Ghana’s Debt Crisis Versus a Gold Royalty IPO

It has been more than 60 years since Ghana first achieved independence. However, the current state of the Ghanaian economy, shaped by colonialism, faces an increasingly severe debt crisis. Many scholars believe present day neo-colonisation, taking the form of disfavourable terms of trade and the installation of a bureaucratic bourgeoisie, all contribute to the country’s struggle in achieving a degree of economic independence. Although over a decade ago Ghana had a large proportion of its debt cancelled, reducing the country’s net total from 6.6 billion USD in 2003 to 2.3 billion USD in 2006, the country is still losing around 30% of its net revenue each year from repayments, both foreign and domestic. Ghana’s mineral trade is lucrative however, and recent events have prompted the government to plan potentially the biggest natural resources share sale since 2017 on the London Stock Exchange in a bid to counter the leakage effect of its repayments.

As Africa’s largest gold producer, Ghana’s parliament is looking to raise upwards of 500 million USD from the sale of up to 49% of their equity in their largest gold royalty firm, Agyapa Royalties. Agyapa Royalties is a government-backed fund holding equity interests, including mining royalties in the state’s gold assets. Royalties companies in Ghana receive a commission of 5% of gross revenue from mining leases nationally. Agyapa, operating in somewhat of a tax-haven region, has the right to receive 76% of all royalties from 16 different local mining projects, placing it in a uniquely lucrative position. That said, royalties are only a small fraction of the wealth generated from mining activities, with the ownership of mining leases primarily being in the hands of foreign conglomerates. Poor executive decisions on borrowing and lending across the country’s other industries also means increased debt-acquired capital struggles to cover the cost of borrowing.

One of the underlying issues of the debt crisis in Ghana is the overreliance on commodities exports such as gold, accounting for 50% of the country’s annual export revenue. As the country’s economy contracts for the first time in four decades in response to COVID-19, this sale will allow the country to raise capital free of interest payments. As gold prices continue to rise, in response to increased uncertainty in the U.S. dollar, this sale comes as somewhat of a surprise as valuations for gold continue to improve. Ghana’s president, Nana Akufo-Addo has pledged that money raised from the IPO will go towards improving education, health and infrastructure. Although this is a positive announcement for Ghana, there are concerns over the legitimacy of this claim as debt-repayments loom, not to mention the allegations of government corruption that surround the West-African nation.

Critics of the sale have warned of the lack of transparency in the Ghanaian government and argue the final destination of funds remains uncertain. Researchers at the Imani think-tank (member of the Atlas Economic Research Foundation, focusing on rule of law, individual rights and human security) have stated that the Ghanaian government had undervalued their gold revenues by at least 60% last year, prompting real questions on the effectiveness and motives of Ghana’s parliament. To guarantee a prosperous future for Ghana, the government should be taking strict measures to guarantee the transparency of their financials. Revealing the origination of Ghana’s debt and the final destination of the funds is crucial in ensuring that Ghana’s future financial decisions are justified.


By William Kollard

Sector Head: Edouard Nelson


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