The cash cow grows lean

Perceptions about the role of mining in developing economies raise critical issues. For a mining economy like Ghana’s, the contradictions are sometimes all too evident:

Contradictions of a state seeking to milk more from a mining industry, yet seemingly unwilling to tackle the challenges that confront the industry; the intriguing contradiction of mining communities seeing wealth leave their soils, yet enveloped in thick veils of poverty; the contradiction of a heavily taxed mining industry still considered as a gluttonous fat cow and a sinister ‘tax evader’.

Mining continues to be the number one contributor to the Ghana Revenue Authority. In 2014, 34 percent of Gross Export Revenue the country accrued was from mining.

Additionally, mining is a major source of forex for the country.

Also, contrary to popular perceptions, mining companies continued to retain a bulk of their revenue internally. According to the figures, in 2014, producing members of the Ghana Chamber of Mines returned $2.8 billion representing 77.5 percent of the mineral revenue through the Bank of Ghana and commercial banks.

Apart from mining royalties returned to host communities, mining companies continue to provide community sustainable development projects in their host communities.

For instance in 2014, a total of $1,958,895 was spent on education; $2,278,188 on health, $1,464, 607 on roads and $601,149 on electricity. Others are; $724, 822 on water, $522,284 on housing, $689, 408 on sanitation, 354,172 on agric and 53,004 on the agro industry among others.

Yet one day, all that could go crumbling, and we may see a mining industry lost in the soil; there is the talk of an energy-sapping energy crisis eating up industries in Ghana. In the mining sector, wild and erroneous perceptions of a fat cow getting fatter eat up mining companies even more ravenously.

The goodwill mining industries deserve is evidently thinning out. A combination of factors accounts for this; opaque and troubled utilisation of mining royalties paid by mining companies and wrong perceptions fuelled sometimes by awry cries of some civil society organisations that see no good in mining have amply torched and tortured the good perceptions people had of the mining industry.

Where do the royalties go?

Nine percent of royalties paid by mining companies is expected to be used to develop the mining communities. The utilisation of these monies after they are paid to the state is as opaque as an eclipsed moon.

When it comes to the utilisation of mining royalties, there are serious transparency issues; “There is no transparency in mining revenue use. The only transparency is in the payment of royalties,” the CEO of the Ghana Chamber of Mines, Mr Sulemana Koney, recently noted at a day’s workshop on mining organised by the Journalists for Business Advocacy (JBA)in Accra.

The royalties paid to mining communities may not be getting optimised utilisation, one may easily discern.

Mr Koney fears the priorities have been lost; “for instance, between 2011 and 2013, $854,407,800 was ploughed back into seven mining districts but was there a manifestation of commensurate development?”. He explained further that 30 per cent of the royalty paid to the district assemblies was used in the management of waste and queried whether it was a judicious way of exploiting revenue from a finite resource.

“This is a finite resource. It will finish one day. What plans are we putting in place to ensure that we have balanced development?” he asks. While waste management is an important area, the absence of easily measurable outputs as against the financial inputs made, makes it easy alibi for wasteful dissipation of resources.

At the heart of the challenge is the absence of the Mineral Management Revenue Act, which mining companies argue will also make the government more responsible in the utilisation of mining revenue.

The case against excessive taxes

Mining companies in Ghana face the brunt of a business unfriendly tax regime, some analysts say. And yet, there have been calls for more taxes with suggestions for the replication of a controversial Zambian model that the Zambians themselves have abandoned.

The Zambian government in response to popular concerns for more mining revenue for the state increased royalty to be paid by mining companies to a whopping 20 per cent. That spelt doom for the mining industry; ultimately, the government realised that the mining industry was not so fat a cow. “That killed a lot of the companies and the new regime has renegotiated the fiscal regime,” Mr Koney stated.

One pressing challenge Ghana faces is how to sustain the gains that have been made partly as a result of the investment in the past. Cote d’Ivoire and Burkina Faso, two of the country’s neighbours, have turned on an aggressive pursuit for mining investment. Their strength, unlike Ghana’s, is that they do not charge taxes on exploration.

Mining companies in Ghana are worried that that may give them some edge and ultimately impact on the ability of the mining industry in Ghana to attract more FDIs.

Because of the risks involved in exploration, some analysts believe that charging exploration taxes is inimical to the growth of the industry in Ghana. Mr Koney enforces this view and argues that any discussion on the mining industry should be placed within the context that it is a risky business. Indeed, mining exploration is believed to have a success rate of just about 20 per cent and it is an area many governments, including the Ghanaian government, have kept their investments from.

Low production

“Our concern is that production is going down,” Mr Koney stressed, and added that the high cost of production is a key factor that must be considered in addressing the production deficits.

He cites the very distinct electricity tariff regime for mining companies as well as special petroleum tax. On the petroleum tax he avers; “we already pay a premium and there is 17.5 per cent being slapped on that. If costs are too high, our competitiveness will be eroded”.

According to him, on a monthly basis, the mining sector cross-subsidised the consumption of social fuel such as premix by about $5 million.

Additionally, he added that the government was benefiting from mining companies by way of inordinate delays in the refund of surplus VAT, which was estimated at about GH¢250 million as of June 2014.

Mr Koney shares the view that one motivating factor that seems to encourage such excessive taxing is the “Cash Cow Syndrome”, cautioning that the mining industry should not be seen as a cash or fat cow but rather as a catalyst for national development.