The ugly side of the Africa-UAE (United Arab Emirates) gold trade: Gold export misreporting and smuggling

Abstract

United Arab Emirates (UAE) has become one of the major world's gold hubs and sources most of its gold from Africa. This paper examines the magnitude and patterns of gold export misreporting in the Africa-UAE gold trade. Africa-UAE gold trade is found to be characterized by overwhelming misreporting and smuggling. The most common practice is found to be gold export underreporting. To examine the drivers of gold export misreporting in the Africa-UAE gold trade, a dynamic panel data model was estimated. The estimation results indicate that export tax, the gold price, and institutional factors are the main drivers of gold export misreporting in the Africa-UAE gold trade. The drivers of pure gold smuggling are found to be the gold price and real exchange rate. The results indicate also that both gold export misreporting and smuggling exhibit some persistence behavior. The findings of this study point to improving African countries' institutions to reduce the extent of gold export misreporting in the Africa-UAE trade. Export tax rate can also be reduced to lower the incentives of gold export underreporting. African countries can also work towards harmonizing the regulatory frameworks concerning gold trade, to curb gold smuggling across African countries. UAE has a major role to play in deterring gold smuggling from Africa; export documents and proof of payment of export taxes from the exporting countries, should be required from those hand-carrying gold as they declare their gold to customs officers in Dubai.