Possessing an outstanding history of mineral endowment, Ghana is recognized as Gold Coast since historical times. The economic development of Ghana and historical importance of mining sector can be documented from its colonial name ‘Gold Coast’. Gold dominates entire mining sector of Ghana and it is second largest producer of gold after South Africa while third largest producer of aluminum and manganese. The modern day Ghana has really succeeded in transforming its mineral wealth into an economic development. From the beginning of economic policy changes of 1983 to till date, mining sector in Ghana has shown significant boost in production and investment, especially in gold market. A considerable growth has been observed in number of exploration as well as mining companies. The industry has also attracted substantial number of support-oriented businesses such as explosive manufacturers, transport companies and mineral assay laboratories. Mining sector has also augmented its share in foreign exchange earnings and attracted significant Foreign Direct Investment (FDI) inflows in Africa over the last few years.
- To analyze the overall structure of mining industry in Ghana.
- To study the macroeconomic and sector specific reforms that took place in mining industry of Ghana.
- To recognize the important role of mining sector in economic development of Ghana.
- To understand various challenges that mining industry of Ghana may face in future.
Determinants of FDI
- The market size of parent country plays vital role in attracting foreign investment, especially, when the parent country permits exploitation of its economies of scale.
- The labor cost is one of the important factors in considering investment location, especially when it is an export oriented investment.
- A country’s risk can be measured from its political and economic stability, which creates strong impact on FDI inflows.
- The openness of country’s economy also plays crucial role in attracting FDI, who are interested to invest in developing economies.
- An existence of fair and effective legal system with presence of efficient banking structure contributes a lot in directing FDI flows.
Structure of Mining industry in Ghana
The mining sector of Ghana is systematically divided into large scale and small scale industries which produce minerals considering their own capacity. The country has an ability to produce range of minerals but some important minerals such as diamond, gold, manganese and bauxite are only produced by large scale companies. On the other hand, minerals like silica, limestone and kaolin are especially produced by some small scale industries. While foreign investors are the prime owners of large mining industries, government and private investors of Ghana account only 15% stake. On the other hand, small scale mining activities are only limited to Ghanaians. Gold contributes over 90% of total mineral value earned in the country and it attracts largest number of small as well as large scale operators.
Over the years, small scale industries have played crucial role in economic development of country. These industries are well organized which offer employment opportunities to rural communities and produce substantial revenue for government. The government of Ghana has established a sole agency called Precious Minerals Marketing Corporation (PMMC) with a responsibility of marketing and trading of the country's precious minerals. Government distributes marketing license to domestic as well as foreign buyers to enhance foreign exchange earnings of country. The guidelines covered under small scale mining law oblige them to register with the commission, which allocates particular area to operate.
Reforms conducted in Ghana’s mining sector
Being a major contributor to gross foreign exchange revenue of Ghana, mining sector of the country has received prioritized attention from government. The World Bank had recommended Ghana to execute some reforms in mining sector of country by following some legislative changes. Here are some macroeconomic and sector specific reforms that took place in mining industry of Ghana during past decade -
- Privatization of state mining assets of the country.
- Modification in legislation of mining sector in order to receive more attention of foreign investors.
- Increase in fiscal release for mining sector.
- Enforcement of environmental laws and strict execution of sector specific legislative adjustments.
- Reorientation and reinforcement of government institutions to provide support to mining industry of the country.
An important role of mining industry in economic development of Ghana
With a remarkable mineral resource base, substantial investment has been done in mining sector of Ghana during its 20 years of stable and multi-party democracy. Government had received tax revenue from significant mineral production which has been utilized for health care, transportation, education, electricity supply and some other forms of economic development. Some mining companies even offer infrastructure development on their own accord to local communities, besides meeting their regular tax obligations. By generating new employment opportunities and capitalizing on economic growth, mining companies of Ghana encourage private investment at the regional as well as national level, which creates impulsive investment effect. From the period of 1983 to 2011, mining sector of Ghana has attracted Total Direct Investment (TDI) of US$ 11.5 billion.
Ghana is 9th largest gold producer in entire world and mining sector contributed 27.6% of government revenue, 38.3% of entire corporate tax earnings and 6% of Ghana’s GDP in 2011. In same year, the sector employed 28,000 people in large scale companies while more than 1 million people were occupied in small scale industries of diamond, gold, quarry and sand winning. In year 2011, Ghana produced over 3.6 million ounces of gold, which is highest figure in the history of this country. This tremendous production resulted in total export revenues of more than US$5 billion. The important thing to note is that small scale companies of Ghana contributed over 28% of entire gold production in year 2011. Mining sector also contributed to social development of country through execution of diverse Corporate Social Responsibility programs. During 2011, mining companies have spent around US$24 million on different CSR projects.
Challenges Ghana’s mining industry may face in upcoming time
- The exploration, operational and production activities of mining industry are creating strong material and physical damage not only to environment but also to inhabitants of Ghana. This may pose strong threat to development and expansion of mining sector of the country.
- Despite significant contribution of mining sector in the economic development of Ghana, some Non Governmental Organizations (NGOs) are still protesting against foreign investment in mining companies and trying to discourage industrial operations at national level.
- As international mining industry is becoming highly cosmopolitan, developing economies such as Ghana will have to deliver competitive mining framework based on social benefits, fairness, quality and economic equality. Otherwise, the sector may get distracted from its existing investment stability and it may enter into an unorganized state.
- In order to realize the complete potential of mining sector in social-economic development of country, diversification of mining industry should occur, which is currently only concentrated on gold.
- As mining projects all around the world are surrounded by multiple controversies, government of Ghana must bring some better negotiation terms as they open doors to foreign investors for better growth of mining sector.