Feature Article of Thursday, 18 October 2012
Columnist: Ellimah, Richard
By: Richard Ellimah
The last decade has seen the emergence of what has come to be known as resource nationalism, spreading like wild fire across resource-rich developing countries, particularly Latin America and Africa. Over the last five years the phenomenon has become even more intense, assuming the character of an economic revolution!
Resource nationalism explains the situation where there is a certain sense that a country deserves a lot more from its natural resource endowments. There is therefore a citizen movement that makes a conscious attempt to get government to participate fully in natural resource extraction. Participation takes two main forms. Either the state gets involved in a partnership with private investment, or fully participates through a national corporation (like the Ghana National Petroleum Corporation).
Recent rise in resource nationalism can be traced to the emergence of leftist regimes in Latin America. Three decades of economic reforms under the aegis of the World Bank/International Monetary Fund have failed to churn out the expected social and economic transformation needed to lift the millions of citizens of these countries out of poverty and economic despondency. The result is a general dissatisfaction with market reforms accompanied by strangulating conditionalities. Hence the election of leftist leaders like Hugo Chavez of Venezuela and Evo Morales of Bolivia has given impetus to a growing attraction to socialist ideals, characterised by a nationalisation of natural resource wealth. The financial crisis in Europe and America has further dried up traditional sources of development aid, so more and more natural resource dependent countries are beginning to look inward for money to execute their own development agenda (endogenous development).
In Africa, the last couple of years has seen an increase in the number of countries making sweeping changes to the fiscal and legal regimes of their natural resource sector. It should be placed on record that most of the Mining Codes that were drawn in the 1980s and 1990s, usually under the guidance of the neo-liberal international financial institutions have lost their relevance. These periods presented serious political and economic challenges for most African countries so the need for agreements that ensured stability of investment for multinationals was paramount. Over 20 years of reforms have however rendered these reasons almost untenable. A compelling case is now being made by resource-rich African states that the sweeping incentives that are given to so-called foreign investors are no longer relevant. The result is that more and more resource rich countries are reviewing their mining and petroleum contracts to ensure they get value for money. Guinea for instance, has almost finished reviewing its mining contracts with a number of multinational companies operating in the country. According to the Guinean government, most of these contracts which were signed by past military regimes contained “unconscionable provisions” that denied the state its fair share of revenue. These “unconscionable provisions” have ensured that Guinea, though home to one of the world’s largest reserves of bauxite, remains among the poorest countries in the world. Early this year, the Liberian government also took a bold decision to review all concessions granted foreign multinational mining and forestry companies. The decision is aimed at boosting the capacity of the state to maximise revenue from her natural resource endowments. In Eastern and Southern Africa, countries like Tanzania, Zambia and Zimbabwe have all reviewed their mining codes to ensure the state maximises benefits from natural resources in the areas of taxation and royalty payments. In South Africa, Joshua Malema’s repeated calls for the nationalisation of the mining industry resonates very well with a number of his compatriots who still believe the industry remains one of the last vestiges of apartheid being used to perpetuate economic injustice against Black South Africans.
In the midst of all these flurry of states towards natural resource nationalism, the obvious question is does Ghana need resource nationalism? Resource nationalism has already been touted as the motivation behind a number of policy and legal interventions in the extractive sector embarked upon by the Government of Ghana in the last few years.
The Minerals and Mining Act, 2006 (Act 703) passed by the previous regime gives sweeping incentives to multinational mining companies operating in the country. Among these incentives are tax exemptions, clearance of mining equipment from the country’s ports free of charge, non-payment of VAT, expatriate quota and the right to keep up to 75 percent of mineral revenue in offshore accounts. The most contentious of all these are Sections 48 and 49 that empowers government to enter into Stability and Development Agreements with mining companies (who invest more than 500 million dollars in the country in the case of Development Agreements) so that for a period of 15 years, conditions prevailing in the country will not be altered to adversely affect the companies. Currently two mining companies have these agreements with government – AngloGold Ashanti and Newmont Ghana Gold Limited. Under Newmont’s Development Agreement, the mining giant is exempted from paying property rate to the Asutifi District assembly where it operates (compare that to the Obuasi Municipal Assembly that receives averagely 400,000 cedis per annum from mining giant AngloGold Ashanti alone and you will understand what the Asutifi District is losing out).
Furthermore, the Government of Ghana has ceded off its mandatory 10 percent free carried interest in Newmont, contrary to Section 43 (1) of the Minerals and Mining Act. As a result of these, though gold prices on the international market have more than tripled in less than ten years, government revenue from the sector has not seen any significant increase. For the sake of argument let us use the case of Newmont. In 2011, the company’s cost of production (including cost of equipment, employee salaries, compensation payments, royalties, other taxes and cost of CSR) amounted to 474 dollars an ounce of gold. Compared to an average gold price of 1,500 dollars, one can only imagine how much is leaving the shores of this country! The company made over 600 million dollars in profit from the Ahafo mine alone. It is scandalous that the people of Ghana did not receive a dime of this profit because government signed a Development Agreement that offer the mining company our 10 percent free carried interest (that could have fetched us over 60 million dollars). Interestingly, according to the Ministry of Finance none of the mining companies operating in the country pays any ground rent, though the amount is a paltry 50 pesewas per square kilometre of land (only recently reviewed upwards to about 9,000 cedis)! The figures clearly show that there is serious financial haemorrhaging in the extractive industry due to these self-inflicted legal entanglements!
These developments have given a compelling reason for Ghana to have its own form of resource nationalism. There is no doubt that the state as the trustee of all natural resources ought to benefit more from her natural resource endowments. It is gratifying to learn that some attempts have been made in this regard. In 2010, royalty rate was fixed at 5 percent, from the sliding figures of 3 – 6 percent, because no mining company ever paid the upper limit of 6 percent. Taking this a step further, the 2011 Budget Statement also announced three major fiscal reforms of the mining sector. These are the increase in the corporate tax rate from 25 percent to 35 percent; introduction of a windfall tax of 10 percent and a slash of capital allowance from 80 percent to 20 percent over a period of five years. But perhaps the most audacious step by the government was to set up a committee headed by retired University of Ghana Vice-Chancellor Professor Akilakpa Sawyer to review the fiscal regime of the mining industry. The mandate of this committee includes reviewing stability and development agreements signed between the government of Ghana and multinational companies. Though largely applauded by civil society which has been at the forefront of calls for the state to maximise its benefits from the extractives, the legality of the committee’s work has been questioned, considering that the affected extractive industry players have legitimate contracts with government. The Akilakpa Sawyer led committee can only work with the full cooperation of the industry players and through moral suasion.
Ghana stands at the threshold of her development now. There has never been a better time for government to take the bold steps that will ensure that the country derives maximum benefits from her natural resource endowments. With all the major political parties promising increased spending on education, it is time we perhaps consider reviewing the fiscal regime of the extractive sector to ensure we get enough money to finance these programmes.
*Richard Ellimah is a Journalist and Development Planner. He can be reached on email@example.com