Potency of Ghana’s mining and national development

As the nation marks 54 years of attaining independence, the fundamental question still remains: has the mining industry proven to be an effective vehicle for poverty alleviation and sustainable national development? Ekow Essabra-Mensah, our Chief Correspondent, probes.

Although there is agreement on the mineral potential of the country, there is much disagreement about the importance of the contribution of mining to the country’s national economic development.

The debate is even more intense with respect to the contribution of mining activities to poverty reduction efforts, particularly in local communities where mining activities are carried on.

Ironically incidence of poverty is quite high in mining areas apart from the fact that social infrastructure is very poor.

The issue has always been made that over-bloated tax concessions and incentives to investors in the mining sector leave little in the way of retained earnings for visible national development efforts.

Mining companies and their umbrella body, the Ghana Chamber of Mines are trying hard to convince Ghanaians that the companies are contributing significantly to the development of local communities within their operational areas. Various mining companies are carrying out community development projects in mining communities that are delivering measurable results.

However, there is increasing evidence to suggest the contrary. Positive economic impacts of mining activities on communities affected by mining activities are not particularly visible.

The Mining Code is silent on measures that might be required to effectively deliver benefits to local communities directly impacted by mining, to protect the physical environment and, particularly, the rights of vulnerable segments of the population.

There is global consensus that mining and the waste generated from active and inactive mining sites from ore benefication, and their impacts on human health and the environment, are a serious and continuing problem facing government agencies, industry and the general public globally

Recent studies have shown that poverty is pervasive and endemic in mining communities. The main argument is that mining companies are annexing vast lands in their operational areas and depriving communities of their chief source of livelihood.

Rampant dislocations of communities for mining activities have tended to foster poverty among these displaced communities. This arises from poor compensation packages for affected communities. Communities rarely benefit from tax revenue accruing from mining operations in their area.

The Wassa West District of the Western Region of Ghana has the highest concentration of mining and exploration companies in a single location on the African continent hosting eight of the 16 mines currently in operation in the country.

Although poverty is higher at the national level than in the Western Region using all the different measures of poverty, taking into consideration that the majority of the gold exported from this country is produced in the Wassa West District, one would have expected that the poverty levels and income distribution would be lower compared with other districts in the region.

Unfortunately that is not the case. Poverty level in the Wassa West District using any of the poverty measures is higher than that of the Western Region but lower than the national poverty level.

To ensure that mining is carried out in a manner that will cause little or no damage to the environment, government has over the years enacted laws and regulations to ensure that mining is carried out with due regard for safety and environment.

These laws, regulations and guidelines that enjoin mining companies take preventive measures against environmental degradation and pay compensation for lands, farms and properties affected by mining activities.

These laws include the Minerals and Mining Act, 2006 (Act 703), Environmental Protection Agency Act,1994 (Act 490) among others .

If these laws, regulations and guidelines are enforced, the adverse environmental impacts of mining can be prevented or minimized to permissible levels.

Mining, environmental degradation and social problems
The main negative socio-environmental impacts of mining in the country are vegetation destruction and land degradation, air pollution, ground vibration and noise, water pollution and social problems.

The rapid growth of the country’s mining has encouraged the migration of people seeking jobs to the mining areas, creating slums with concomitant health hazards, crime and promiscuity.

“One thing that is worrisome is child labour, by my conservative estimation, more than 2000 children of school-going age are engaged in small-scale mining,” Professor Daniel Mireku-Gyimah, Vice Chancellor, University of Mines and Technology, Tarkwa observed.

Certainly, forest destruction and land degradation constitute a grate financial loss to the indigenes whose livelihood depends on farming. Air and water pollution causes diseases, the curing of which requires extra money.

Over population in mining areas with its attendant crime and promiscuity bring about social problems, the solution of which calls for extra national budget.

It is clear then that unless special attention is paid to environmental problems associated with mining, the cost of solving the problems will far out weight the benefits of mining.

