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After benefiting from record-high world commodity prices for several years now, the Ghanaian economy now faces what is potentially its biggest external shock since the surges in international crude oil and food prices which began in 2007 and ultimately left the country with an unprecedented fiscal deficit of 14.8% of Gross Domestic Product for 2008. This time though, the debilitating danger is coming from the gold price which has plummeted by 25% over the past few months from a high of over US$1,600 an ounce to barely US$1,200 an ounce. Despite the emergence of Ghana as commercial oil and gas producer, and the firming up of both cocoa prices and its production, mining remains easily the country�s biggest foreign exchange earner, generating US$5,643.3 million in 2012; this roughly matching the combined contributions of cocoa and of oil and gas put together. Which means of the gold price fall, by knocking off a commensurate 25% fall in export earnings from gold sales, could cost the nation some US$1.2 million in foreign exchange revenues. This could not have come at a worse time. In 2012 Ghana incurred unsustainably high fiscal and trade deficits. The fiscal deficit, which was 12% of GDP but in absolute terms, at about GH�8 million was the biggest in Ghana�s history. The trade balance deteriorated significantly last year as well, resulting in a current account deficit of US$4,921.5 million, translating into 12.3% of GDP. Thus the gold price slump stands to worsen an already bad situation. Ironically though, this particular external shock to awaken the nation to the sheer importance of Ghana�s much maligned, and arguably much over-taxed, mining industry. To be sure government has since 2010 looked primarily to the mining industry to fund the public treasury, especially since the oil and gas sector tax revenues have been very disappointing. This has involved a severe stiffening over the past two years of the fiscal regime. Since 2010, the Government of Ghana, its agencies and even local governments and traditional authorities have been introducing a plethora of new taxes and levies on mining companies, increasing their overall costs significantly. Mineral royalties have been increased from a range of 3% to 6% (obviously most mining firms were paying the lower end of the range) to a flat 5%. Capital allowance has been changed from 80% in the first and 50% thereafter annually on a declining balance basis, to a straight line amortisation of over five years at 20% each year, further increasing their tax liabilities. Corporate tax payable by mining companies has been increased to 35%, whereas that paid by companies in other sectors has remained at 25%, until the recent reintroduction of a 5% national stabilisation levy. Now mining assets are ring-fenced for the purposes of determining tax payable, which means a company can no longer pass on losses made on an operation in one place against taxes on profits made in an operation elsewhere. Add to all these, a 900% increase in Exploration Permit Fees charged by the Environment Protection Agency, and 1,800% increases in both stool fees per 50 square kilometres of mining licence, and stool fees per 100 square kilometres exploration licence. The Stability Agreements between the government and the biggest gold producers in the country are being reviewed too with tighter fiscal terms being insisted on by the former. Next on government�s wish list has been a windfall profit tax on mining companies which it has been trying to introduce for more than a year now. Indeed in 2012 a windfall profit tax bill which would impose a further 10% tax on mining companies was tabled before Parliament, but was subsequently withdrawn for what government itself described at the time as technical deficiencies which needed to be corrected before being presented again. In March this year, while presenting the 2013 Budget, Seth Terkper, Minister for Finance, promised that government would re-introduce the Bill in Parliament, �in the coming weeks� after due consultation with all stakeholders. This will, however, not be an easy thing to do under the current circumstances in the gold industry. Simply put, not only are mining companies in Ghana not making windfall profits anymore; they are hardly making any profits at all. The Ghana Chamber of Mines computed the average operating cost, of gold mines in the country at US$751 per ounce, as at August last year. Ostensibly therefore, this would still leave mining companies with a healthy US$450 per ounce profit, even at the current slumped gold price. The snag, however, is that while US$751 measures the average cash cost per ounce, it does not take into consideration a host of other expenses which mining companies incur, such as exploration costs, capital expenditure on mine upgrade and expansion, on vehicles, and the likes, and the cost of meeting already existing tax obligations, levies and licence, and permit fees. This is captured in what the mining industry calls Notional Cash Expenditure (NCE), which measures mining companies� overall expenditure, per ounce of gold produced. About a year ago, when gold price was still about US$1,600, the Ghana Chamber of Mines released its computations of the average NCE in Ghana and came up with US$1,200 per ounce. All this means that government will not only have to look elsewhere for the revenues it needs to plug its fiscal deficit, but also that the gold price slump will widen that deficit beyond earlier expectations. Dramatically lower stated profits, even when declared on the basis of cash costs rather than NCE, will still mean less taxable income from the sector that contributes more to government�s treasury than any other sector. According to the statistics from the Ghana Chamber of Mines, the mining industry paid GH�893.77 million in corporate taxes in 2012, representing 36.98% of the total company tax collected by the Ghana Revenue Authority last year. Furthermore, last year the mining companies repatriated about US$3.2 billion, or about 73% of their revenue, back into the local economy, through the Bank of Ghana and the commercial banks. Add to all this, expenditure on corporate social responsibility for their host communities and the general public amounting to another GH�26 million in 2012 alone. But perhaps even more worrying over the longer term is the effect the gold price crash will have on new investment by mining companies in exploration. Simply put, the mining companies planned their current capital expenditure on the basis of the cash flows being derived from a gold price of over US$1,500. With lower revenues new being derived, these expenditures may have to be cut. Already mining companies are contemplating up to 3,500 jobs cuts as they review their expenditure plans. Which means that Ghana is not only facing a problem over the short term with regard to tax revenues from the mining sector but also that growth in identified reserves, and consequently production over the medium term may suffer as well. It is instructive that the mining sector is still being seen by Ghana�s public as a cash cow despite the deep problems now confronting it. Sooner than later, however, they are about to discover that it is not making profits, and then they will reduce just how important those profits have been to the country�s financial well-being.