With mining activities in place for more than 120 years, Ghana is the most explored country in West Africa. Given that its mountains and forests have been well trodden by geologists, it is unsurprising that greenfield investment has been modest in recent years. This is in contrast with the success of Ghana’s neighbouring countries, which are still relatively unexplored and are attracting fresh capital, prompting discussions about the competitiveness of Ghana’s regulatory regime.
According to a report by S&P Global Market Intelligence in February 2017, Africa’s total exploration spending fell by 24% to $916m in 2016, illustrating the challenging investment environment across the continent. Ghana fared relatively well compared to its gold-producing neighbours: despite a fall of 12% in the absolute value of investment, from $74.4m to $65.3m, its share of continental investment rose to 7%, up from 6.2% in 2015. Roughly half of the countries in the S&P report saw investment grow over this period.
Burkina Faso, which also has a gold-dominated sector, saw investment contract by 28.8% to $72.9m in 2016, though it still topped Ghana’s investment total. By contrast, total exploration spending in Mali, which also focuses on gold mining, increased by almost 20% to $70.3m in 2016. However, a closer look at where investment was directed shows that Ghana is falling behind in greenfield exploration activities, which are becoming increasingly important to sector growth as existing mines mature. In 2016 mining companies in Ghana invested $8.1m in grassroots exploration, searching for metals outside of established mine sites, representing 12% of total investment in the country. In contrast, Mali and Burkina Faso each spent around $15m, which worked out at proportions of 21% and 26% of their respective totals.
The trend has prompted discussion by Ghana’s private sector. “Ghana has seen significant exploration activity over the last 20 years, so it is understandable that investors are looking at less-explored mining countries such as Burkina Faso and Côte d’Ivoire, but that is not the only reason,” Sulemanu Koney, CEO of Ghana Chamber of Mines, told OBG. “Feedback from our members suggests that in neighbouring countries the fiscal conditions are more attractive and the governments prioritise mining investment by speeding up permitting and licensing processes, ensuring that firms’ needs are met. In Ghana, we see the danger signs of reduced greenfield exploration activity at a time when the industry needs a pipeline of new projects.”
According to Koney, the chamber’s concerns and recommendations have received a positive response from policymakers. “We have proposed a few changes to the current legislation to reduce the upfront cost of exploration,” said Koney. “Primarily we want to eliminate value-added tax charges on activities such as drilling and lab testing. We also believe that the royalty regime could be changed back to a sliding scale based on the gold price.”
Ghana introduced a flat royalty rate of 5% in 2010, having used a 3-6% sliding scale previously. However, the new rate currently only applies to mines without an existing investment agreement with the government. For example, Newmont Mining, which is headquartered in Colorado, signed stability agreements in 2003 guaranteeing royalty rates of 3-3.6% for the first 15 years of production from its Ahajo and Akyem mines.
The greater challenge is preventing competition for investment that will result in the diminishing of returns from mining. Since 2009 ECOWAS has tried to harmonise guiding principles on how the region’s mines are regulated and taxed, but implementation has been slow. “We want to avoid a race-to-the-bottom strategy in attracting investment,” Steve Manteaw, co-chair of the Ghanaian branch of the Extractive Industries Transparency Initiative, told OBG. “Gold is a scarce commodity; there is no need to compete. We should be mindful that every tax concession is forgone revenue that could be used to build the required infrastructure.”
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