Thursday, 19 July 2012

Reversing the mining blunder in Ghana: Miracle or Mirage?

If we did a proper cost-benefit-analysis of the mining industry in Ghana, taking into account the environmental and social cost, we’d be getting nothing” - Daniel Owusu-Koranteng, Executive Director of WACAM (credit: DanWatch and Concord Danmark Report, 2010)

Known to be the proprietor of valuable natural resources in the world, the African region was expected to be a haven that would soothe the excruciating pains of tattered penury amongst its people. Contrary is the situation on the ground. With potentially large oil fields and abundant mineral reserves, poverty continues to have a firm grip on majority of the people. In Paul Collier’s “The Bottom Billion”, the scholar defines the ‘bottom billion’ as the lowest-income segment of the world’s population, living in countries with seemingly intractable economic and political problems and long track records of poverty and stagnation. Nearly a third of these people live in countries where resource extraction dominates the economy (World Gold Council, 2009). Against the backdrop of this paradoxical phenomenon, the polemic of the resource curse has been kept much alive in resource-rich economies especially in the African region. The issue of intrinsic consideration has been whether or not the presence of natural resources has been beneficial or detrimental.

For centuries of gold mining and other mineral extraction in Ghana, it is widely argued that the prospects of these mineral resources have not left any easy blueprint for ensuring sustainable development and poverty alleviation. Though mining constitutes the largest source of foreign direct investment and that minerals are the leading export earner, the sector has not helped reduce poverty and other development challenges. With the influx of multinational mining companies, the situation has been development that largely benefits these companies to the neglect of people and the economy at large. Despite boom in demand and prices of minerals, the woes of people and countries in the African continent especially Ghana keeps deepening with no end in sight. The deserving question to pose is that what has been the devil in the details of operations of mining that has brought this untold hardship to people?

In a report by DanWatch and Concord Danmark titled “Golden Profits on Ghana’s Expense – An example of incoherence in EU policy” in May 2010, “substantial growth has eluded the African continent by reasons of loopholes in the EU’s tax legislation, limited regulation of tax havens and lack of transparency in accounting standards for multinational companies. These have allowed massive illicit financial flows from Africa to tax havens in Europe and across the rest of the globe”. In that same report, it is stated that new research shows that over the period 1970-2008, Africa lost US$854 billion in cumulative capital flight just enough to wipe out the region’s total outstanding debt and leave US$600 for poverty alleviation and economic growth. From 2000 to 2008 the illicit outflows from Africa accelerated by 25 percent coinciding with boom in natural resource prices and international trade. In furtherance of this dreadful development, as stated in the report, on a global scale approximately US$1 trillion is now illegally moved out of developing countries every year, about two thirds of it due to commercial tax evasion. The capital flight from poor countries amount to eight times total global development assistance”

In essence, these facts justify why poverty abounds in the African region especially Ghana even in the presence of potential mineral resources. These are the blunders associated with mining that has exacted huge costs on the region. Is there any hope for the future for economies in Africa? What about Ghana? Mining has brought in its wake funds passing under the bridge and has steadily plundered the country’s deserved wealth.

BREAKING THE CURSE

Even in the midst of identified challenges in the mining industry in the African region, evidence suggests that Botswana has been able to sustain its economy to the path of growth and stability using diamond. This indicates that after all, when prudent strategies are fashioned out, the sector can see a broad day light.

The missing ingredient behind the doom of resource-rich countries is financial transparency. Transparency is perhaps the most innovative and most talked-about aspect of the global fight against the resource curse. Let us narrow the arguments to Ghana. Being the second largest producer of gold in Africa, it goes without saying that Ghana is a victim of dishonest capital flight and untaxed or under-taxed revenues. In her bid to fight the impacts of the resource curse, the country accepted to be a candidate of the Extractive Industries Transparency Initiative (EITI), an independent and voluntary standard for creating transparency, in September 2007. However, the mining sector has experienced long periods of gruesome secrecy.

