Do Political Internal Unrest and Smuggling of Precious Metals are Associated? Evidence from a Conflict Country

To assess the size of gold smuggling in Sudan we estimated scale inefficiency of operating mines in the country using primary data survey covering about 18 artisanal mines during the year 2016. The output variable represent gold production of each state and the inputs represent the water mills, and the number of mines (wells) in each state. The findings in the paper indicate about 34% of the artisanal gold production in the country is smuggled. The distribution of the gold smuggling among the states reveal that the states with bigger share of smuggling are those states with internal armed conflicts (South Kordofan and Darfour states) or states bordering loosely controlled borders (Northern and Red see states). This result coincides with our view that weakness in regulatory framework of natural resource management is a major driver of gold smuggling in the country. The regulatory restriction that only gold council members and jewelry traders locating in the capital city of the country are the sole buyers of gold from all miners in the country could be the main cause of smuggling. This requires lifting or easing the exclusive right given to the gold council members and a few jewelry traders in the capital city Khartoum the monopsony power of buying gold from all artisanal miners. Also required to adopt more stringent monitoring regulations on gold exports by jewelry traders.