Mining in Africa

Regulation and Development

Bonnie Campbell

• Publisher: Pluto Press
• Year: 2009
• eBook ISBN: 9781783718504
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

The continent of Africa is rich in minerals needed by Western economies, but rather than forming the basis for economic growth the mining industry contributes very little to African development Investigating the impact of the 2003 Extractive Industries Review on a number of African countries, the contributors find that a key dimension of the problem lies in the regulatory frameworks imposed on the African countries by the IMF and World Bank. They aim to convince academics, governments and industry that regulation needs to be reformed to create a mining industry favourable to social and economic development and environmental protection.

1	MINING IN GHANA:IMPLICATIONS FOR NATIONAL ECONOMIC DEVELOPMENT AND POVERTY REDUCTION Thomas Akabzaa

INTRODUCTION

Many have argued that the mining industry in Ghana has strong potential to generate taxes and related revenue and employment, substantial enough to provide significant economic benefits to the country and improved livelihood for the population. However, 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. The situation is exacerbated by the growing exclusive use of surface mining technology by mines coming on-stream since the reforms. 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.

(Otto et al., 2006: xi)

In the light of the first series of recommendations by the Extractive Industries Review (EIR) to the effect that well-managed mineral extraction, including proactive planning, should contribute to maximise poverty alleviation through sustainable development, this chapter seeks to inform the debate by examining the extent to which there has been an impact on government revenue generation from the range of taxes, tax incentives and other fiscal concessions in the mining sector, as provided in the fiscal regime of the Minerals and Mining Law, PNDCL 153 of 1986 (Government of Ghana, 1986) and its associated collection of addendums and amendments, all now consolidated in the revised Minerals and Mining Act 703, 2006 (Government of Ghana, 2006). The chapter explores the implication of the taxation and incentive regimes on national and local retention of revenue from the mining sector for development purposes.

Beginning with an overview of the potential of the mining sector in Ghana and the dichotomy of perceptions on the contributions of the sector to national development and poverty reduction, the chapter continues with a presentation of the reforms in the sector to date. It examines the range of taxes and tax concessions provided by the fiscal regime of the Mining Code and negotiated investment agreements. Normally mining companies exact much more in the way of fiscal and other concessions, and lower taxes and possible tax deferment schedules, in negotiated investment agreements than are contained in the Mining Code. The chapter further explores the national development implications of such concessions, particularly their implication for fighting rural poverty among mining-affected communities.

The conclusion is 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.

Ghana’s Mineral Wealth Is Not in Dispute, its Impact on the National Economy Is

Ghana is endowed with significant mineral wealth. Minerals such as 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. There is also growing potential for commercial gas and oil exploitation, bolstered by the announcement of significant discoveries in June 2007. Efforts to harness these resources for national development through the promotion of foreign investment to the sector have a long history, but one which has grown most remarkably since Ghana signed on to the structural adjustment programme (SAP) prescribed by the World Bank and the International Monetary Fund (IMF) in 1983. The programme necessitated reforms in key sectors of the national economy including the mining sector.

Since Ghana’s mining sector reforms under the SAP, there has been a significant upsurge in mining activities in the country. From the inception of the reforms in 1983 to date, the sector has witnessed a considerable investment boom and an increased number of new mines and mineral properties at mine development and advance exploration stage, particularly in the gold sector. In addition, the sector has attracted a significant number of mining support companies such as catering, transport and security companies, explosive manufacturers and mineral assay laboratories.

The impetus and strong will to carry through these profound reforms is premised on the conviction of Ghanaian officialdom that the mining sector has a strong potential to accelerate national development and reduce poverty, particularly in communities within the periphery of mining projects. Such convictions are not exclusive to Ghanaian officialdom, but are shared by many globally. According to the final report of the World Bank-sponsored EIR, there is a strong belief in the possibility that remarkable poverty alleviation outcomes and sustained economic growth can be achieved through the generation and prudent management and allocation of revenues from resources in mineral-rich countries (EIR, 2003: 12). It is on account of this belief in the role of the extractive resources in poverty alleviation that the World Bank Group (WBG), whose proclaimed core business is to fight global poverty, is visibly involved in promotion and participation in extractive resource investment.

However, after nearly 25 years of sustained reforms in the mining sector in Ghana, the fundamental question remains: has the mining industry proved to be an effective vehicle for poverty alleviation and sustainable national development? This question is not intended to solicit a unanimous response, and as we might expect, although there is agreement on the mineral potential of the country, there is much disagreement about the importance of the contribution of mining to Ghana’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 directly impacted by mining activities, where poverty is pervasive.

One school of thought strongly contends that the industry is contributing substantially to national development and poverty reduction in Ghana. 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 ...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• List of Figures
• List of Tables
• List of Maps
• Acknowledgements
• Acronyms and Abbreviations
• Introduction
• 1. Mining in Ghana: Implications for National Economic Development and Poverty Reduction
• 2. Guinea and Bauxite-Aluminium: The Challenges of Development and Poverty Reduction
• 3. Mining, Poverty Reduction, the Protection of the Environment and the Role of the World Bank Groupin Mali
• 4. Mining and Protection of the Environment in Madagascar
• 5. Governance, Human Rights and Mining in theDemocratic Republic of Congo
• Conclusion: What Development Model? WhatGovernance Agenda?
• Index