WHAT IS IN MINING

Ghana is 55 years, but there is still obvious economic controversy about the strength of mining and the national development as well as the cost of socio-environmental damage to the mining communities, writes Ekow Essabra-Mensah

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.

There is much disagreement about the importance of the contribution of mining to the nation’s economic development. 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.

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

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 poverty indices, 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.

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.

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 the environment.

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

The industry may be categorised 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 Chamber of Mines projects a promising future for the country in the coming years, expecting gold to sustain its good performance on the global market while bauxite and manganese exports could fall as a result of a decline in demand.

Daniel Owiredu, President of the Chamber, explained: “The coming year looks promising for the mining industry. Additional production from new mines; Adamus Resources and the prospects from the Owere Mines will bring an increased production beyond the marginal output arising out of existing mine projects.

“The expected higher volumes of mineral production and strengthening of the 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$762million that was recorded in 2009.

Cumulatively, the investment inflow into the sector from 2000 to 2010 stood at approximately US$6.2billion. The total mineral revenue rose significantly from US$2.93billion in 2009 to US$3.73billion in 2010, representing an increase of 27 percent -- mainly on account of the healthy price of gold, although the other minerals also recorded increases in price 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$3.7billion 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 policymakers and governments is included:

Industry issues to be tackled head-on

Mining tax-hike

The announcement of new mining and mineral taxes was received with mixed reactions; sector operators describing them as too high, and having the potential to impede future investments in the sector.

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 of the oil and gas sector.

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

Seeking solace in the stability agreement

Questions of equity are beginning to emerge over tax-hikes in the mining industry as companies wielding so-called stability agreements appear to be protected and less aggrieved. At least two miners, Anglogold Ashanti and Newmont, have signed such agreements with the government that freeze taxes, royalties and other conditions over 10-15 years, and have said they do not expect to be immediately affected by the new rules.

Meanwhile, there are more than 20 large-scale companies that cannot seek solace in any stability agreement, and are subject to any changes or new rules that come into effect in the industry.

Gold Fields, which operates the Tarkwa and Damang gold mines, said in the wake of the tax-hikes that planned investments worth about US$1billion at the mines could be dealt a deathblow by the new development.

But shedding light on these initial comments made by chief executive Nick Holland in Johannesburg, the company’s head of corporate affairs in Ghana, Mrs. Pamela Djamson-Tettey, said the miner is having to reassess its plans because, unlike others, it is “directly exposed” to the hikes.


Dealing with illegal small-scale mining

There has been evidence of the growing involvement of some foreigners, especially the Chinese and Indians, in 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 flourishes 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 Wassa -- a mining community in the Western Region.

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

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

The Ghana Chamber of Mines also proposed that government strengthen its resolve in tackling the nuisance of illegal miners.

“Illegal mining should no longer be considered as business as usual.” And while we support 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 is totally unacceptable, said Dr. Toni Aubynn, the Chief Executive Officer.
Fast-tracking CSR guidelines for mines.

Chiefs and opinion leaders from various host mining communities made a case for the speedy implementation of laws to define parameters and guidelines for carrying out corporate social responsibility (CSR) activities in the mining industry.

Agyeahoho Yaw Gyebi II, Omanhene of Sefwi Wiawso, speaking on behalf of the chiefs argued that development of the national framework on corporate social responsibility for mining companies has been long overdue, and that political leaders and stakeholders need to help make the necessary inputs toward full adoption of a national guidelines to encourage effective support for improving the socio-economic lives of mining communities.

He noted that a CSR module has been used at the Ahafo Mine of Newmont Ghana Gold Limited, and it appears to be working successfully -- adding that this needs to be replicated in other communities.

“CSR strategies and practices can enable the mining industry to increase its impact on poverty-alleviation and development in the country in a cost-effective and practical manner,” he said.

In recent years concerns about the sustainability and social responsibility of businesses have become an increasingly high-profile issue in many countries and industries -- including Ghana, and more so in the mining industry.

For mining, one outcome of the CSR agenda is the increasing need for individual companies to justify their existence and document their performance through the disclosure of social and environmental information.

The minerals and mining sector regulator, Minerals Commission, is currently spearheading the development of a national framework to define parameters and guidelines for carrying out corporate social responsibility programmes in the industry.

The guidelines are currently at the draft stage and are drawn on policies, codes and principles issued by the industry, government, intergovernmental and non-governmental organisations.

The new rules are expected to serve mining companies, the government, local communities, stakeholders, and other groups with interest in or who are affected by mining activities.

Mr. Ben Aryee, Chief Executive Officer of the Minerals Commission, said: “It is important to address the integration of all aspects of economic, social and environmental benefits and impacts during and beyond all phases of life of a mining operation.

“This is to guarantee that benefits can be sustained to ensure the rehabilitation of disturbed lands, and for the continuous improvement of environmental, social and economic conditions.”

He explained that the guidelines were designed to serve as benchmarks for development and assessment for CSR programmes and activities by mining companies.

They are also intended to complement applicable binding national and international regulations on CSR and provide principles and guidelines for mining companies where these are absent, or could be improved upon within the context of the country’s development agenda.

Developing local content

Dr. Toni Aubynn, Chief Executive Officer of the Ghana Chamber of Mines, has blamed the country’s inability to devise a “comprehensive vision” and framework for local participation in the industry’s value-chain for its failure to derive maximum benefits from mining.

“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 said.

Meanwhile, the World Bank said both governments and companies need to do more to expand the benefits of mining to communities. It reckons the industry would have a bigger impact on economic growth if companies purchased more equipment, supplies and services from locals.

Countries have to enact policies that encourage local procurement, while helping locals to be able to utilise the opportunities, the bank said. For their part, companies will have to give fair access to locals to opportunities and provide information to communities on their procurement needs.

The bank said, also, that regional economic blocs could promote cross-border procurement by harmonising incentives and taxes linked to activities in the industry’s supply-chain.

Outlook for 2012 and beyond

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 earnings generated by the mining and the extractive sector.

The country has the right blend of prospectivity, strength of leadership, political stability, professional talents and an attractive social and cultural environment for mineral investments.

In assessing the implications of the proposals enumerated, no-one can question the positive strides relating to increased productivity in the sector when fully implemented.

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, paints a quite gloomy different picture.

In spite of concerns raised about governance of the mining sector in favour of the poor, 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 this way, the economic controversy about the mining and the national development, as well as the cost of socio-environmental damage, can be resolved and the question of whether after 55 years of nationhood the mining industry has proved to be an effective vehicle for poverty alleviation and sustainable national development can be answered.