MACIG Connect Series
“Ghana is a good and reputed jurisdiction for mining investments. It has a long mining tradition and the state is committed to expanding opportunities in the sector.”
The Chamber of Mines published a recent study in partnership with the International Council on Mining and Metals (ICMM). Could you describe the scope of this project?
Sulemanu Koney (SK): Through our partnership with the ICMM, the Chamber of Mines among others sought to analyze and define how mining can deepen its support for Ghana’s development into a matured and diversified economy. The 2015 report provides insights into how the country can optimize value from its mining industry. Beyond the important fiscal contribution through the payment of royalties and corporate taxes to the government’s finances, Ghana’s mining industry can contribute to larger development goals. Mining can be a catalyst to transform the economy and a pivotal force in Ghana’s long-term growth plan. There are myriad untapped opportunities for industrialization linked to mining. Therefore, the Chamber of Mines saw an opportunity for ICMM to assist in creating a comprehensive report outlining feasible action plans for the development of various sectors in the economy, through the support of the mining industry. Due to the risk of downturns in mineral prices, it is crucial to envision a new role for the mining industry so it can serve Ghana’s long-term growth plans.
How important is the development of local content and how do you ensure quality to incentivize the growth of local contracting?
SK: Enhancing local content in mining is good for the host country. It ensures that immense effort is made to ensure that a great deal of the value of mining across its chain is retained in country. If well implemented, it can lead to greater employment, transfer of skills and competencies, enhanced manufacturing capacity, improved taxes as well as import substitution leading to savings on foreign exchange, which can contribute positively to a country’s balance of payments position.
Local Content is effective when there are quality control and quality-assurance systems in place to ensure that outputs meet minimum requirements. It is therefore important that institutions such as the Ghana Standards Authority play a significant role in assuring the quality of locally produced inputs to the mining industry.
For sensitive and high technology items, there should be scope for arrangements whereby local companies produce under license of a required internationally supplier using mainly local inputs.
The use of margin of preference that skews tenders to favor local companies should be managed with the view to ensuring that these companies become globally competitive in the long run.
Entrepreneurs in the supply chain should be required to upgrade their skills and endeavor to continuously improve their health, safety and environment (HSE) and product performance. Such companies may then extend the high performance service delivery to clients in other sectors of the economy. Government should implement policies that encourage entrepreneurship and reduce the cost of doing business.
In terms of energy supply for industry, where should government efforts be directed?
SK: The debate regarding how to allocate the most cost-effective source of power between industrial and residential users on the other is quite topical. The tariff for the regulated power market shows an inverted structure. This is explained by the policy decision to allocate a lot more of the cost-effective legacy hydro from the Akosombo and Kpong dams to residential customers. In a sense this appears to underscore the lip service we pay to industry. It is well known that the cost of supply to industry is much lower than to residential users. Ordinarily, industry should be allocated the most cost-effective power to enhance competitiveness, expand production, create jobs, pay more taxes, and create overall value for the economy. When citizens have jobs they are in a better position to pay for their power demand.
Furthermore, government should ensure that power to industry is not only cost competitive but reliable. Industry has been compelled to invest in expensive stand-by diesel powered generators to make up for unreliable power from the grid.
How is the Ghanaian mining industry coping with the downturn in global prices?
SK: Generally, the mining industry is a price taker. In times when the industry is confronted with depressed commodity prices, a generic strategy that mining companies adopt is cost reduction as well as enhancement of production efficiencies. This requires that companies continuously evaluate their operations and rationalize input costs in order to remain viable. Naturally, this has entailed restructuring of operations and endeavors to improve business processes to enhance productivity.
What is the investment landscape for exploration purposes?
SK: As expected, the recent thaw in the price of gold has seen the drying up of exploration investment both in brown and greenfield projects. Conventional wisdom dictates that even in these difficult times companies should endeavor to take their exploration projects to the development phase in preparation for the expected upswing in mineral prices. However, the reality is that investors are hesitant to invest in the relatively high-risk phases of mining-exploration at this time of depressed metal prices.
Accordingly, to help boost exploration investment, the Chamber has been advocating the implementation of policies that will lower the entry barriers for exploration companies. For example, the Chamber has been courting policy makers to waive VAT on critical exploration expenditure such as drilling and laboratory services. No doubt vibrancy and dynamism in exploration are critical factors for delivering the pipeline of projects necessary for the future growth of the mining industry.
What efforts are being made to formalize the small-scale mining industry?
SK: The Minerals Commission has been advocating for re-categorization of the small-scale mining sub-sector. This makes sense as the prevailing law recognizes only small-scale and large-scale mining. Given the recent trends in small-scale mining, where some operatives deploy sophisticated and heavy equipment, a segmentation of the sub-sector will allow the designing of services that are targeted at each of the segments in a manner that promotes effective formalization. This may require amendment of the Minerals and Mining Law and its regulations.
Meanwhile, the government reports that it continues to make strides in delineating parcels of land for small-scale miners. As well, the Minerals Commission is expanding and strengthening the capacity of its District Mining Offices in jurisdictions where small-scale mining is prevalent in order to improve its services.
Do you have a final message for the readers of this publication and mining investors?
SK: Ghana is a good and reputed jurisdiction for mining investments. It has a long mining tradition and the state is committed to expanding opportunities in the sector. It has an army of competent mining professionals complemented by a renowned mining university. Ghana has a competitive advantage for mining investment and, although there are a growing number of mining countries in the sub-region, it continues to strive to maintain its leadership and competitiveness.
We invite investors to consider opportunities in harnessing the country’s industrial minerals and gold potential and across the sector’s value chain.
At the Chamber of Mines, we are leading the advocacy for a national orientation for mining to be considered as a catalyst for development. It is our view that this will help change the structure of the economy, which is currently susceptible to global commodity price cycles and shocks.
This interview was conducted as part of research by GBR for its upcoming Mining in Africa Country Investment Guide (MACIG) 2016. A pre-release report on the Central African Copperbelt was released in October 2015 and can be accessed here. To participate in this report, please contact Amal Lahraich at email@example.com.