Enforcing mining sector linkages for sustainable growth

As the nation marks 62 years of independence, the question remains: are our exploited minerals and mining laws bold enough to reinforce a sustainable economic growth agenda to promote national economic transformation? 

Critics have argued that current laws and regulations governing mineral resource exploitation are largely inadequate, particularly in ensuring that the sector is well-linked to other parts of the country’s economy.

And indeed segments of the legal framework and some mineral regulations affecting environmental protection and mitigation of mining impacts – such as cyanide spillage, air-pollution and blasting – need strengthening.

Again, the laws largely favour mining companies when it comes to revenue-sharing, as most of the wealth created does not return to the country.

There have been indications that mining laws and regulations need reviews to be consistent with changes that have taken place (especially regarding mineral prices) since current laws were enacted.

This calls for comprehensive improvements on the country’s share of benefits, which will require a revisiting of the various mining sector policies and agreements toward achieving national development.

Current mining agreements, most of them signed when mineral prices were very low and the country badly needed mining investments, provided overly-generous incentives which have generated substantial disquiet among Ghanaians in the past few years – due to disappointing benefits the country has been receiving from those agreements.

This has impeded the country’s ability to maximise mining benefits and ensure retention of adequate share, as is associated with existing mining contracts and agreements.

A new African regional mineral policy regulation, African Mining Vision, adopted in February 2009 by the African Union has provided a framework for industry‐wide changes which could ensure that benefits from mineral resources (both financial and developmental) are optimised and shared equitably among stakeholders.

These reforms have been occasioned by substantial negative impacts from mining; widespread abuse of human rights in mining areas; inadequate financial and developmental benefits from mining to host countries – especially when mining companies have been reporting rising profits on the back of soaring prices.

Locally, the country initiated certain steps in this direction, some of them including establishment of different committees – two of them being the Government Renegotiation Team and Law Review Committee. Their mandate was to review and introduce certain changes in some aspects of the country’s mining, so as to enhance mining benefits and improve on benefit-sharing between stakeholders.

Mining companies have also been working very hard, especially through the chamber of mines, to forestall the smooth implementation of these policy reforms designed to ensure national development.

Meanwhile, the Chamber of Mines – which represents mining industry players – has criticised the continuous confusion in the country’s mining sector, blaming it on the lack of a strong broad-based mining policy that regulates all activities in the industry.

The chamber emphasised: “There is confusion in the mining sector due to scattered laws, and to do away with all this confusion there is need for a centralised mining policy to regulate the industry so as to reflect and promote development in the country”.

According to the chamber, a number of mining policies are still being enacted to regulate the sector: including the Extractive Industries Transparency Initiatives bill; National Mining Policy; Minerals Development Fund; and Minerals and Mining Act among others.

These various policies create a lot of confusion in the industry. To ensure sanity, there should be a comprehensive broad-based policy to regulate the sector’s activities.

Chamber of Mines leads linkages and value‐addition advocacy

The low level of linkages (upstream, downstream and side‐stream) within the mining sector has been of great concern not only to government and stakeholders but also host communities.

The country largely relies on foreign inputs in the mining sector (including catering services) and output of the mineral sector – exported in raw form to other nations to serve as strategic raw materials for their industries.

This therefore denies the country any opportunity to transform its mineral resources into sustainable development through linkages.

The Chamber of Mines has over the years shown its commitment to lead the efforts at linking the mining sector with indigenous manufacturing and service firms.

In this endeavour, the Chamber has continuously been engaging existing industry associations to broaden the discourse on value creation to spur entrepreneurship, build partnerships and strengthen existing ties.

This dream will be irrelevant if the mining sector players deliberately refuse to integrate the sector into the non-mineral sector, in order to create a vibrant and sustainable marketplace in and around the mining industry.

As part of this drive, the Chamber of Mines is broadly and seriously pushing the manufacturing sector to understand the procurement list the mining industry requires, and make sure it is equipped to supply items on the list.

Chief Executive Officer of the Chamber of Mines, Sulemanu Koney said: “The Chamber is of the view that a strategic focus on local manufacturing and supply of goods and services will better enhance Ghana’s efforts to quicken the pace of industrializstion, economic growth and job-creation. We will endeavour to support local manufacturing of inputs to improve direct linkages with other productive sectors of the Ghanaian economy to create more value for both investors and the nation as a whole.

