Addis Ababa, August 21, 2016 – The National Bank of Ethiopia (NBE) has introduced an amended directive, effective today, aimed at revising the pricing mechanism for gold purchased through its central and regional procurement branches. The new guidelines, detailed in Guideline No. Mada 2/2016, are designed to enhance the sustainability of gold supplies and maximize the country’s foreign currency earnings from the traditional gold production sector.
Key Changes in the Gold Pricing System
Under the revised directive, the purchase price of gold will now be directly linked to the daily selling rate of foreign currency, as published on the NBE’s official website. This move is expected to align gold transactions more closely with real-time market conditions, offering a more transparent and competitive environment for gold suppliers.
In a bid to incentivize gold supplier associations and individual merchants, the NBE has introduced a new payment structure. The key provisions of the directive are as follows:
a) The gold purchase price will be determined based on the daily foreign currency selling rate stated on the NBE’s website. This ensures that the prices reflect current market conditions and provide suppliers with fair compensation.
b) Suppliers will receive 95% of the value of their gold upfront, with the remaining 5% reserved. If the 30th day falls on a holiday or weekend, the supplier may select the price on the next working day. However, if the supplier does not return within 30 days, the bank will purchase the gold at the price set on the 31st day. This provision offers a level of flexibility while ensuring suppliers are compensated promptly.
c) Large producers and companies will receive 50% of their gold sale proceeds in foreign currency for their own use, with the remaining 50% paid at the daily selling exchange rate. The foreign currency obtained in this manner must be used within one month, but to encourage gold-producing companies, the NBE has extended the usage period to three months. The gold supplied in this manner will be transported and refined through the bank according to a contract between the NBE and the gold-producing companies.
d) Incentive payments will be made to gold suppliers who provide between 250.01 grams and 25 kilograms of gold at a time, to help them cover their costs, as per the bank’s internal operating instructions. This incentive is aimed at ensuring the sustainability of gold supplies from small to medium-scale miners.
e) Aggregators, who collect and supply more than 25.01 kilograms of gold at a time, will receive higher incentives to cover their costs and generate income. This recognizes the significant role they play in the supply chain and encourages larger-scale gold collection.
f) The incentives mentioned in sections (b), (d), and (e) do not apply to large manufacturing companies covered in section (c). This differentiation ensures that while smaller suppliers and aggregators are encouraged with incentives, large manufacturers continue to follow specific guidelines.
Implications for the Gold Market
The NBE’s latest directive marks a significant shift in Ethiopia’s approach to managing its gold resources, reflecting the broader economic reforms taking place in the country’s foreign exchange market. By providing clearer pricing mechanisms and targeted incentives, the NBE aims to increase the volume of gold supplied through official channels, thereby boosting the country’s foreign currency reserves.
Analysts suggest that these changes could lead to increased participation from both small-scale miners and large producers, ultimately driving more of Ethiopia’s gold output into the formal economy. This, in turn, could help stabilize the country’s foreign exchange market and contribute to overall economic growth.
As the directive takes effect today, stakeholders across the gold supply chain will be closely monitoring its impact on gold trading volumes and foreign currency earnings. The NBE’s commitment to ongoing reform is expected to play a pivotal role in shaping the future of Ethiopia’s gold market and its contribution to the national economy.
