Harnessing Africa’s Minerals Resources for Sustainable Development.

A change from Cash-cow to Integrated mining-led Sustainable Development. Some realities from Ghana’s Mining Industry

International Economic Forum of the Americas (IEFA)Toronto Global Forum

Toronto Canada 1-3 October

Dr. Toni Aubynn

Chief Executive Officer

The Ghana Chamber of Mines

OutlineAmbivalence about the benefit of

mineral exploitation

Some Global facts about Mining

Some realities from Ghana

Conclusion

Key message: Minimise the focus on mineral rent; adopt more creative, integrative mining-led sustainable development

Key message: Minimise the focus on mineral rent; adopt more creative, integrative mining-led sustainable development

• Africa is loosing out• ‘Ghana is not receiving any benefit from

mining’ or ‘is not benefiting enough......’• ‘No physical transformation in our mining

communities i.e. Tarkwa and Obuasi vs. Johannesburg?’

• ‘Tax them more’

Ambivalence and Common Perceptions

4

Basis of the ambivalence and ‘losing out’ Perception

Source: Deutsche Bank; US Geological Survey (USGS); World Nuclear Association, cited from McKinsey Global Institute Analysis (2010)

Eleven African countries are among the top ten global resource countries inat least one major mineral.

Eleven African countries are among the top ten global resource countries inat least one major mineral.

Basis of the ambivalence and ‘losing out’ Perception cont’d

Some leading African mineral resources (2005)

Mineral Production Rank Reserves Rank

PGMs* 54% 1 60+% 1Phosphate 27% 1 66% 1Gold 20% 1 42% 1Chromium 40% 1 44% 1Manganese 28% 2 82% 1Vanadium 51% 1 95% 1Cobalt 18% 1 55+% 1Diamonds 78% 1 88% 1Aluminium 4% 7 45% 1Also Ti (20%), U (20%), Fe (17%), Cu (13%), etc.*PGMs: Platinum Group Minerals

 

…And Yet: Persistence of poverty, inequality and unemployment Inadequate visible local content Africa mining

business No significant reflection on the communities where

mining takes place ….Plus Africa’s resilience to the recent global economic

crises and descent economic growth providing it a new confidence

Past history of industry not very transparent (enclave) Industry Mining Industry, ‘a bad story teller’ Positive commodity price particularly gold and oil in

the last decade Perception of Revenue equating profit

Attempt at ‘Resource Nationalism’ in South Africa. A clear NO from SA Government

Zimbabwe: increase in royalty on gold from 4.5% to 7% and proposed changes in ownership structure

Zambia attempted introduction of Windfall profit tax among other fiscal changes

DR Congo to increase taxes Ghana

Reaction to these perceptions

SOME GLOBAL FACTS

Global mining - 1984

Source: Raw Materials Data, 2012.

CIS 22.1 %

Europe excl CIS 7.7 % North America 13.7 %

Asia 11.0 %

Latin America excl Mexico 16.0 %

Africa19.5 % Oceania 9.4 %

Global mining - 2010

Source: Raw Materials Data, 2012.

CIS 10.5 %

Europe excl CIS 2.4 % North America 8.2 %

Asia 25.0 %

Latin America excl Mexico 22.1 %

Africa10.4 % Oceania 14.4 %

Global mining 2010

Strong demand drivers•Extended period of growth.

• China/Asia major engine.

• Infrastructure & industrial/personal use.

• Decline less dramatic than expected – long term growth will slow down but remain steady.

Increasing Supply constraintsCosts increasing

Price volatility but increasing

Host countries demading more share – more state intervention Increasing competition between countriesRemote locationsLower oregradesHuman resources

Some realities from Ghana: Contribution of the mining

sector

14

Leading Mining Regions of Africa

Source: Deutsche Bank; US Geological Survey (USGS); World Nuclear Association, cited from McKinsey Global Institute Analysis (2010)

Traditional minerals • Gold• Manganese • Bauxite and • Diamonds.

Others not fully exploited include• Kaolin• Salt• Clay• Marble• Mica• Limestone etc.

Recent airborne geophysical survey confirms traces of several other minerals including iron ore, platinum, uranuim, lead, copper, etc.

Traditional Minerals in Ghana

Figure 2: Gold Production Figures

(1958 to 1983)

0

100000

200000

300000

400000

500000

600000

700000

800000

900000

1000000

1958 1962 1966 1970 1974 1978 1982

Source: Ghana Minerals Commission 2012

Over $7billion attracted to Ghana since 2000

‘Gold price soaring’ 2000-2012

20

Has reflected in the Contribution to Has reflected in the Contribution to GDP GDP

21

Contribution to Merchandise Exports by Key SectorsContribution to Merchandise Exports by Key Sectors

Performance of the Mining Sector in 2011 (cont’d)

Number One Tax Payer and highest contributor to GRA: Contributed about Us$540million to GRA representing

27.61% of total Internal Revenue collections in 2011. paid Us$360 million, in corporate tax to the GRA, representing

38.26% of the total company tax collected in 2011. The sector voluntary contributed an amount of about Us$27

million to their communities and the general public Contributed about 42% of gross merchandise exports

earnings companies returned about Us$3.1 billion representing 75%

of their mineral revenue through the BOG and the Commercial Banks in 2011 against statutory requirement of 25%.

Industry grew by 14.3% in 2011 as compared to 8.3% in 2010

Continues as the leading attractor of FDI

Government revenue increased with rise in gold price

Imposed the fiscal measures on the mining companies in 2012:

– Changed mineral royalty from a range of (3 to 6)% to a flat rate of

5%

– Changed capital allowance from 80% in the first year and 50% on

declining balance to a straight line amortization over 5 years at

20% each year

– Ring-fencing of assets for the purposes of determining tax payable

– Corporate tax increased from 25% to 35%

– Review of Stability Agreements

– Proposed windfall profit tax of 10% (Suspended temporarily on 6

September 2012 a welcome news)

Ghana’s policy response to ‘losing out’

Note: Cost inflation after 2012 estimated based on historical CAGR 2001-2012; Crude Oil Prices for West Texas Intermediate delivery to Cushing, TexasSource: Economist Intelligence Unit, International Energy Agency, Eskom website, Government of Western Australia website, press searches, Bloomberg

Cost of production have increased dramatically

Total taxes and levies

Value Proposition: Create Value through Integration:

Notable sectors that have benefited from the mining industry

in Ghana include:

― Banking & Financial Services,

― Transport & Logistics,

― Hospitality and Catering,

― Consulting-Environmental &Engineering Services

― Manufacturing & Fabrication

Chamber, Ghana Minerals Commission and the IFC

collaborated Project on Local Content

Conclusions Africa host significant mineral resources. Minerals price

environment has never been better The needs for more creative ways to leverage the current

environment for Afica’s development Excessive reliance on rent/taxes may be a slippery-slop.

There is need for a balance between profitability and equity.

Ghana still the best destination for mining investment evenn beyond the West Africa region. BUT can lose it if cost issues including fiscal impost are not seriously addressed

Mining should not be a ‘stand-alone’ economy, it must be integrated into the broader national and regional economy

Local Content and Value addition is the surest way to optimising the benefits of mining

Thank You