Time to Push for Strong Local Participation in Mining

Ghana’s Mining and Metal contracts need a holistic review to ensure local content participation so as to encourage mining firms to use services and inputs from domestic sources and retain earnings for the growth of the economy, Ekow Essabra-Mensah writes.

Local Content is a documented policy indicating the desire of a government to actively engage indigenous or local companies in economic activities hitherto reserved for foreign investors, especially the industries operating in the extractive sector like the mining and metals and oil and gas industries.

Local content means the development of local skills, technology transfer, use of local manpower and local manufacturing.

The Local Content Policy is also a commitment on the part of the state to ensure that companies owned by its citizens actively participate in all aspects of activities and not just on the periphery. For example, Malaysia, Singapore, and Brazil have pursued aggressive local content policies to the benefit of their national economies. There are lessons also to be learnt from these developed economies.

Significance of local content initiative

The Local Content Policy provides a huge opportunity for job-creation and builds the indigenous capacity or technical expertise of local companies and entrepreneurs. This indirectly becomes a stimulant for growth of other sectors of the economy which eventually contributes to the nation’s Gross Domestic Product (GDP) or output.

A local content policy in Ghana’s sensitive industries would serve as a tool for the advancement of local development not only in the identified industries but in the economy as a whole. Such policies backed by the appropriate legislation and procedures would build human capacity as well as capabilities of local companies, which will certainly have a multiplier effect on the rest of the economy.

Already, we have as a country missed the opportunity to adopt a local content policy in the mining and metals sectors.

The sector is fully taken over by foreigners, though we have equally capable Ghanaians who could have ventured into that field and raised capital from within to manage similar entities given the opportunity. Can you imagine the amount of money that is taken out of this country by the multinational mining operators?

For now a Local Content Policy initiative should be a major priority for the government, looking at the overall economic implications.

Thankfully, Cabinet has approved the policy framework for the local content and participation in the petroleum activities which is aimed at ensuring that Ghanaians obtain maximum benefits from the oil discovery, said Mr. Emmanuel Armah-Kofi Buah, Deputy Minister of Energy.


The policy initiative should not only being directed towards the Oil and Gas industry, but to other areas of the economy such as the buoyant mining industry.

An urgent call from industry watchers

As an indication of governments’ commitment to seeing to the realisation of the policy within the sector oil and gas sector, Dr. Thomas Akabzaa, Senior Lecturer at the Earth Science Department of the University of Ghana, called on government to immediately develop a national mineral policy spelling out the country’s expectations of her mineral wealth.

The development of such a policy should involve effective and well-coordinated public participation with a clear national vision to ensure that the country gets the best deal out of the sector as happened in Botswana.

Government must foster development and closer collaboration among mining sector governmental institutions, including academic institutions, to critically assess the contributions of mining to the national economy and fashion out a way forward for the sector, said Dr. Akabzaa, emphasising that it would promote transparent mineral revenue distribution mechanisms that will deliver benefits to communities affected by mining - because activities of the sector have affected the environment and left the inhabitants with little or no meaningful livelihood.

Dr. Akabzaa called for national consensus on development mining andresources to solve the contentious issue of mining in protected areas, whichhad been a source of antagonism between environmentalists and inhabitants ofthose areas on one hand, and mining firms on the other.

Unlike other productive sectors, mining does not offer opportunities for others on the other side of the productive chain to benefit. “All its opportunities end in the mines,” he said, and called for a carefully crafted local content policy with timeliness to achieve optimal benefits from the sector throughout the value-chain.

Government’s 2010 budget direction that mining firms should pay six percent royalty, instead of the current three percent being paid, is not feasible. This, Dr. Akabzaa revealed, would not be adhered to because the legal regime in terms of agreements signed with the firms are against the recommendation.

Undeniably, from the pre-colonial mining era to date, mining contracts have descended to the current generation in which government enters into agreements with international mining companies for exploration of mineral resources.

Industry watches have argued that mining contracts since ages have been based on profit made by the mining companies, which is simply inadequate given that the resources mined are non-renewable and mining activity has far-reaching implications for the environment.

The African Initiative on Mining, Environment and Society (AIMES), a network of organizations, recently advocated mining contracts should make provision for local content participation. This will encourage mining companies to use services and inputs from domestic sources, and retained earnings for the local economy should be linked to the broader economy.

“If the benefits African countries get from mineral resources are primarily based on the profit of the mining companies, what would they get should prices of minerals collapse on the world market?” Dr. Yao Graham, Executive Director of Third World Network Africa, asked.

“When the gold mines, for instance, can have the same mining company mining the gold throughout the lifetime of the mine, it would place more responsible demand on the company to work hand-in-hand with the governments to make mining activity development-oriented.

“This will bring to an end the unproductive and environmentally devastating ten-year contracts which our governments continue to sign with all kinds of mining companies,” he added.

The mining contracts need a holistic review to get the mining sectors to contribute greater value to the development of local economies.

Give the indigenes a chance

An estimated 34 percent of annual mineral profits currently enjoyed by foreign firms and expatriates providing mining services in the country could pass to locals if they take steps to make themselves capable of providing those services.

Estimates according to the Minerals Commission show that the services procured by the mining firms in 2008 alone came to US$680 million, and they continue to go to foreigners because the locals have not positioned themselves to take advantage of opportunities in the mining sector.

Total revenue from minerals, the leading foreign exchange earner for the nation, went up 28 percent to US$2.3 billion in 2008 from US$1.79 billion in 2007. The performance of minerals in 2008 accounted for 46 percent of the nation’s total exports. Cocoa, which came in second position, earned the nation US$1.42 billion - representing 27 percent of total export revenue in 2008.

By way of contribution to total government revenue, the mining sector accounted for 14 percent in 2008, which in absolute terms stood at US$1.2 billion. Out of this, corporate taxes were US$73.5 million, royalties US$59 million, employee taxes US$47 million, small-scale mining US$227,934 and dividends US$178 million.

Government consideration

Local Content and Capability issues are national issues and so call for a collaborative approach across all political divides.

The best way to keep the mining industry as an integral part of the country’s economy is to put in place deliberate and sustained local content and capability development policies backed by legislation and enforcement mechanisms, not just resorting to appeals or pleas to mining exploration and production companies.

The non-existence of capacity currently in the country should not be an excuse for inaction, there must be conscious and systematic development of local capability. Ghanaians can participate in exploration and production in a more significant way if it is made policy to encourage them to do so. Yes, it is capital intensive - but it is not rocket science.

Government should as a matter of urgency set up a local content and capability development committee with a specific timeframe to do broad consultation with industry, academia and the public sector to identify areas in the entire extractive sector value-chain in which involving local participation will lead to the Ghanaian economy deriving maximum benefits.

This agency should also be measuring and reporting on the performance of operators in the sector and periodically comparing the local content and participation performance amongst operators, between projects and operations, and with other countries to establish benchmarks and targets.

There should be an agency charged with the responsibility of ensuring that there is compliance. This agency could be a separate entity or a unit under the Minerals Commission, which should be facilitating the development of local capability to undertake local value-addition.

It should also be tasked with removing barriers to local participation and set targets for local content and participation that will be assigned to individual projects, operations and/or operators and supporting those targets with appropriate contract terms.

Increased direct government revenue as a result of mining production through rent, taxes and royalties, though important, should not pre-occupy government attention because they are just a small portion of the bigger pie.

It is my greatest hope that policymakers and industry stakeholders will find these recommendations very useful as we build a buoyant mining industry that will benefit Ghanaian indigenes and the local economy.