Mining provides lifeline to economy
Ghana’s mining industry has been the subject of intense debate over the past three decades, initially about its effects on the environment, but more recently about its contributions to the national economy and living standards in mining communities.
This has led to responses from the mining industry, but the government itself will have to do better too. The controversies over the impact of large-scale mining in Ghana have been raging since the country revamped its mining investment code in the mid-1980s, resulting in a strong inflow of mining exploration and production companies and the consequent establishment of an array of new gold mines. Instructively, however, the nature of the controversies has changed over time.
Initially, the debate was over the negative effects of mining on the environment. However, over the past decade or so, strengthened environmental laws and improved compliance have minimised environmental degradation. Indeed, so much progress has been made in this regard that the government has even opened up parts of hitherto protected forest reserves for gold mining to be done, starting with Newmont’s Mine located at the edge of the Akyem forest reserve in the Eastern Region.
The next area of debate has been about the mining industry’s contributions to the public purse. Again, this has led to the tightening of the fiscal regime within which the industry operates, through adjustments to the tax and royalties rates and changes in the tax framework such as ring-fencing of separate mines owned by one mining company so that losses from one cannot be used to offset tax obligations arising from profits on the other.
Thus, even though the gold price on global markets is still well below its peak, fiscal payments by large-scale miners – as measured by payments made by producing members of the Ghana Chamber of Mines – are more pivotal to the country’s economic fortunes than ever before.
The minerals and mining sector is the foremost source of direct domestic revenue accruing to the Ghana Revenue Authority (GRA). In 2017, total fiscal receipts for the GRA from mining was GH₵2.16 billion, up 16.3 per cent from the GH₵1.65 billion it received in 2016. This included GH₵969.6 million in corporate income tax, GH₵702.4 million in royalties and GH₵487.9 million in employees' pay-as-you-earn income tax.
The mining industry’s share of Ghana’s total merchandise export revenues was 43 per cent, well over both the cocoa and crude oil export revenues, which accounted for 19 per cent and 23 per cent respectively. Indeed, gold export earnings alone were more than the earnings of cocoa and oil combined.
This makes the mining industry by far the most important contributor to Ghana’s gross international reserves and thus the continued relative stability of the cedi on the foreign exchange market.
Indeed, the crucial contributions of Ghana’s mining industry to the country’s economic fortunes are best illustrated by the fact that without it, the government’s budgetary expenditure would have to be reduced by some 17 per cent annually and the cedi/US dollar exchange rate would be closer to GH₵ 6 to one dollar than the current level of about GH₵4.5, which in turn would mean generally, price levels in the economy would be about 20 per cent higher than they are now even at the current level of per capita incomes.
Nature of enclave
However, the relevance of these facts has been lost on most Ghanaians because of the enclave nature of the mining industry. Indeed, in 2017, the industry only employed 10,503 people directly in solid mineral production, although contract production work and employment by service providers for the mining industry add on several thousands of additional jobs in the form of indirect employment.
Nevertheless, when compared with the livelihoods provided by cocoa farming to an estimated 800,000 Ghanaian households, the mining industry, just like the emergent upstream oil and gas industry, is a much less impactful provider of livelihoods in Ghana.
The resultant perception of the mining industry as an enclave is worsened by two other things. One is that it is perceived as one dominated by foreigners. But while indeed, it is predominantly foreign-owned, expatriates take up a mere 1.5 per cent of employment in the industry.
The other is that mining is carried out over far fewer locations than cocoa farming, although in this regard, mining does better than oil and gas, which is done entirely offshore.
However, Ghana’s mining industry, through its Chamber of Mines, is taking concrete steps to improve local content and participation in it.
Indeed, local equity participation is inevitably growing because of the huge capital investments required and the long gestation periods for such investments to start yielding returns to the investors. Even where equity participation has been made available to Ghanaians through stock market listings, subscription to mining company shareholding by indigenous investors has been small.
But the Chamber is having significant success in its efforts to increase local content through an increased supply of mining inputs from local suppliers.
Here, the tightening of foreign exchange repatriation regulations on export earnings and intensified efforts to source inputs locally has helped to create linkages between the mining industry and the rest of the economy.
In 2017, the producer member companies of the Chamber returned $2.57 billion of their $3.68 billion mineral revenue into the country, representing 70 per cent of their total export earnings. Total spending by producing members of the Ghana Chamber of Mines on goods and services procured by in-country suppliers and manufacturers was $1.23 billion in 2017. This represents 34 per cent of realised mineral revenue and an increase in the preceding year’s spending.
This has been achieved largely through the Chambers' identification of more than 20 mining inputs, which can be supplied locally and indeed have, therefore, been reserved strictly for local suppliers.
In November 2017, it commenced another major initiative in this direction by launching an online portal that publicises supply and other contracts available to local enterprises from Chamber members. As with the list of inputs reserved for local suppliers, this also fits in with the government’s evolving Integrated National Supplier Development Policy.
Certainly, this has been very substantial – in 2017 alone, the producing mines spent $19.8 million on various social intervention programmes in their respective host communities, up from $12.2 million in 2016. Instructively, in that year , out of the GH₵550 million paid by the mining industry as royalties, only GH₵27 million was given to the local government authorities that govern the mining communities. This is just 54 per cent of the approximately GH₵50 million spent in that year directly by mining companies on CSR interventions.
Here lies the crux of the problem faced by mining host communities – simply put, the government diverts most of the money paid by mining companies for community development into other things and indeed, the development benefits they do get comes predominantly from the CSR spending of the mining companies, over and beyond their legal fiscal obligations. In 2016, for example, such CSR spending by the mining firms was nearly twice the amount allocated to the host communities’ respective local governments, which in turn was just 4.9 per cent of what the mining companies had paid to the government specifically for spending on those host communities.
The Minerals Development Fund, which is supposed to ensure that host communities get much more money for their development, has just taken off. However, the government seems to find it far more convenient to use its mining receipts for other things and put the blame on the mining companies themselves, than to actually use the money it receives from the mining companies to develop the communities where the minerals are got from in the first place. Until that attitude changes, the mining companies will continue to take the blame for the slow pace of development in the communities that host their activities.
And the controversies surrounding mining in Ghana will not come to an end.