There has been a milestone step towards financial transparency that would serve to benefit the African region and Ghana to be specific. The U.S. Congress has passed the financial transparency law as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act which includes a provision that requires oil, gas and mining companies registered with the U.S. Securities and Exchange Commission (SEC) to disclose how much they pay to foreign countries and the U.S. government for oil, gas, and minerals. The provision was based on the Energy Security through Transparency Act (S. 1700), which was championed in the U.S. Senate by a bipartisan group of legislators led by Senators Benjamin Cardin (D-MD) and Richard Lugar (R-IN), with Patrick Leahy (D-VT) introducing the provision as an amendment during the conference negotiations for the bill (PWYP-United States).

Now, President Obama has signed the bill into law on July 21, 2010 at the massive Ronald Reagan Building. The US President on that Wednesday said “Today, thanks to a lot of people in this room, those reforms will become the law of the land." This signals the turning point for the sweeping overhaul of financial regulations in the extractive industries around the globe.

This has been described as unprecedented considering the nagging challenges the fight for transparency and openness have experienced. As part of the legislation, all oil, gas and mining companies registered with U.S. stock exchanges will be covered. According to Publish What You Pay-United States, the measure covers 90 percent of the world’s largest internationally operating oil and gas companies, and eight of the world’s ten largest mining companies. It will, as a result, provide citizens in nearly every country around the globe with much needed information. In Ghana, many mining, oil and gas companies that operate within the borders of the country are registered with SEC. For example, Newmont Mining, Anglo-Gold Ashanti, Gold Fields Ghana, Goldenstar Resources (and others) are registered with the SEC.

There is therefore every reason to believe that the revenue distribution in the mining sector to sub-national governments will witness an enormous change with regard to the right amount these companies pay and the amount government receives. The local people would now be equipped with a unique tool to hold their leaders to account. It still remains a fact that mining in Ghana has rarely had a glorious history. Obuasi, Tarkwa and other typical mining towns with their huge contribution to mineral wealth have nothing special to boast of. Infrastructure development and livelihoods are in tatters and environmental damages have been rendered normal.

THE MOMENT IS NOW!

This is an opportune moment for the country to track all revenues in the sector to ensure that basic services like healthcare, education, job creation do not continue to be a mirage. The legislation requires that companies that engage in the commercial development of oil, natural gas or minerals, will have to include in their annual reports filed with the U.S. Securities and Exchange Commission (SEC) the type and total amount of payments made for each project; and, the type and total amount of payments made to each government for the purpose of commercial development of oil, natural gas or minerals.

It is responsible that multinational and local mining companies operating in the country adjust their structures to best suit the implementation of this reform. Financial transparency would provide the right tool to check underpayments in extractive industry revenues, tax evasions and illicit financial flows from the country. These are precisely the issues behind the country’s underdevelopment hinged on the mining sector. In the light of these strategies, the institutions in charge of tracking revenue flows should be adequately capacitated to carry out better revenue reporting without any form of inducement or favour. 
According to the report by DanWatch and Concord Danmark, Ghana is amongst the ten low-income countries in the world that lose most of their entitled taxation as a consequence of price fixing. Since 2007 Ghana has thus lost approximately 36 million euros. These are hefty amounts that could solve the country’s financial incapacities to infrastructure development.

CONCLUSION

It is about time the country restored the lost glory of the mining sector. Revenues that accrue from the mining sector should be channeled to providing basic services to the poor. It now behooves the civil society groups and organizations to shed light on revenues and overall operations of mining companies and government to set the stage for accountability and prudent management of the people’s money. The comprehensive publication of revenue flows will ensure a level playing field that would extirpate unwarranted contentions and suspicions. Certainly, Ghana ought to use the benefits of the sweeping US Congress financial transparency reforms to reverse the unmerited mining blunder. The transparency legislation will clearly provide momentum for sorely-needed changes in the mining sector and even the emerging oil and gas sector. Ghana can make it if we change the order of things now! 

BIBLIOGRAPHY
World Gold Council (2009), The Golden Building Block: gold mining and the transformation of developing economies. With an economic life-cycle assessment of Tanzanian gold production, September, 2009
DanWatch and Concord Danmark (2010), “Golden Profits on Ghana’s Expense – An example of incoherence in EU policy” May 2010
Publish What You Pay, PWYP Press Push for U.S. Transparency Legislation – Some Points for PWYP Coalition Press Releases, July 13, 2010 United States