A case of WANT’S MINE

Mining firms are under intense public scrutiny to ensure transparency - prompting calls for a mining policy to enforce ‘publish what they pay’, and for governments to ‘publish how much they receive.

Ekow Essabra-Mensah

It’s a murky world of mega bucks and voracious investment appetites. And it’s shrouded in mystery: convoluted paper trails to dubious offshore accounts that have raised more questions than answers about mining companies’ contributions to local economies in which they operate.

It is any wonder companies have come under intense public scrutiny? Considering mining in resource-rich African countries, recent calls for a public policy to force companies to “publish what they pay” and receive” are not bolts from the blue.

In spite of their apparent contributions to the balance sheets of domestic economies, governments and indigenes continue to perceive mining companies’ contributions to community development and nation-building as limited and lacking full disclosure.

The stakes are high .A new report released by PricewaterhouseCoopers’ (PWC) 2009 Global Mining Report on Total Tax Contributions, says mining companies make a large economic contribution to public finances in relation to the size of their operations.

The report involved 22 mining companies operating in some 20 different jurisdictions around the world, employing 302,880 people and paying US$1.7 billion in employment taxes.

The participating companies in the study reported a turnover of US$62.9bn with wages and salaries accounting for US$6.0bn, and a total contribution to government of US$10.1bn.

The average total contribution to government by a company in a country reported on by the study was US$190 million.

On average, the companies that participated in the study paid moneys equivalent to 15.3 percent of their turnover to government, comprising 10.8 percent in amounts borne and 4.5 percent in amounts collected as taxes.

These companies pay many other taxes and contributions in addition to corporate income tax, which on average represents only 40 percent of all the taxes and contributions they bear. For every US$1 of corporate income tax paid, these companies pay another US$1.50 in other taxes and contributions borne, plus US$0.52 in taxes collected.

The Total Tax Contribution study on the global mining industry’s full economic contribution, by providing data on all taxes and other payments made to government, justified mining companies’ long-asserted claims of significant economic contributions to public finances slated for national development.

Africa’s minerals and metal wealth

The study indicates that mining’s total contribution to governments in Africa averages 11.3 percent, with its taxes and contributions borne as a percentage of turn-over for Africa amounting to 7.5 percent.

Africa produces more than 60 metal and mineral products, and is a major producer of several of the world’s most important minerals and metals - including Gold, Diamonds, Uranium, Manganese, Chromium, Nickel, Bauxite and Cobalt.

Although underexplored, Africa hosts about 30 percent of the planet's mineral reserves, including 40 percent of gold, 60 percent of cobalt and 90 percent of the world's precious minerals reserves - making it a truly strategic producer of these precious metals.

The increase in exploration and mine development in Africa has been primarily focused on gold and diamond. Undoubtedly, there is still great scope for these commodities; riding on the back of improving base-metal prices, this sector could see an increase in activities.

Mozambique, Nigeria and Madagascar are but few of the countries that have tremendous potential for base-metal and industrial mineral deposits.

South Africa, Ghana, Zimbabwe, Tanzania, Zambia and the Democratic Republic of Congo (DRC) dominate the African Mining industry, whilst countries such as Angola, Sierra Leone, Namibia, Zambia and Botswana rely heavily on the mining industry as a major foreign currency earner.

Major new mines opening in Africa or that are under development are distributed between South Africa, Namibia, Botswana, Tanzania and Gabon, producing gold and diamonds. Major discoveries over the last year include the potential marine diamond deposits offshore southern Namibia.

A BOON FOR GHANA

Ghana’s mining companies’ contribution to public finance which was paid to government constituted 7.2 percent of their total turnover, the 2009 Global Mining Report has disclosed.

Available data indicate that the mining companies’ combined turnover recorded an excess of US$600 million as at the end of 2003.

The second edition of the PricewaterhouseCoopers’ (PWC) 2009, Global Mining Report on ‘Total Tax Contribution’ (TTC) revealed that the country’s mining sector taxes, royalties and other contributions amounted to 56 percent - with property and corporate tax income recording 26 percent - of the country’s total tax income.

The study, which confirmed mining companies’ economic contribution to public finances directed toward national development, also disclosed that the average wage and salary per employee in the country’s mining sector per annum recorded US$11,733 - with employment taxes per employee registering US$3,049.

“One company made a large contribution totalling approximately US$9 million to the government and public finances of the country in 2008. Of this, less than one percent is corporate tax with other taxes and contributions making up more than 99 percent of the total,” the report stated.

Mr. George Kwatia, Tax Partner, PricewaterhouseCoopers Ghana, presenting the findings of the study in Accra explained that the contribution of the mining sector is usually not recognised.

Ghana is endowed with minerals such as gold, diamond, manganese and bauxite as well as other industrial minerals like salt, limestone and kaolin which are exploited small-scale in the country.

Chief Executive Officer, Ghana Chamber of Mines, Dr. Joyce Aryee, explained that the release of the report is timely and validates the mining sector’s huge economic contribution to government and national development.

“Most people believe that extractive companies, which are mostly transnational, are interested in extracting the non-renewable resources, repatriating huge profits and leaving the host country dry. The perception is that these extractive companies milk their host countries dry.”

Dr. Aryee mentioned that mining companies have over the years consistently maintained their position as highest gross foreign exchange earner as well as providing jobs in the country.

Mineral royalties increased from GH¢1.9 million in 1990 to approximately GH¢90 million in 2009.

Data from the Minerals Commission indicate that Foreign Direct Investment (FDI) in the mining sector increased from US$6 million in 1983 to US$427 million in 2007.

The mining industry in 2009 paid an amount of GH¢125 million as corporate tax, while GH¢1.7 billion was collected by the Internal Revenue Service (IRS) from the sector.
Mineral revenue for the first quarter of 2010 stood at US$809.89 million - up from US$640.15 million for the same period in 2009.

“Government needs to increase the quantum of mineral royalties that go to the mining communities - and it should be earmarked for specific developmental projects in the mining communities,” Dr. Aryee stressed.