This has constrained employment opportunities in the sector. Indeed the controversy surrounding the appropriateness of government taxation of private business in general is an age-old one which has been aptly captured by a recent World Bank sponsored study on mineral royalties in the mining industry globally:

In matters of mining taxation, governments rarely believe that companies pay too much tax; companies rarely believe that they pay too little tax; and citizens rarely believe that they actually see tangible benefits from the taxes that are paid.

This presupposes that government revenue generation is constrained by the range of capital allowances, list of mining-related equipment and items exempted from customs and import duties, the nonpayment of capital gain taxes, dividend withholding taxes, corporate income taxes, the huge offshore sales revenue retentions and the payment of royalty at the lowest allowable rate.

This results in a less visible contribution of the sector to national economic development. Similarly, the constrained employment capacity of modern mining methods, the increased expatriate staff quotas in the mines and the negative environmental and social impacts of mining activities on local communities have contributed to dwarf the contribution of the sector to national development and poverty alleviation.

One school of thought strongly contends that the industry is contributing substantially to national development and poverty reduction in the country. Mining companies, governmental agencies promoting mining, mining sector consultants, some academics, some government officials and traditional rulers share this opinion.

They argue that the country’s mining sector has been a star performer and plays a cardinal role in the national economy, particularly as a result of policy reforms in the sector since 1986.

They have often pointed to increased foreign direct investment (FDI) flows to the sector, rising annual mineral output and value of mineral exports, increased exploration activities and the threefold increase in the number of operating mines, as compelling evidence to support the sector’s contribution to the national economy.

Statistical summaries on the industry provided by the Minerals Commission give credence to this position. The country now boasts 16 operating mines, six projects at mine development stage and over 150 local and foreign companies with exploration licences, mainly in the domain of gold.

Total mine output for all major minerals mined increased severalfold. Annual gold production increased from 282,299 ounces in 1984 to 2,143,000 ounces in 2005, manganese from 267,996 tons to 1,719,589 tons, bauxite from 44,169 tons to 606,700 tons and diamond from 341,978 carats to 1,065,923 carats, during the same period.

Total annual mineral exports rose from US$115.3 million in 1984 to US$995.2 million in 2005. The sector now accounts for more than 30 per cent of gross foreign exchange earnings.

Gold is the most important subsector, accounting for over 90 per cent of the total value of mineral exports, and recording as much as 95 per cent in 1994 and 1995, largely due to increased gold prices.

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

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

The sector had attracted nearly US$6 billion worth of FDI at the close of 2005, accounting for nearly 60 per cent of FDI flows to the national economy during the period.

The mining industry in 2009 also 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.

Socio-economic benefits of mining

The mining industry in Ghana provides employment and social benefits, generates foreign exchange and internal revenue and produces raw materials for local industries.

The industry may be categoried into two, large –scale mining and small-scale mining, depending on the size and mode of operation. So far, the large-scale mining companies have concentrated on mining gold, diamond, bauxite and manganese.

It is estimated that the large scale mining companies have 27,000 direct employees made up of professionals like engineers, scientist, accountants and administrators, artisans like carpenters, electricians, plumbers, machine operators and drivers, and some unskilled labour. The mining industry directly employs about 527,000 people.


The birth of the new mining law

In 2001, the country was obliged to put in place a process to review its code with financial and technical assistance from the World Bank. This time consultants for the review had as their minimum acceptable prototype the codes of Tanzania, Mali, a host of other perceived investor-friendly codes across the globe, and of course, the survey recommendations of Naito and Remy (2000).

The Minerals Commission, said the proposed revised law would reflect new thinking and developments in the global mining industry, and consolidate legislation on both global-scale mining and small-scale gold mining.

According to the World Bank Supervision Mission report: the objective of the review project is to develop an internationally competitive framework that will ensure a strong legal base and a stable and equitable tax regime with fair and clear environmental rules for the continuous development of Ghanaian mining in the next decade.

Minerals Commission has again announced its readiness to complete the new mining policy to guide government in its management of the mining and minerals sector by 2012.

