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Opinions of Sunday, 5 January 2003

Columnist: Antwi, Henry

Managing Ghana's Mineral Resources - NPP Beware!

Mineral development has become a particular focus of attention for governments in developing countries, such as Ghana. In 1984 the Minerals Commission was established to assume the overall responsibility for the orderly promotion and development of all important and exploitable minerals in Ghana. The then PNDC Government launched special investment incentives that recognize the unique characteristics of mining. The resulting legislation, the Minerals and Mining Law 1986 (PNDCL153), combines regulation of the mining industry with a special fiscal regime structured to encourage investment and development of mineral resources. The NPP Government has also indicated its intention to review the current mining laws and make it more attractive for investors. Investment, foreign as well as Ghanaian, is encouraged through various incentives, such as favourable amortization requirements, generous external retention allowances, a fair level of royalties and taxes etc.

In previous articles and lectures, I have tried to elaborate on some of the challenges the country faces in the wake of intense competition for investment capital. The NPP Government has shown a commitment to private sector development. This will help rate Ghana highly as an attractive country for investment because investors consider country risk to be much lower where there is an explicit commitment to and a demonstrated track record of support for private investment.

As a result of the huge capital requirement characteristics of mining ventures, development is usually undertaken by companies which have a strong financial backing. In Ghana, most of these companies are foreign owned and they are sometimes distrusted because of perception that foreign owned companies are in to profit from the country’s rich resources. While the critics might have the country’s interest at heart, experience has shown us that if efficient extraction of minerals is best achieved by importing foreign capital and management, it is not advisable to insist on national ownership. The poor performance of the previous State Gold Mines is an indication of how things can go wrong with nationalisation schemes. However, we need foreign investment in the context of due respect to Ghanaians at all levels. We should not tolerate the enslavement of our workforce and we should hold mining companies responsible for any safety flaws, disregard for the environment and non-compliance with our mining regulations.

The state of the global economy and the perceptions of the future will determine the aggregate level of spending on exploration and new mining investments. With the right policies, Ghana can benefit from significant changes taking place in world mining, including the geographical shifts of mining investments. The NPP Government should therefore grasp the opportunity for investments in the sector, but put policies in place to ensure communities where mines are located benefit from the mineral resource extraction. Despite the benefits of mineral development, communities will be justifiably uncooperative if they do not see any development in their towns so the government cannot afford to turn inward towards improvement of social and economic conditions. The current state of our mining towns (Obuasi, Tarkwa, Bibiani, Prestea, Bogosu etc) is partly due to the diminishing ability of local governments to provide essential services and lack of proper mechanisms to ensure that royalty disbursements from mining ventures are used for the development of these communities. Alan Stevens (1995) rightly said, “it is an elementary principle of social justice that if wealth is being produced from resources in an area, at a social cost, then everybody should receive some compensatory adjustments to the change of lifestyles.” When economic and social developments do not take place, there are generally feelings of dissatisfaction in the community.

The rules for mineral development should also be clarified to communities and the investor. For example, it is the responsibility of the government to acknowledge the right to adequate compensation to communities that are affected by environmental impacts, such as pollution of water sources from disposing wastes and tailings from the mines. There should be mechanisms in place to put the responsibility on the mining company. There is also the need for a legislative framework that protects Ghana’s interests while providing an attractive, stable and competitive regime for minerals industry investment.

The industrial world started depending on developing countries for mineral raw materials at the turn of the 20th century. In part, this reflected the growing consumer requirements of the industrialised nations, but perhaps more importantly, it was the result of a gradual decline of the domestic mining industries in the developed world. In almost half a century following World War II, mineral-exporting countries experienced a series of massive swings in their terms of trade that amounted to severe macro-economic shocks. Whether the shocks were booms or slumps, they had a profound impact on the structure and welfare of the economies and societies in Africa. The succeeding slumps were perceived as welcome respite in the industrial countries, but for low income exporters in Africa, they brought yet another major challenge to the social fabric, the economic policy and the basic task of meeting the material needs of expanding populations. It is in this context that we have to remind those involved in the planning and analytical functions connected with the mining industry that business cycles do exist. The industry is now becoming more vulnerable to booms and busts as economic pulsation increases.

Revenue generated from mining can be judiciously used to improve education, health, infrastructure development and create jobs to stimulate the local and national economies. It should however be acknowledged that accurate long term forecasting of mineral prices is a difficult undertaking. Additionally, fluctuating mineral prices also make budgetary planning extremely difficult. Commodity prices are volatile and make it more difficult for governments to manage their activities in a way that facilitates economic growth. The volatile prices also lead to volatile revenues and create greater uncertainty. It is therefore important that mineral revenue flows are separated from other revenues and released to the budget at a steady rate drawn from cautious predictions.

There is the natural tendency by governments with high mineral income to spend or use the improved access to financial markets to borrow more and raise expenditure. In periods of windfall mineral revenues, some governments in developing countries even go to the extent of spending on the comfort of government officials while the masses suffer in poverty. The relatively poor economic performance of some mineral economies is due largely to how governments and other groups in society respond to booming or large windfall revenues from mineral production. Governments end up squandering the potential benefits of mineral abundance.

While mining provides the material bases for society’s existence, they are a product of physical processes and economic and sociocultural conditions. Ghana needs an open-minded receptivity to different perspectives and a willingness to work for the harmonization of the different cultures. I would like to remind my colleagues in the mining industry that community expectations for environmental protection in Ghana are increasing. The environment, lifestyle, education and health are all major issues that the industry needs to take account of, in conjunction with traditional leaders, local communities and the government, when planning new mining developments.

I also entreat the NPP Government to refine and implement policies and initiatives to maximise the discovery and development of mines, on a basis which maximises the ongoing economic benefit to communities and investors, without compromising internationally acceptable standards in employment, safety, environmental and other cultural related issues. There should be mechanisms for the communication of information regarding the environmental impacts of mining operations, associated hazards to surrounding communities and the environment, and control measures implemented by companies to redress any potential problems. These should be communicated to the communities in a culturally appropriate manner.

President Kufuor has reinforced the concept of positive change with very motivational initiatives such as the governments zero tolerance for corruption, the initiation of the golden age of business and its tenets of wealth creation. The NPP Government should now seek to ensure the judicious use of mineral revenues. Among other things, stability of political conditions in the country, record of performance of other investments, resolution of community conflicts and minimisation of delays that do not spawn any plethora of administrative bureaucracies will put Ghana back on the international limelight in mining. It is the responsibility of mining companies, investors and the government to ensure that mineral resources are exploited in a responsible and economically attractive manner. We owe this to all Ghanaians in our efforts to lift standard of living and improve on health and educational needs of the people.

Henry Antwi
The writer is a mining engineering consultant based in Sydney, Australia

Views expressed by the author(s) do not necessarily reflect those of Ghanaweb.