Turning natural resources into development

Experiences from Ghana’s mining sector and lessons for its

emerging oil and gas sectorBy Steve Manteaw Campaigns Coordinator,

ISODEC

Overview of Ghana’s Mining Sector

• Ghana is a mineral rich country & depends heavily on mining revenue for its development.

• It hosts two of the world’s largest mining companies i.e. Anglo-Gold Ashanti and Newmont and home to over 100 mining and quarry companies

• In 1998 Ghana’s earning from gold exports alone was about $800m – 46% of gross foreign exchange earning.

Overview of Ghana’s Mining Sector (Contd.)

• Ghana’s total mineral revenue went up from US$1,419,974,200 in 2006 to US$1,793,343,307 in 2007, an increase of 26.29%. Gold revenue increased by 28.93% from US$1,327,455,774 to US$1,711,511,381 in the same period, reinforcing the precious metal’s position as the country’s leading export earner, and contributed substantially to the country’s balance of payments position in 2007.

Manifestations of the Resource Curse Syndrome in Ghana

• The hope that mining will bring about economic salvation has however proven illusive, because of perceived corruption and lack of transparency in the sector.

• In spite of the abundance of mineral wealth communities that play host to mining companies in Ghana still wallow in abject poverty.

• Unemployment is rife as large agricultural lands are encumbered by surface mining

Manifestations of the Resource Curse Syndrome in Ghana (Contd.)• Poor infrastructural development accounts

low level of investments in the local economy

• Poor access to education, health, water and sanitation

• High incidence of social conflict and violence leading to increased militarization and human rights abuses in mining communities

EITI and the Challenge of Mining Sector Governance in Ghana

• First report – a far cry from the objective: TOR did not require the aggregator to investigate the basis and the correctness of the computations, as a result, the appropriateness of the revenues received as mineral royalty, dividends and tax on profit could not be determined. The aggregator did not also analyze the tax deductions claimed by the companies for the purpose of identifying any improper claims. 

• However, EITI has enhanced stakeholder dialogue.

• Process audit has revealed systemic weaknesses

• Sub-national EITI has unraveled a primary cause of localized resource curse

Stakeholder dialogue

• EITI - A framework for dialoguing on how Ghana can maximize benefits from its natural resources. This has reduced the incentive for taking to the streets

• Civil Society views are respected. Perhaps because engagement is informed by quality research and analysis.

• Championed the review of ToR for audit, pushing for EITI legislation (Experts panel)

• Decisions taken by consensus

Process audit – systemic weaknesses exposed!

• Absence of inter agency collaboration, as in the case of the internal revenue service and the Minerals commission

• Eroded capacity of IRS in appreciating the financial intricacies of mining operations following the abolition of the special mining desk and replacement by the Large Tax Payers Unit

• Excessively long stay of customs officials at particular mines

• EITI has helped identify inefficiencies in our national tax policies and its administration: huge capital allowances deducted up-front and balances carried over; stability agreements explain why many companies are not paying royalties and corporate taxes – these are currently being looked at.

Process audit – systemic weaknesses exposed! (Contd.)

• Delays in transfers of communities share of benefits. This inhibits district development planning

• Transfers from Regional OASL to districts not accompanied by advice

• Ground rent not collected and not paid.

Sub-national EITI

• The premise • The formulae• Instances of misapplications exposed• Poorly designed CSR programmes• Reports – empowerment tool for demanding

accountability e.g. sub-national multi-stakeholder collaboration to reverse the local resource curse i.e. revenue tracking, community-based planning, citizens’ monitoring, linking CSR with district plans

Challenges of EITI Implementation

• Difficulty in accessing contracts / data• Identifying and preventing the incidence of

transfer pricing, and other tax avoidance, as well as tax evasion practices

• Extending EITI to the oil sector – The political, role clarity of the various ministries, departments, and agencies

• The need to expand the MSG, create space for parliament, while ensuring that it does not become unwieldy

Challenges (Contd.)

• The need to address the potential for role conflict at the secretariat, and to secure the independence of the MSG

• The need to ensure the sustainability of the initiative

• The natural resource balance sheet incomplete without social and environmental accounting

• The question of the Mineral Development Fund

Lessons for the Oil Sector

• Proper sequencing of the policy, legal, and regulatory frameworks key to maximizing benefits from the natural resource sector. In Ghana, we passed the mining law before contemplating a policy. No policy yet, almost a year to oil production. Legislative and regulatory frameworks not fully in place.

• We must avoid creating enclave economies in the natural resource sector

• Contract transparency is good but Freedom of Information legislation is better

• In the interest of equity, fairness, and national unity, we must engage communities bordering Ghana’s oil find over their demands for royalty transfers as is done for mining communities

• We must legislate the principles and formulae for benefit transfers to natural resource host communities

Lessons for the oil Sector (Contd.)

• We must manage expectations• We must create opportunities for

legitimate, and active participation of citizens through strong and effective local content provisions

• We must promote budget transparency at both national and community levels by creating opportunities for citizens’ participation in the budget process

Lessons for the oil sector(Contd.)

• We need to have an inventory / database of our natural resource endowment, their quality and rate of attrition to guide us in our negotiations

• We must have clear principles and guidelines for applying future oil revenues

• We must see our natural resource as an opportunity for asset transformation and not as merely income to be consumed, as has happened in the gold sector

Lessons for the oil sector (Contd.)

• We must review our tax rates regularly and bring them abreast with the times. At no time should the cost of collecting a tax be more than the tax itself.

• We must stay away from stability agreements in the oil sector if we can, if not, we must make them two-way street.

Conclusion

• Citizens groups are key to the development processes in our countries. After all, natural resources are held in trust for them. Their engagement in natural resource governance can be informed, and constructive when their research and analytical capacities are enhanced. Let us therefore commit to supporting them as part of our efforts at ensuring that the extractive sector contributes positively to national development and poverty reduction. THANK YOU!!!