The policy document, soon to be presented to Cabinet for adoption, is currently at its draft stage and when fully operational will define the usage of the country’s mineral resources for national development. The policy was initiated in 1999 and went through various stakeholder consultations and independent review in 2001, now reaching its current final draft stage.

Mr. Benjamin Aryee, Chief Executive Officer of the Mineral Commission - lead promoters of the policy - disclosed to B&FT that it is expected to provide a framework of principles and policies which will ensure that the country’s mineral endowment is managed on a sustainable economically, socially and environmentally accepted standards.

The policy seeks to provide a standard framework for implementation of the various mineral laws in the country.

Outlining the core objectives of the policy at a stakeholder workshop in Accra, he explained that the policy intends to diversify the country’s export base and thereby increase foreign exchange earnings.

It will as well optimise tax revenue generation to support development, generate skilled employment and develop local capacity for the mineral industry, and create demand for local goods and services.

Mr. Aryee said: “In order to achieve these objectives, government recognises that there is a need to establish a clear, comprehensive and forward-looking national policy that will govern regulation and development of the mining sector.

“Government also recognises that the national mining policy must provide for the establishment of an enabling environment for investors, which is based upon modern regulatory arrangements and sufficient attractive terms.

“Whilst seeking to encourage investment, there is also a need to ensure that mineral operations are conducted responsibly. Government considers that neglect of the environment and harm to local communities as a result of mining operations is not acceptable.

“The intention is therefore that the country secures the full economic and social benefits that mining development promises, in an environmentally and socially responsible manner,” Mr. Aryee stated.

Untapped mineral potential

Ghana is endowed with significant mineral wealth. Gold, manganese, diamond, bauxite, limestone, silica salt and salt are being exploited in commercial quantities, with gold representing by far the most important mineral mined. In addition to these, considerable resources of iron and various other industrial minerals exist.

Gold is the predominant mineral that has been produced in the country since 15th century, which explains why the country was originally called the Gold Coast.

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.

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 are more positive than those of some of its African neighbours.

Ghana containing the second largest area of gold deposits in the African region after South Africa is also counted among the top five nations across the globe for its manganese ore production and is home to some of the biggest names from the global extractive industry: Gold Fields, Newmont Ghana and AngloGold Ashanti, Golden Star Resources among others.

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.

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.

Going Forward

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.

In assessing the implications of the proposed new mining law, no one can question the positive strides relating to increased productivity in the sector.

However, an evaluation of the contribution of the sector to employment creation, to government revenues, net foreign exchange retained in the national economy, and the social and environmental impacts of the upsurge in mining activities, paint a quite different picture.

In spite of concern raised about governance of the mining sector in favour of the poor, and in spite of the adoption of the potentials of the proposed new mining law, the country is still very far from obtaining optimal benefits from its mining sector.

Legalisation of small-scale mining was and remains a laudable policy objective. Yet merely legalising the activity without adequately capturing its fast-evolving and complex social dynamics may prevent the attainment of other social objectives, such as enhancing the potential of the small scale mining sector to contribute to better livelihoods and poverty alleviation.

In conclusion, the country has mineral deposits that can be mined profitably. If the correct methods are used to mine the deposit, employ the best mining practices to prevent or minimize associated environmental damage, and manage corporate social responsibility to improve the socio economic life of the mine local community, then the country can enjoy the economic benefits of mining peacefully.

Now, since the cost of environmental protection and management of corporate social responsibility can be very high, the country must estimate these cost properly as part of any mine feasibility assessment.

If the assessment depicts that the mine is economically viable, then we can mine the deposit; if the assessment shows that the mine is not profitable, then there is no need to mine the deposit.

In this way, the economic controversy posed by the potency of mining and the national development as well as the cost of socio-environmental damage can be resolved and the question of whether after 54 years of nationhood, has the mining industry proved to be an effective vehicle for poverty alleviation and sustainable national development can be answered.