuggling is actually going on in this part of Africa.

It's very difficult to put value on cross-border smuggling. We do, however, have data around specific sectors that gives us a pretty good indication. If we look at, for example, the gold economy, estimates suggest that around 10% of the populations of Mali, Niger and Burkina Faso could be directly or indirectly employed by just the artisanal sector of the mining industry.

And then the vast majority of gold exports from the Sahel are undeclared, particularly those from the artisanal sector.

For Burkina Faso, we think that only about 1.5% was officially recorded in 2018. That is a huge revenue shortfall for one of the most important sectors in the country. The ease at which you can smuggle gold out of the country, as well as the level of formal taxation rates, do shape smuggling ecosystems. And so, for example, across northern Ghana, we've

We see that quite a significant proportion of gold that is artistically mined in that area is smuggled north to Burkina Faso before being exported to a range of different countries. But the UAE is one of the main ones. Is the problem getting worse, do you think? Is it becoming more standard for smuggling to dominate?

It's difficult to say. It's probably more accurate to suggest that the levels fluctuate at a sub-regional level. So, for example, we typically see that where there's a border closure in the way that there is between Niger and Benin right now, or where there are sanctions imposed on particular countries, as there were against a number of the Sahelian states by ECOWAS, we often see a surge in cross-border smuggling because there are those limitations on the licit trade.

And so, for example, at the moment in northern Benin, we are seeing a surge of smuggling across the Niger River and an increase in the prices that those with boats who can actually help in the smuggling process are charging to move products across the border. Do you think that there are specific economic factors that stimulate smuggling in sub-Saharan Africa? Definitely.

And too often we see the answer to cross-border smuggling being posited as almost purely law enforcement, when really we need to be looking at the economic incentives for smuggling, the price differentiations, the subsidies, the tax regimes that can offer a slightly more sustainable approach to reducing cross-border smuggling.

But it's very complicated. And this is really illustrated, for example, by Nigeria's experience with its fuel subsidy over the last few years. Subsidized fuel from Nigeria is one of the main drivers of the fuel smuggling economy across a significant proportion of West Africa. We saw the fuel subsidy scrapped.

in May 2023. And it does seem that it had quite a significant impact on cross-border smuggling, with some estimates suggesting that this dropped by about 30%. But it caused a major backlash, so much so that in February of 2024, the government capped prices for fuel, which effectively partially reintroduced a subsidy. And estimates are that the Nigerian government spent nearly

possibly more in 2024 on the price caps than it had on the original subsidy. Lucia Bird, you're listening to Business Daily from the BBC World Service. This advertisement feature is paid and presented by Standard Bank Corporate Investment Banking. Africa's population is set to reach nearly 2.5 billion by 2050. Rapid urbanisation is transforming its cities into hubs of economic activity and innovation.

Investment in the continent's housing, transportation and digital infrastructure is essential to accommodating the world's fastest growing population. At the inaugural African Markets Conference held in South Africa, business leaders, policymakers and government representatives came together to discuss what is needed to enable this exciting time for the African continent.

Find out more about the discussion and how Standard Bank is unlocking capital at standardbank.com forward slash CIB. If you're just starting your personal finance journey, Financially Inclined is exactly what you need. I'm Janelia Espinal, host of Financially Inclined, and each week we discuss money lessons you need to know. Listen to Financially Inclined wherever you get your podcasts.

I'm Ed Butler, and in today's programme, I'm looking at how smuggling is affecting West Africa's economies, involving not just fuel and livestock, but cocoa beans, consumer goods, cattle, all of it flowing in large volumes, unmonitored and untaxed. And gold as well, as we've been hearing, which is officially Ghana's number one export. We're now walking through the bush in the forest. This is a national park up in northwest Ghana.

And there is a series of trenches, as far as I can see, going left, across. Hi there. Hello. Who is in charge here? Hi, sir. What is your name, sir? My name is Ibrahim Omar. Ibrahim runs an unlicensed mine here in the northwestern region of Ghana. Perhaps a third of the country's total gold production comes from mines like this.

How many people work on these mines? So it's seasonal, but at its peak, sometimes they are able to have close to 2,000 and 2,500 people here doing different kind of work. 2,500? What are they doing? I mean, where are they from? We would come to Upper West, the Upper East, Savannah region, Northern Gardiner.

They're all coming from northern region, savannah region. There are a few people from Burkina Faso among us doing the work. You don't have a license for this. This is not legal mining, right? We have been trying very hard to get the lances, but that has not been possible.

It's estimated that the amount of smuggled gold leaving Ghana has more than doubled over the last decade or so. And it's not just about greed on the part of the miners. They are, like Ibrahim, being driven into the informal sector because, analysts say, many officials are demanding large backhanders for selling the mining licences. Where do you sell it? Bolaga, Waa, Kumasi.

We have offices in Bolga, Wa and Kumasi. And that's where we go to sell our gold. And anytime we go there, the dealers, of course, take the taxes directly from it before they give us our money.

So there's government taxes applied to this gold? Yes. Essentially, he's saying that they sell the gold to the agents and the government will make more, even the miners themselves that are engaged in this work. And still the government does not regard them. He still sends soldiers to chase them. If the government gives them support, they'll be able to do their work. The government can also even get revenue. Wouldn't you make more money if you carried the gold over to Burkina Faso? It's only 10 kilometres away.

He's saying that they harbour a lot of fears because you are not able to go to Burkina Faso and because there are a lot of law enforcement agencies, so it's very tight. We don't sell our gold in Burkina Faso.

