Mining companies turn to local content
Although there is no legislation to enforce the use of locally sourced inputs by Ghana’s mining industry, the mining companies themselves are leading efforts to increase local content to the benefit of local enterprise and the wider economy.
At the middle of this decade, the country passed key legislations aimed at compulsorily making upstream oil and gas industry operators to increase their use of local input suppliers and the products and services they offer, to certain minimum thresholds.
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The effort towards raising the use of local content in the oil and gas industry has been presented by government as one being done to prevent the long standing situation in the mining industry – which is widely seen as an enclave one, dominated by foreign enterprises with very little linkage to local economic activity – from being replicated in the oil and gas industry.
However this is somewhat misleading. While it is true that for most of the past century of gold mining in Ghana, local content has been minimal, this has been changing significantly over the past decade and indeed, over the past three or four years, local content has been increasing dramatically, propelled by deliberate affirmative action in this direction by the Chamber of Mines as an institution, its members, various stakeholder institutions and government itself.
Online portal
Key here has been the establishment of an online portal portal by the Ghana Chamber of Mines, in November last year, to promote its local content objectives by announcing its supply needs of its members which are available to local suppliers.
“The Chamber recognizes the challenges local businesses and entrepreneurs face in identifying opportunities in the value chain of mining and therefore built the online portal to provide adequate information on inputs required by mining companies” says Kwame Addo-Kufuor, the immediate past president of the chamber, and whose tenor in that position the online portal was established.
“While this is not an end in itself, it is an essential means to whip up public interest in the sector. It is also an opportunity to work with government to stimulate an integrated mining industry that will ensure that greater value from the industry remains in-country to increase local revenue generation, job opportunities and national development.”
Instructively, last year the chamber’s members achieved 73 per cent of its target for sourcing inputs locally, and following the establishment of the portal, they will get significantly closer to fully meeting the even higher targets set in this regard for 2018.
These targets are set by the chamber and its members themselves in a self-regulatory initiative and the efforts are reaping major positive results. Mining companies now spend over one billion dollars a year on purchases of locally sourced products and services, excluding diesel and power and local spending is growing by the year.
Eight products, accounting for between 54 per cent and 60 per cent of mining firms’ purchases, have been deemed promising for local procurement and mining companies are supporting local suppliers and manufacturers to improve their capacities through financial and technical assistance.
Local mining products
The eight products identified are” lime, grinding media, HDPE and PVC pipes, cement and cement products, tyres and retreading, general and specific lubricants, explosives and caustic soda.
Regulations have been introduced to promote local content. The key one is that local suppliers of goods and services with the highest Ghanaian participation are given preference in the award of supply contracts where bids are within two per cent of each offer.
The Minerals Commission has responsibility for monitoring the mining companies to ensure that they source as much of their inputs as possible locally, mining companies are required to have their five year local procurement plans approved by the Minerals Commission and to submit compliance reports annually documenting the implementation of those plans.
A recent OECD report concurs that “There are strong mechanisms in place for monitoring and enforcement of local content provisions in Ghana.”
The mining companies themselves are enthusiastic about supporting improvements in local suppliers’ capacity and this is crucial; their biggest worry regarding local content is about the shortcomings of local enterprise with regards to product and service quality, quantity and timelines.
A vivid example of such support is that given to Tema Steel Company, which has benefitted from assistance provided by both Goldfields Ghana and Newmont Mining.
Goldfields has been working with the company , which manufactures steel milling balls, to increase its production capacities to make it a reliable supplier and increase linkages with small and medium sized enterprises within the mining sector.
Similarly, pivotal support has been given to Tema Steel’s subsidiary West African Forging Limited, by Newmont Mining in its production of steel grinding media which is used to crush the gold bearing ore so as to extract the gold itself, and which hitherto was imported due to quality concerns.
Enthuses Yaw Boadi, the company’s technical and marketing director: “Aside helping us to improve our output and quality, we opened our third forge plant with the support of Newmont. Currently they are giving us a push to bring a fourth forge plant on stream to expand our capacity further. Also, with feedback from Newmont’s technical experts we have improved on our steel quality and forging safety.”
Long term business
Newmont has also, through its Ahafo linkages programme provided long term business support and training many indigenous business in the Ahafo communities to give them the competitive advantage for bigger contracts.
However, stiff challenges remain to be overcome by the effort to increase local content in the mining industry. Mr Tony Oteng-Gyasi, who owns and runs Tropical Cables and Conductors complains that local enterprises, which have to pay import duties on their manufacturing inputs, find it difficult to be price competitive against imports which can be brought in duty free by mining companies that have agreements to that effect with government.
A recent joint-study by three institutions – the Addis Ababa based African Minerals Development Centre; the Accra based Africa Centre for Economic Transformation [ACET]; and the Hanover, Germany headquartered Federal Institute for Geosciences and Natural Resources – points towards other challenges such as Ghana’s structural weaknesses that impede its drive for economic diversification and industrialization, to many middlemen in the supply chain, which drives up prices and supply time, lack of political consensus on how to strengthen linkages between mining and industrialization, and too much bureaucracy in the business environment.
Suppliers’ development programme
Instructively, these three institutions are partnering the Chamber and government itself to design and promote a National Suppliers Development Programme for the mining sector.
All this requires a change of policy direction argues Eric Brown, ACET’s director of policy advisory services. “To build resilience against external shocks, the country has to transfer its economic structure by shifting from ‘revenue first’ approach to the mining sector to the deepening of local content and value addition.”
Overcoming these challenges is another step towards increased local content and the consequent integration of the mining sector into the wider Ghanaian economy. But increased local supply itself is not the ultimate aim.
“As much as the Chamber is committed to true local content, it must go beyond the mere purchase of inputs from local suppliers and focus on local manufacturing” insists Kwame Addo-Kufuor. “Stimulating the economy would require a fast paced industrialization drive on the back of the mining industry with the potential of integrating the sector with other sectors. This will ostensibly make Ghana the focus for the production and purchasing of mining inputs on the African continent.”