The future of Ghana’s ability to remain the mining hub of the West African sub-region, and the sustained driving power of the sector to Ghana’s economy are sharply coming into question.
After a decade of robust exports and revenues, Ghana is instituting new fiscal measures to dramatically increase government’s take from mining.
The Ghana Chamber of Mines is now concerned that exploration dollars, increasingly flowing to Mali and other sub regional destinations would, in the near future, also shift production investments away from Ghana if current government measures are deemed to be inimical to growth of the industry.
“Already some mining companies are recording declining output. Some have fingered rising power costs as a major challenge to their growth potential and if new government taxation is perceived to be adding to costs, miners may not be enthusiastic about reversing the declining outputs anytime soon,” said Mr. Sulemanu Koney, the Chamber’s Director, Analysis, Research & Finance.
Generally, the mining sector is not given to knee-jerk reactions to challenges of this nature, but if planned future investments in the country’s mining sector are delayed or scaled down, due to government’s actions, then the country could be losing not only some of its shine as a driver of the industry in West Africa, but mega dollars inward bound into the sub-region, which in recent times have been locked in on the radars of many big industry players.
This is not lost on the Chamber of Mines. Little wonder the focus, during its biennial conference and exhibition to be held in Accra in June, seeks to reposition Ghana as the gateway for mining investments and business opportunities in West Africa.
Ghana’s mining industry accounts for five percent of the country's GDP and minerals make up 37 percent of total exports, of which gold contributes over 90 percent of the total mineral exports. The focus of Ghana's mining and minerals development industry therefore remains on gold. Ghana is Africa's second largest gold producer, after South Arica, producing approximately 3.3 million ounces in 2011 but a long-simmering perception that the country is not receiving any benefit from mining, or is not benefiting enough, has reached boiling point, especially in the light of sustained high bullion prices on the international market and yet with no visible physical transformation of the country’s mining communities such as Tarkwa and Obuasi, compared to South Africa’s Johannesburg.
Taxing the mining companies more is seen by government as the best measure to address this ‘losing out’ perception.
Since 2012, government imposed fiscal measures on the mining companies including changing the existing mineral royalty of a range of three to six percent to a flat rate of five percent and also changing capital allowance from 80 percent in the first year and 50 percent on declining balance to a straight line amortization over five years at 20 percent each year.
Government also pushed for the ring-fencing of assets for the purposes of determining tax payable, while corporate tax was increased from 25 percent to 35 percent.
While these measures have drawn some ire from mining companies, perhaps the most contentious has been the proposed review of Stability Agreements, as well as a windfall profit tax of 10 percent.
AngloGold Ashanti and Newmont Ghana Limited, two among the leading mining firms in the country in terms quantum of investments, as well as output, are the only firms with stability agreements with government, which cover the fiscal terms under which they operate in the country and is meant to cushion them against major fiscal changes within the country. They have raised issues about the need for their exemption from new fiscal arrangements since their stability agreements had not elapsed, though they claim they’re not essentially against government’s moves.
Meanwhile government, buffeted by increasing pressure in recent years from civil society, labour unions and politicians of all shades of ideological persuasion, seems to have been emboldened by recent IMF support for higher taxation of operators in the extractives industry. A shot in government’s arm has been the recent discovery and production of crude oil, which has helped strengthen Ghana’s bargaining position with the mining firms.
The mining corporate tax, for instance, is being hiked to 35 percent to reflect what pertains in the oil sector.
The mining firms, which are mostly multinationals, are not really hollering and throwing tantrums at these new measures knowing that their hands are somewhat tied behind them. The global trend toward resource nationalism is helping host countries up their take from the extractive industries.
Australians firms operating in Ghana, for instance, have said given new measures being instituted in their home country, Ghana’s new fiscal regime poses far less of a threat and are therefore not considering moving out of Ghana anytime soon.
But expectedly, some firms are not taking everything lying on their back. Chief Executive, Nick Holland of Gold Fields, the world's fourth-largest gold producer and Ghana’s leading producer which registered a marginal decrease in production by about two per cent from 735,034 ounces in 2010 to 717,342 ounces in 2011, said last year in Johannesburg that his company’s planned projects that could bring US$1 billion in investment to Ghana were at risk because of the tax changes and those investments were likely to be delayed.
The Ghana Chamber of Mines however insists that, the mining firms are not necessarily opposed to any new changes.
“We would prefer that we are engaged in consultations and discussions over these matters by government, even if only to point out what the implications of any new measures are on our operations,” said Sulemanu Koney.
The mining industry, now reeling under the pressures of increased resource rent tax and excessive demands to provide basic infrastructure in mining communities, is looking to kill two birds with one stone.
They are pushing for a system of tax credit that could help reallocate more of miners’ tax contributions to host communities thereby promoting their development and easing growing pressures, both on mining companies and government.
An industry consultant, Mr. Sam Adam, proposed a tax credit scheme, at the second Ghana Chamber of Mines’ Mining for Development Forum, in Accra, October 30, which essentially is an infrastructure development scheme that allows government to use resource developers as contractors to implement infrastructure projects without the need for appropriation from the Treasury.
Under the scheme, approved government projects are funded, managed and implemented by the developer, and expenditure thereof set-off against tax payable by the company for the year.
It is set as a percentage of the annual assessable income of the company; for example one or two percent.
The Tax Credit Scheme, in effect, is first call on government resources.
It would seem the mining firms are not intractably set against more taxation; but they certainly are against the perception that sustained high bullion prices automatically translates into windfall profits for them.
Dr. Toni Aubynn, CEO of the Ghana Chamber of Mines, has also argued that any fair discussion of resources tax must not only look at the miners’ current earnings side of the equation but also how the hundreds of millions of dollars they pump into the economy is applied to developing the host communities.
Additionally, there must be some considerations about costs of production, which have been heading north in recent times.
Both government and the mining firms seem keenly aware of challenges Ghana’s mining industry will be confronted with in the near future.
There is the need for fresh investments in the sector and a conducive fiscal regime which guarantees a high degree of certainty for investors is still an imperative; but government’s take must also be enhanced to enable it deliver development speedily, if the industry is not to face serious backlash from an increasingly agitated population – as is demonstrated in the proliferation of illegal mining activities that threaten the very survival of the industry and the nation’s status as a safe mining haven.
The optimum position, where all players are comfortable, is somewhere between increased taxation, and the tax credit proposal miners are putting across. That certainly calls for regular engagements among all players if there is to be a sustained flow of resources into Ghana’s mining sector and help maintain its status as a mining hub.
Source: Emmanuel Kwablah/Economic Tribune/Ghana
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