How to make mining become a blessing

The Chamber of Mines anticipates a mixed outlook for the country’s mining industry next year, expecting gold to sustain its good performance in the global market, while bauxite and manganese exports could fall as a result of a decline in demand, Daniel Owiredu, President of the Chamber has predicted.

“The coming year looks promising for the mining industry. Additional production from new mines-Adamus Resources and the prospects from the Owere Mines is expected to bring an increased production beyond the marginal output arising out of existing mine projects.

“The expected higher volumes of mineral production and the strengthening of gold price are expected to result in increased mineral revenue, with a corresponding increase in mineral royalties and corporate tax payment to government,” Owiredu said.

According to the Chamber, The total investment inflow into the mining sector in 2010 was US$ 770 million up from the US$ 762 million which was recorded in 2009.

Cumulatively, the investment inflow into the sector from 2000 to 2010 stood at approximately US $ 6.2 billion. The total mineral revenue rose significantly from US$2.93 billion in 2009 to US$3.73 billion in 2010, representing an increase of 27 percent mainly on the account of healthy price of gold, although the other minerals also recorded increases in prices during the period.

The mining sub sector grew remarkably by 11.2 percent compared to the 6.8 percent it recorded in 2009. By this growth performance, the industry came second behind the electricity sub-sector which grew by 16.7 percent in 2010.

In 2010, mining companies retained about 68 percent of the US$3.7 billion mineral revenue to the country through the Bank of Ghana (BoG) and the private commercial banks.

An average of 20 percent was repatriated to the country through BoG and the remaining 48 percent through private banks. This ensured that the country receives considerable foreign exchange from the mining sector to support the nation’s foreign currency transactions.

Though the mining industry has been successful in attracting foreign capital, it has also been subjected 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. Among other critical issues to be considered by policy makers and governments includes:

Critical issues for consideration in 2012

Support local business

An estimated 34 % of annual mineral exports, currently enjoyed by foreign firms and expatriates providing mining services in the country could revert to locals if they take steps to make themselves able to provide these services.

Estimates according to the Minerals Commission show that these 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 these opportunities in the mining sector.

Local content and capability issues are national issues and so they call for collaborative approach between public and private partnership.

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, and 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.

There must be conscious and systematic development of local capability. Ghanaians can participate in exploration and production in a more significant way, if we make it a 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 specific time frame to do broad consultation with industry, academia and the public sector to identify the areas in the entire extractive sector value chain that local participation will lead to the Ghanaian economy deriving maximum benefits.

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

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

Repatriation of profits and unequal distribution of revenue

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 country’s stock of human and social capital to ensure 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 said: “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 to ensure that local communities benefit from mining projects. This should incorporate strict environmental and reclamation compliance in line with world’s best practices.

Inadequate Compensation and human rights

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 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.

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.

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

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.


Dealing with illegal small-scale mining head-on

There have been evidence of the growing involvement of some foreigners, especially the Chinese and Indians in the illicit mining by either providing support to the illegal miners or directly engaging in the activity.

The practice of illegal mining, popularly called galamsey, is a dangerous venture. Hundreds of diggers are killed each year. Because the practice is illegal, corruption flourish and is deeply rooted in areas known for illegal mining.

There is revenue leakage in terms of tax payment and proper accounts of the quantum of mineral receivables among others.

This deprives government of valuable revenue in the form of taxes and royalties. The unregulated activities of galamsey operators also have a damaging effect on the environment.

The Ghana Police Service recently arrested 25 illegal Chinese diggers said to be engaged in galamsey activities around the village of Wasa-a mining community in the Western region.

Environmental activists say Chinese entrepreneurs are illegally controlling small-scale operations behind the scenes; typically through a local intermediary.

This unfolding development has prompted the Vice President John Dramani Mahama to call for a holistic approach towards the fight against the illegal small scale mining (galamsey) to protect the environment and increase government revenue.

“Let us all stop the blame game as to who was encouraging or not encouraging galamsey operations on our lands and forge ahead to fight the canker,” he said.

Government would provide the necessary support to eliminate the practice in all the mining areas while calling on all those interested in the small scale mining to acquire licenses to operate and stop the current practice that was degrading the environment and denying government the necessary revenue for development.

Dr. Toni Aubynn, the Chief Executive Officer of the Ghana Chamber of Mines proposed to government to strengthen its resolve in tackling the nuisance of illegal miners.

“Illegal mining should no longer be considered “as business as usual” and that while he supported the participation of Ghanaians in the mining value chain, the illegality around a large number of their operations and the negative impact on the environment was totally unacceptable.

Mining tax-hike

The announcement of new mining and mineral taxes expected to be implemented next year has been received with mixed reactions with sector operators describing them as too high, and having the potential to impede future investments in the sector.

“The country’s new tax moves have brought forth warnings and cautions about the impact these measures could have, such as making the nation unattractive for future mining efforts and scaring off investors.”

Dr. Toni Aubynn, CEO Ghana Chamber of Mines, told B&FT: “Uncertainties must be looked at carefully. The new reforms could deter the mining companies from making further investments in the sector.”

Government in its 2012 budget statement announced that the corporate tax rate for miners is being increased from the current 25% to 35%, while a windfall profit tax of 10% will also be imposed.

The proposals announced by the Minister of Finance and Economic Planning, Dr Kwabena Duffuor, in the 2012 budget include -- in addition to the hikes in corporate and windfall taxes -- the reduction in capital allowance tax from 80% to 20% for a period of five years for all mining companies, as in the case in the oil and gas sector.

But indeed the reactions have so far been mixed -- with mining firms fretting over the impact the measures would have on their earnings and investments even as groups such as the Ghana Mineworkers’ Union celebrate the changes.

Seth Terkper, Deputy Finance Minister, explained: “The changes in the taxes are part of a rationalisation plan. Later on, other natural resource sectors will be brought on board. So, it’s not about targetting mining companies; and they are not meant to be anti-investment.”

“It is the government’s intention to review its involvement and interest in the mining sector, and it has been engaging with miners on the changes it intends to bring about.”

And, Civil society organisations are commending government for the bold move, in particular for measures to rationalise fiscal operations in the natural resource sector. Others, especially the mining community hard hit by the proposals, are unhappy and are calling on government to take a second look at them.



Outlook for 2012 and beyond

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.

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.

The country 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 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, this should therefore inform stakeholders to undertake clear-cut mining codes and competitive tax regimes to attract capital injection in the mining sector.