Miner’s local content hurdle

The country stands to gain maximum revenue from the mining sector, if a comprehensive national vision and policy document on local content is developed to guide procurement processes in the sector.

The World Bank, the Ghana Chamber of Mines, Civil Society Organisations (CSOs) and other Schools of thoughts believes that when mining companies buy more local goods and services than they are presently doing, the country will gain manifold of revenue it is garnering from royalties from multinational miners.

Dr. Toni Aubynn, Chief Executive Officer of the Ghana Chamber of Mines, blamed the country’s inability to devise a comprehensive vision on local content for its failure to derive maximum benefits from mining.

“We need to develop a national vision on local content in the mining industry if we want to derive the full benefits from mining.

“This comprehensive national vision will spell out and promote local participation in the mining sector. You cannot blame the current government or the past government [for not developing one]. Maybe as a nation we have failed,” he told the Business & Financial Times in an interview.

He said about 70 per cent of mining expenditure goes into the supply chain area, hence the need to support the growth of local businesses to provide some basic materials to mining companies.

“We need to develop a national vision on local content in the mining industry, if we want to develop the full benefits from mining,” he said.

He advocated a strengthening of local participation in the extractive sector, especially in the different ends of the supply chain, since it is an avenue that can boost the economic advancement of the country. But he maintained any such effort should be situated within a policy framework and vision.

“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.”

He disclosed that as a major step towards incorporating local content in mining, the Chamber of Mines, Minerals Commission and the International Finance Corporation (IFC) of the World Bank have entered into a Memorandum of Understanding (MoU), wherein 29 key areas have been identified to deepen local participation
Extractive industry watchers have observed that the sector is fully taken over by foreigners, though locals have equal capabilities in many areas of the industry.

Many reckon that if the necessary support had been provided, there are Ghanaians who would have ventured into the sector and raised capital from within to manage their own operations.

An estimated 34 percent of the value of annual mineral exports currently enjoyed by foreign firms and expatriates providing mining services in the country could revert to locals if they were able to provide these services.

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

The procurement expenditure-royalty revenue by Newmont Ghana shows that the company spent over US$100 million on procurement since 2006 but paid royalties less than a quarter of that amount. In 2007, Newmont Ghana exhausted about US$101 million on procurement and paid less than US$9 million as royalties.

In a recent interview, Lands, Forestry and Natural Resources Minister Mike Hammah said new regulations have been finalised to boost participation of local contractors in the mining sector.

These regulations, which constitute subsidiary legislations for the industry, are targetted at giving effect to the new policy on local content introduced by government to enhance the development of Ghanaian enterprises. It seeks essentially to confine the provision of specific products and services in the mining sector to local contractors.

“Apart from creating jobs and economic opportunities for locals, this is an effort to enhance the outcome of mining operations on indigenous populations -- a vexed issue that has been a source of strife between mining companies and inhabitants of mining communities,” Hammah said.

Mr. Daniel Twerefour, a senior lecturer at the University of Ghana told participant at a recent symposium in Accra that the failure of the country's mining sector to contribute meaningfully to the Gross Domestic Product (GDP) of the is a clear indication of the weak local content of its mining policy, resulting in ineffective management of mineral resources.

Industry observers are in disagreement with the Chamber's local content policy decision because it allows the multinationals a flexibility to outwit local companies by giving contracts to expatriate enterprises which they favour, and using compromising indigenous businesses as fronts for the foreign mining companies.

In a recent World Bank report, the Bank has urged West African governments including Ghana to enact and implement appropriate policies and regulations to encourage mining companies to procure more equipment, supplies and services from local companies while providing a supportive enabling environment for enterprise development and investment.

“Governments can require mining companies to develop and submit local procurement plans, review concessions on targetted import tariffs and duties, promote linkages and investment along the mining supply chain and allocate revenues from mining to support local supplier development,” the study said.

The study, under the theme ‘Increasing Local Procurement by the Mining Industry in West Africa’ and focused on Ghana, Guinea and Senegal, recommended that West African governments work with mining companies, suppliers, and civil society to strengthen definitions and indicators for measuring local procurement.

It again suggested that regional organisations can help develop a harmonised list of products across the region that may be exempted from customs duties, promoting linkages and investment along the mining supply chain, developing a regional list of suppliers, and continuing to facilitate regional trade.

“Mining companies need to ensure that local companies have full, fair and reasonable access to opportunities. They should share information on their procurement needs, helping to identify and assess the viability of suitable products and services for local supply, and broadening access to tenders and requests for quotation.

The World Bank revealed that raising the share of local procurement by mining companies will spread the benefits of mining more evenly across a countries’ economy, creating jobs and stimulating the sustainable development of local enterprises.

“Increasing local procurement by the Mining Industry in West Africa would spread the benefits of mining more evenly across a country’s economy, creating jobs and stimulating the sustainable development of local enterprises.”

The report revealed that few mining companies in West Africa have established policies to support local procurement, although some efforts had already been launched to seek a more consistent, formal approach.

“There are important potential opportunities for expanding local supply in areas such as camp management, civil works, construction and transport, as well as drilling, mining, and equipment maintenance.”

The WB said local procurement by mining companies could bring significant benefits to a wide range of stakeholders in resource-rich countries, due to the large scale of current and potential mining activity in West African countries.

The World Bank's Vice President for Africa, Obiageli K. Ezekwesili, said: “Buying local goods and services would serve as a catalyst for private sector development and lead to sustainable growth.

“Mining companies should not only extract wealth, they must inject opportunity, mining served as an economic engine for West Africa, supplying about nine percent of the world’s bauxite, and eight percent of its gold.

She said: “This contribution is expected to grow, with large gold, iron-ore, and bauxite projects in advanced planning stages, along with unexploited uranium, copper and diamond deposits across the region.

“Even if those levels of mining activity involved significant procurement spending, both in capital investment and operational costs, there has so far been only limited participation in mining supply chains by companies based in West Africa.

“This situation endures despite existing capacity and the potential to expand the capacity of local small and medium enterprises.”

Mining sector accounts for 5% of the country's GDP and minerals make up about 37% of total exports, of which gold contributes over 90% of the total mineral exports.

Ghana is Africa's second largest gold producer, producing 80.5 tonnes in 2008. The country is also a major producer of bauxite, manganese and diamonds.

The country has about 23 large- scale mining companies which produce gold, diamonds, bauxite and manganese. The sector contributes to government revenues through the payment of mineral royalties, employee income taxes and corporate taxes.

Meanwhile, government’s Local Content and Participation Bill for the oil and gas sector is expected to be submitted to parliament by the first quarter of 2012. Cabinet has approved the draft bill and parliament has started studying it.

Emmanuel Armah-Kofi Buah, Deputy Minister of Energy said the policy stipulates that all regulatory authorities, contractors, sub-contractors and other entities involved in any project or transaction in the oil and gas sector should consider Ghanaian companies and operators first in the award of contracts.

The Minister said the policy, if implemented, will increase Ghanaian participation in the oil and gas industry to 90 percent by 2020.

“Under the policy, operators will be required to give priority to the purchase of local products and services from Ghanaian entrepreneurs, even if their prices are up by 10 percent,” said the draft policy.