Resource Rich Ghana Extracts Profits from Foreign Mining Firms

Ghana is Africa’s second largest gold producer, second only to South Africa, and the ninth largest in the world. Enticed by record prices for the precious commodity, multinational mining firms are digging huge open pits in its resource rich countryside.  The Gold Coast is taking steps to protecting its valuable environmental wealth and its workers, in addition to taking a cut of the profits.

Ghana’s parliament has voted to increase royalties from 3% to 5%, although the bill has not yet been ratified by Ghana’s president. The most obvious reason for the increase is its scary budget deficit of almost 10% of GDP. But the underlying cause for more royalties and stricter enforcement of environmental laws is the sense that Ghana does not benefit much for all its mineral wealth. While gold accounted for 40% of all exports in 2008, valued at $2.2 billion, the government only received $116 million from mining firms. That is less than 4% of the country’s total tax revenue. China’s Minister of the environment recently scolded investors saying “don’t come to mine and pollute the water bodies, repatriate your profits and leave our people suffering.”

For the most part, mining firms in Ghana have done just that. In February, environmental regulators suspended production at AngloGold Ashanti’s Iduapriem mine because the mine’s tailings dam, which stores cyanide-laced waste was almost full. In 2009 the agency prevented Golden Star Resources, a Canadian company, from expanding a mine when it failed to fill an abandoned pit. And most recently, it fined Newmont, the world’s second largest goldmining conglomerate, almost $5 million over a cyanide spill at its Ahafo mine. Predictably, mining firms are whining and claiming that new royalties could deter future investments and violate current agreements. But advocates of sustainable development claim it will do just the opposite for the resource rich nation.

By increasing royalties, Ghana is showing investors that it means business.  In the midst of an oil boom, Western firms like Exxon Mobil are eager to develop fields off the country’s coast. By resolving to capture at least a third of the proceeds from oil, which is likely to bring in far more money than gold, Ghana’s government will make its commodities more valuable and will attract foreign investment across all sectors. In addition to increasing profits, Ghana needs to create institutional mechanisms and regulations to protect all its natural resources from exploitation and ensure that the economy benefits from its resource riches.

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