Extractives sector is Ghana’s revenue growth pole, IFS reiterates
Economic policy think tank Institute for Fiscal Studies (IFS) has called for a review of the fiscal regime governing the extractives sector to allow for strong state participation in an industry with great potential for domestic revenue mobilization.
According to a senior research fellow and acting executive director of the institute, Dr. Said Boakye, government must negotiate production sharing deals with players in the industry instead of the existing concessionaire arrangements that limits the state’s gain in the sector to only royalty payment and tax payments.
“Government must take steps to increase extractive sector (both oil and minerals) revenue generation through direct state participation or at least production sharing arrangement as part of the government’s medium-term revenue mobilization strategy to be prepared under the programme[IMF], Dr. Boakye told journalists at a press conference on IFS’ Review of government’s 2023-2026 Extended Credit Facility-Supported Programme with the IMF.
Out of an estimated US$22.72billion worth of minerals that were produced in Ghana between the periods of 2015 to 2018, the state garnered US$1.48billion—representing some 6.5percent, in revenue from the sector, whilst the remaining 93.5percent valued at US$21.24billion was held by the private investors.
With all costs deducted, the IFS predicted in an earlier report that mining companies made about US$14.14billion in supernormal profit for same period of which the government received only 10.5percent when all of which should have come to the state per common understanding.
Meanwhile, government is currently on a US$3billion bailout programme from the IMF to keep the economy afloat, ceding the lion share of revenue from the extractive sector to private pockets is what the fiscal think tank described as a flawed approach of the state to one of its most lucrative economic sector.
Ghana reclaimed its position as Africa’s top gold producer, surpassing South Africa. Large-scale mining companies in Ghana increased gold production from 2.2 million ounces in 2012 to 3.08 million ounces in 2022, but are yet to fully benefit from its mineral resources.
The Ghana Chamber of Mines at the Mining and Energy Summit last week asked government to develop policies and programmes which seek to improve businesses’ performance rather than “squeezing everything” out of them through taxes and levies.
According to the President of the Ghana Chamber of Mines, Mr. Joshua Mortoti, the mining sector is being hit with so many taxes to the point that it could shut down some operations and also put new investments on hold, if the tax regime is not reconsidered.
However, in responding to a question on the chamber’s position on being burdened with many taxes, Dr. Said Boakye reckons it is “most unfair, we are arguing that the whole regime of giving concessions is wrong, -now concession has been given to you and you are extracting publicly endowed resources and you are complaining that you are being overtaxed.
Dr. Boakye noted that the resources belong to the state and the “normal thing to do is when you extract it, we pay you the cost of extraction and give you something extra on top or normal profit.”
Lands and Natural Resources Minister, Samuel Abu Jinapor at the same event conceded that the country had in the past not done very well in negotiations for the extraction of its mineral resources.
“Some of our policies and contracts have, unfortunately, resulted in extraordinary profits to mining companies at the expense of the country.
We had, until recently, failed to put in place a proper framework that will ensure that we benefit optimally from these resources,” he stated.
Over the past decade, a number of African governments have reviewed mining contracts, seeking to recalibrate partnerships and increase their share of mining revenues.
Last year, Democratic Republic of Congo – the world’s biggest producer of cobalt – rewrote its mining code, ignoring the objections of miners. It canceled existing stability clauses in contracts and raised royalty rates across the board.
Available data showed that the extractive sector continued to be the major contributor to illicit financial flows from the continent.
Illegal exploitation, tax evasion, trade mis-invoicing, transfer pricing and under-declaration, were just a few of the practices contributing to the menace.
The Africa Centre for Energy Policy (ACEP) reports that illicit financial flows from Ghana through trade mis-invoicing averages about $1.44 billion per year with export under-invoicing and import over-invoicing accounting for almost one billion dollars.
