Analysis: Ghana’s Mineral Royalties Earnings Since 2011

Introduction

Ghana’s mining sector has been a cornerstone of its economy for over a century, dating back to colonial times. Despite the country’s rich mineral wealth, including gold, diamonds, and more recently, oil, the expected economic transformation has not fully materialized. This analysis delves into the earnings from mineral royalties in Ghana since 2011, exploring the complexities of the mining fiscal regime, the transparency of revenue allocation, and the broader implications for the country’s economic development.

Key Points

Background

Ghana’s mining industry has been a significant contributor to the country’s economy, with gold being the primary mineral extracted. The sector has evolved over the years, with the discovery of oil in 2007 adding a new dimension to the country’s resource wealth. However, the anticipated economic transformation from these resources has been limited, raising questions about the effectiveness of the current fiscal regime and the management of revenues.

Analysis

The Mining Fiscal Regime

Ghana’s mining fiscal regime is one of the most complex globally, involving a combination of royalties, corporate taxes, and other levies. Large-scale gold mining companies typically pay a royalty rate of 5% on gross revenue, with some companies operating under income agreements with rates ranging from 3% to 5%. However, when other taxes are included, such as the 35% corporate tax, a 3% creativity and sustainability levy, import duties, withholding taxes, ground rent, mineral rights fees, and Pay As You Earn (PAYE) contributions, the effective tax take from mining companies exceeds 50%.

Revenue Allocation and Transparency

Unlike oil revenues, which are ringfenced and overseen by the Public Interest Accountability Committee (PIAC), mineral royalties flow directly into the Consolidated Fund. This lack of ringfencing makes it challenging to track how these revenues are used, weakening transparency and accountability in the revenue management process. The current system allocates 78% of mineral royalties to the Consolidated Fund, 2% to the Minerals Income Investment Fund, and 20% to the Minerals Development Fund, which then distributes funds to local communities and regulatory bodies.

The Need for Reform

To enhance transparency and accountability, Ghana should consider separately accounting for all revenues generated from mining companies. These revenues should be ringfenced and allocated to clearly defined projects or sectors, allowing citizens to track how mineral wealth is utilized. Extending similar ringfencing and reporting standards to non-oil minerals would improve transparency and boost public confidence in the management of natural resources.

Practical Advice

1. **Enhance Transparency**: Implement a system to separately account for and track mineral revenues, similar to the approach used for oil revenues.
2. **Strengthen Accountability**: Establish clear guidelines for the allocation and use of mineral revenues, ensuring they are directed towards projects that benefit local communities and the broader economy.
3. **Engage Stakeholders**: Involve local communities, civil society organizations, and other stakeholders in the decision-making process regarding the use of mineral revenues.
4. **Improve Reporting**: Enhance reporting mechanisms to provide regular updates on the collection and allocation of mineral revenues, fostering greater public trust.

FAQ

Conclusion

Ghana’s mining sector has the potential to be a significant driver of economic growth and development. However, the current system for managing mineral revenues lacks transparency and accountability, limiting the sector’s impact on the broader economy. By implementing reforms to enhance transparency, strengthen accountability, and engage stakeholders, Ghana can ensure that its mineral wealth is used effectively to benefit all citizens and drive sustainable economic development.