In this post, the Ghana-based economics researchers present their experiences over the period 2017-20. Dr. Ama Asantewah Ahene-Codjoe and PhD candidate Angela Alu worked collaboratively with project coordinator and lead researcher, Dr Rahul Mehrotra at the Graduate Institute, Geneva to analyze and estimate illicit financial flows via trade misinvoicing in the export of Ghana’s top commodities (gold and cocoa beans). The researchers adopted an innovative, interdisciplinary approach comprised of qualitative, political economy analysis to identify inherent risks for IFFs in selected commodities before applying statistical price filter methods based in turn on legal transfer pricing guidelines for conducting arm’s length price analysis. This blogpost presents a summary of the Ghana team’s research findings, alongside an overview of the main challenges faced and solutions adopted.
Cross-border illicit financial flows (IFFs) via misinvoicing of international trade have been a challenge for resource-rich developing countries aiming to increase domestic resource mobilisation to finance their Sustainable Development Goals. However, there is a lack of empirical analyses of the magnitude and channels of trade misinvoicing from developing countries. In our paper, we identified trade-based IFF risks in the Ghanaian gold and cocoa sectors before using transaction-level data on commodity exports to provide novel evidence of abnormal pricing, which is defined as the magnitude of trade valued outside an estimated arm’s length price range. We found that the undervalued export for gold equaled 10% of its total export value between 2011 and 2017. Similarly, we estimated that 1% of cocoa beans and 7.2% of cocoa paste exported within the same period were undervalued. These findings corroborate our analysis of the IFF risks in each industry as well as the limited existing evidence via commodity trading from Ghana (see Ahene-Codjoe, Alu and Mehrotra, 2020).
Delays in data acquisition was our first major challenge. The use of transaction level data from the Customs Division of the Ghana Revenue Authority (GRA) was one of the key aspects of the quantitative data needed for generating the abnormal pricing estimates. The data acquisition process begun with a letter to the Commissioner-General of GRA, followed up with several visits to the GRA headquarters to trace the progress of the letter from the Commissioner-General’s office till its arrival at the Policy and Programmes Unit of the Customs Division; the unit with the data. The delay slowed down the WP1 research. However, the team focused on other aspects of the research, including the political economy as well as building a network with the major players in the industry, whilst waiting for the data to be released.
The team also faced challenges in securing interviews with officials of stakeholder institutions for the qualitative data needed to guide our estimations and/or validate our findings. Sometimes meetings had to be rescheduled due to the absence of needed officials. Nevertheless, constant communication with the vital officials by the team was upheld. Again, there was a challenge with the number of institutions that had to be visited and the distances between these institutions. Managing to schedule visits to the stakeholder institutions on the same day curtailed incessant travels, saving time.
Another challenge the team encountered was in the method of estimating abnormal pricing in the cocoa beans sector. Initially the team utilised spot prices from the Ghanaian Cocoa Ex Dock NY Prices as the market reference price to generate the estimates. However, the feedback received after presenting the research to personnel of Ghana Cocoa Board (COCOBOD) was that the requisite market reference price is the prices listed on the London International Futures and Forwards Exchange (LIFFE). This is due to sales of Ghana’s cocoa beans using forward contracts. The team had to visit the Trading Room at the Cocoa Marketing Company (CMC) to better understand the trading system used. The estimates were redone based on the new information acquired and current estimates to a large extent reflect the situation pertaining to the export of cocoa beans from Ghana.
Furthermore, there was an issue raised about the purity of gold as used for the estimates of abnormal pricing in the export of gold from Ghana by the Ghana Chamber of Mines. To address this, an external database that provided a breakdown of the purity levels of gold from various mines in Ghana was used. This breakdown aided the team in better setting the boundaries for the market price filters.
Insights and Conclusion
Lessons learnt from the project include the need for collaboration in research for development to ensure that the insights gathered by researchers and the inferences made accurately reflect the situations that pertain in the country.
Also worthy of mention is the co-operation with the team in Switzerland that provided very important inputs for the Economics team in Ghana. Access granted to some databases such as the Thomson Reuters Datastream is much appreciated. Also, guidance in the intricate computer programming languages used for our analysis and regular skype meetings provided quick feedback and an opportunity to discuss research progress and brainstorm potential solutions to obstacles faced. These indeed aided a smoother work delivery within the proposed period of the work plan.
The team is very appreciative of the time and contributions from the overall leader of the research project, Prof. Gilles Carbonnier and Dr. Rahul Mehrotra (the project coordinator) – both of the Graduate Institute of Geneva; the leader of the Ghana team, Dr. Fred Dzanku of the Institute of Statistical Social and Economic Research (ISSER); Dr. Steve Manteaw of Integrated, Social Development Centre (ISODEC); Mr. Christopher Opoku Nyarko of the Ghana Chamber of Mines; Mr. Amponsah Tawiah, formerly of Ghana Minerals Commission and Mr. Richard P. Yawutse, formerly of the Customs Division of the GRA.
We are also grateful to the officials of the various stakeholder institutions such as COCOBOD, the Ghana Chamber of Mines, the Minerals Commission, the Bank of Ghana, Precious Minerals Marketing Company, the Financial Intelligence Centre and Customs Division of the GRA. Their contributions were very important for understanding the commodities, the risks for IFFs and the setting of the price filters for the market reference prices. Overall, the WP1 team in Ghana is very appreciative of the support received from all stakeholders.