So, he says, but it's estimated the amount of smuggled gold has spiralled. The political and economic analyst Bright Siemens says that the big fish in this illegal trade aren't the small-scale miners themselves very often, but more senior officials. The gold that is smuggled out of Ghana tends to be to Dubai, China, India. And it's really about the fact that you have people in the customs...

in the security services that are complicit and allow some of these goods to leave the country unmanifested. There was one instance where a whistleblower identified a particular gold refinery in the UAE.

And this was an auditor for one of the big four global auditing companies. He mentioned in one instance that he had arrived at the refinery and he saw gold from Ghana in large volumes, other of about $100 million, that had not been properly declared. So that tells you this was a single refinery. And that is why I suggest there is likely complicity as far as the security service and the custom officials are concerned.

Bright-Siemens. Well, so far in these programmes, I've been describing the scale and depth of the smuggling problem in places like Ghana and by extension other sub-Saharan countries. But is there any answer to the problem? As Lucia Bird implied earlier, there might be. At least the partial lifting of the current obstacles to regular trade in Africa could make a difference. We are calling on everybody to think Africa, act Africa,

In 2018, the African Union released promotional videos like this to hail the dawn of what it called a new era, the first step towards an African continental free trade area. This is an historic moment for our continent.

The free movement of goods and people, tariff-free, across Africa would change many things. It's hoped it would boost employment, incomes, support local manufacturing and other businesses. Bright-Siemens reckons it could also help to formalise parts of what remains a chronically informal economy in most countries. But, he stresses, this isn't a panacea.

And the idea is to remove the tariff barriers so that goods can move freely through Africa. But there is a catch. The goal is not to remove these barriers so that all kinds of goods can move through, but rather that goods that are made in Africa. So essentially, the goods have to be substantially made in one of the participating countries to benefit from these free tariffs.

That therefore means that about 80% of the goods that enter an African country will not be covered by AFTAR at all. So that is an important caveat. The second important caveat is that only if you intend to move the goods through the borders officially,

Do you have to be interested in this whole after opportunity? Now, that is important because it's not just trade taxes that informal operators often want to avoid. Sometimes they want to avoid all taxes, including income taxes. And therefore, it's not in their interest to declare their business at all.

in which case they are probably not registered or if they are registered, they are not using the registered entity for all their trades. They may not be paying the right income taxes and therefore they have no interest really in bringing goods through the official channels and declaring them properly. So are you saying that yes, smuggling could be reduced by a more harmonious and broadly acknowledged and accepted and functioning free trade area?

But the obstacles are not just technical, they're also political. They're coming from politicians. Perhaps they're coming from a lack of capacity in governments to make these solutions work.

True, if you produce goods locally, fewer logistical barriers, you're moving the products over a shorter distance, and you don't have these other non-tariff barriers, you could potentially produce most of what you need locally and distribute them effectively. In which case, what is the point of smuggling? So yes, ultimately...

A free trade area that has industrialization and the making of things locally on the African continent should naturally reduce the spate of smuggling. It's just logical. The challenge, of course, is that doing all of these things, synchronizing them, sequencing them properly, requires you to operate a better government than has been the case. So all of a sudden, the matter becomes less technical and less even economic,

and highly political. It becomes a matter of governance. How do you run your societies? How do you orchestrate industrialization? And I think that is where we are. We end up going round in circles until we finally come upon the reality that we need to improve governance as a whole in Africa in order to address things like smuggling. And that's a tricky one to fix. Some would argue, of course,

African governments are somewhat addicted to the tariff revenue they do get because it's the only revenue they have. And even with this free trade area, I mean, the predictions are that in the short run, they're going to see reduced income for the revenues for the governments because and therefore perhaps reduced capacity because tariffs are going to be cut for the sake of trade.

You do have countries like Nigeria, for whom their biggest trading partners are actually next door and are not too far away from them on the African continent. In that respect, yes, the loss of Thai revenue will be significant. But we have to remember that the purpose of trade is not trading for trading's sake, but boosting economic activity should lead to other taxes picking up, income taxes, for instance.

As the old saying goes, what you lose in the fire, you may yet find in the ashes. In the short term, what one thing would you like to see change to reduce the smuggling challenge? First of all, we need to eliminate those instances where collusion is actually happening through the official channels. Essentially, we have legal smuggling. That is the easiest to stamp out.

The second thing to do is to remove unnecessary red tape that liberates bureaucracy to frustrate traders. That can be removed overnight. And that will have a huge impact. We call them non-tariff barriers. And eliminating them will have a huge impact immediately on the well-being of traders. So that is an obvious next step.

And then the last thing that can definitely happen is to consider trade finance and other support mechanisms for the trading communities. Because the reason why people use informal channels is that they are penalized for doing so and they don't see the benefits. So if there were a lot more trade finance, export finance, and if you could only assess those if you were trading formally, then my view is that a lot more people will trade formally.

And therefore, you'll be using the Kairos approach rather than the Stix approach to stamp out smuggling. The Ghanaian political and economic commentator Bright Siemens. So no easy fix. But maybe there are opportunities on the horizon as African countries battle to formalize their economies. That's it for these two editions of Business Daily looking at the challenges of smuggling in sub-Saharan Africa from me and the rest of the team. Take care.

This advertisement feature is paid and presented by Standard Bank Corporate Investment Banking. Africa's population is set to reach nearly 2.5 billion by 2050. Rapid urbanization is transforming its cities into hubs of economic activity and innovation. Investment in the continent's housing, transportation and digital infrastructure is essential to accommodating the world's fastest growing population.

At the inaugural African Markets Conference held in South Africa, business leaders, policymakers and government representatives came together to discuss what is needed to enable this exciting time for the African continent. Find out more about the discussion and how Standard Bank is unlocking capital at standardbank.com forward slash CIB.