Positive outlook expected for mining sector

Ghana’s mining and extractive industry outlook holds great untapped potential with its expected value increasing from US$0.64bn in 2009 to US$1.68bn in 2014, writes Ekow Essabra-Mensah

Ghana’s mining sector holds great potential. The country is regarded as stable, with clear regulatory standards governing the industry. It is already Africa’s second largest producer and exporter of gold, and is among the global top-five in manganese-ore production.

Moreover, with gold being the country’s principal mining asset and prices remaining strong, forecasts for the mining sector in Ghana are more positive than those of some of its African neighbours.

Industry chieftains, in calculating its forecasts have taken account of the vast untapped potential of the extractive sector, and expect the value of the mining industry to increase from US$0.64billion in 2009 to US$1.68billion in 2014.

Ghana containing the second largest area of gold deposits in the African region after South Africa derives the bulk of its external revenue from gold mining, which accounts for over 90 percent of the nation’s total mineral exports. Apart from gold, the country also produces significant quantities of bauxite and diamonds.

The country which is also counted among the top five nations across the globe for its manganese ore production is home to some of the biggest names from the global extractive industry: Gold Fields, Newmont Ghana and South Africa’s AngloGold Ashanti.

In 2008, overall revenue from the Ghanaian mining sector reached US$2.3billion, an increase of 28 percent year-on- year according to figures released by the Ghana Chamber of Mines in June 2009.

Gold revenues stood at US$2.2billion, with output of 2.6million oz, up four percent year-on-year, selling at an average realised price of US$852 per oz. Manganese revenue was up by a stellar 69 percent, to US$62.34millon, while bauxite revenue was essentially flat, at US$19.81million.

Looking forward, the Chamber of Mines anticipates a mixed year for Ghana’s mining industry, expecting gold to perform well, while bauxite and manganese exports could fall as a result of a decline in demand.

Though the mining industry has been successful in attracting foreign capital, it has also been subject to criticism from the government, environmentalists and human rights activists. Foreign players have been known to exploit legal loopholes and abuse both human rights, as well as the environment.

Ghana is still many leagues behind South Africa when it comes to regulations to protect the rights of communities in the vicinity of mining operations.

Stakeholders in the mining sector claim that regulations pertaining to compensation need to be updated, as the price levels for valuing crops, livestock and landed property have not been reviewed for a number of years. They also point out that in other African countries, such as Tanzania, the State pays the compensation and not the miner.

The basic law governing the mining industry is the Minerals and Mining Act 2006 (Act 703). Under the law, the president holds the power to grant mining rights.

Meanwhile, the pressure to amend the law and allow farmers to have a say in authorizing their lands for mining activity is increasingly gaining favour in the country, and is being seen as a necessary move to crack down on the rampant exploitation of the environment by mining industries.

Injustice against the mining communities and lack of proper compensation is an everyday affair that usually passes unnoticed.

An official at the country’s sector Ministry, Lands, Mines and Forestry, disclosed that approximately 30 percent of the country’s land is under concession to mining companies, and every year more farmland is converted for this use.

The Commission on Human Rights and Administrative Justice (CHRAJ) also claims that Ghana’s mining laws are designed to attract foreign investors and not to protect the rights of communities. Particular problems include the pollution of water sources, the deprivation of land and the loss of livelihoods.

Challenges and Opportunities

The mining sector has been slow in its uptake of technology, but the global economic crisis and long-term issues are serving as catalysts for adoption.

The outlook for the mining sector has radically changed due to the global economic crisis. This boom and bust cycle has left many mining companies considering ways to manage operating costs in order to remain economically viable.

But this is not the only challenge the sector faces, according to Deloitte’s report, Tackling Trends 2009: The Top 10 Global Mining Issues. In the long run, the sector must find ways to remain sustainable amid the sea of legal, social, economic and environmental issues.

These challenges actually present opportunities for the Information and Communication Technology (ICT) sector because technology can manage complex systems, streamline processes, reduce costs, and improve efficiency and productivity.

Advice to stakeholders

While it is important that Ghana invites foreign experts to help in its mineral resource development, these experts should be obliged to train and hand over their roles to locals by the end of their contracts. Contracts should be fixed at specific time periods depending on experience and responsibility and training of indigenes should be enforced as part of the contract.

The country’s minerals are exported and not processed, leading to the siphoning of the potential gains. Attempts should be made towards further domestic processing of the resources in the country.

Until resource based industrialization is encouraged in the country, the potential for local consumption of the mineral sector output will remain minimal. Further processing of resources will also ensure greater fiscal revenues and greater stimulus to forward and backward investment opportunities.

While the country has investment laws which encourage foreign investors, very liberal policies regarding repatriation of profits and expatriate wages, make it difficult to reverse the status quo of unequal distribution of the revenue between foreign firms, domestic entrepreneurs and the overwhelming majority of the citizens.

Additionally, many Traditional Chiefs do not use royalties received from minerals for the development of their communities, hence denying the people basic infrastructure such as hospitals, clean water, schools among other social amenities.

There is also the need for policies to boost Ghana’s stock of human and social capital to ensure that Ghana has the best possible education and training to promote research and innovation that are crucial ingredients in improving productivity.

Mr. Benjamin Aryee, Chief Executive Officer of the Minerals Commission, the official government agency responsible effort the regulation of the sector in indicated: “It is up to governments to ensure that the nation’s mineral resources are exploited in a responsible and economically attractive manner. We owe this to all citizens in our efforts to lift standard of living and improve the educational and health needs of the people.”

It is important that further regulation be developed based on practical goals and ensures that local communities benefit from mining projects. The review should incorporate strict environmental and reclamation compliance in line with world’s best practices, Joyce Aryee, Chief Executive of the Chamber of Mines has emphasized.

Ghana in particular has the right blend of prospectively, strength of leadership, political stability, professional talents and an attractive social and cultural environment for mineral investments.
The country should therefore undertake clear-cut mining codes and competitive tax regimes to attract capital injection in the mining sector.

A number of mining parameters such as relative mining costs, the impact of bureaucratic delays and regulatory compliance costs, as well as royalties, corporate taxes, and import duties play vital roles in decisions on mineral investments.

The mining sector should be viewed as an economic “bonus” with which to accelerate structural change rather than as the backbone of the country’s economy.

The long-term outlook for the country’s mining sector is bright, but requires the acceleration of both political, economic and industry reforms to ensure that the mining communities and the indigenes derive the full benefit from the earnings generated by the mining and the extractive sector.