“We have, at various times, taken voluntary initiatives to promote in-country expenditure on mining inputs. These range from support for fabrication of critical plant, machinery and equipment components; engineering services; physical inputs such as grinding media; as well as power and fuel. The overriding rationale for these initiatives is principally business-driven. So, in essence, it makes business-sense for mining companies to produce inputs locally,” he added.

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Currently, the Local Procurement List has 19 items – including Grinding Media and others such as Cement & Cement Products/Grout, Quick & Hydrated Lime, Electrical Cables, (PVC) Pipes, General Lubricants, Plastic Sample Bags, Calico Bags, Bullion Boxes, Conveyor Rollers, Metal/PVC Core Trays, Overalls & Working Cloths, High Density Polyethylene & polyvinyl Chloride, Chain Link Fencing/Wire Netting/Barbed Wire, and Haulage Services & Catering Services and others.

Available statistics from the Minerals Commission show that out of about US$60.6million worth of grinding media demanded by the mining industry in 2016, only US$25.6million was produced locally.

This therefore means that the mining industry provides the manufacturing sector an opportunity to supply US$35million worth of grinding media.

Some selected mining companies, in a recent survey, showed they employed annually about 7,000 people directly, while in total about 111,000 jobs are supported.

This means that for each job at the mine site, an additional 15 jobs are supported in the wider economy.  Comparing this to local procurement, it means that for each US$1million of local procurement about 105 jobs are supported.

The sample of seven mines directly contributed US$796million to the Ghanaian economy in 2013.  Once the indirect impact of the mines expenditures on goods and services in the supply chain is taken into account, this figure rises to US$1,556million.

If local procurement is increased by 25% value-added to the country’s economy, it will increase by US$50million.

The procurement of locally produced heavy-duty electric cables by mining companies increased from US$172,698.22 in 2014 to US$488,999.66 in 2015 – an improvement of US$316,301.44 in 2016 and representing an increase of 183%.

The recent trends in local procurement and its monetary contributions to the standard of living in the local communities and the country’s economy point to that fact that there is great potential in ensuring local content is well implemented and harmonised appropriately to achieve the intended objectives.

Obviously, this is a multifaceted ambition; it can never be achieved all alone by the proponent of the idea – the Chamber of Mines – as the expected benefits ultimately improve the entire national economy.

Major hurdles to cross  

The Chamber of Mines, in view of the broader benefits and potentials of the local content agenda, has been calling for stronger collaboration from major stakeholders to partner in pursuing the local content and procurement agenda.

The collaboration, according to some top officials at the Chamber, has been remarkable among some private sector operators – but has seen difficulty with some major delays from the government/public sector and its agencies.

The Ministry of Trade and Industry, whose mandate it is to have supervisory authority in spearheading local content, has not been too proactive in dealing with the Chamber of Mines regarding full implementation of the framework concerning local content and procurement for the mining sector.

Thus, the Chamber of Mines has expressed continuous worry about the attitude of government in taking up the challenge of being the main anchor of this collaboration with some of its agencies: including the Ghana Standards Authority, which has the expertise and human capital to verify the standard of items needed.

Leading government institutions expected to be proactive in attaining this vision include: the Ministries of Lands and Natural Resources, Trade and Industry; the Minerals Commission, Ghana Standards Authority, and Environmental Protection Agency among others. These agencies are expected to be part of the collaborative pool in achieving the broader aims of local content policy.

The mining companies themselves are enthusiastic about supporting improvements in local suppliers’ capacity, and this is crucial; their biggest worry regarding local content is about the shortcomings of local enterprises with regard to product and service quality, quantity and timelines.

A vivid example of such support is that given to Tema Steel Company, which has benefitted from assistance provided by both Goldfields Ghana and Newmont Mining.

Goldfields has been working with the company, which manufactures steel milling balls, to increase its production capacities to make it a reliable supplier and increase linkages with small and medium-sized enterprises within the mining sector.

Similarly, pivotal support has been given to Tema Steel’s subsidiary – West African Forging Limited, by Newmont Mining in its production of steel grinding media which are used to crush the gold-bearing ore in order to extract the gold itself, and which hitherto was imported due to quality concerns.

The Ghana Chamber of Mines has begun proceedings to set up a technical team that will harmonise various specifications to arrive at national standards for manufacturing grinding media for supply to the mining sector.

Mr. Koney said: “Our attention has been drawn to the fact that while there are different grinding media sizes used in the mining industry, the nature of ore it reduces dictates the production process and chemical composition of the balls as well”.

“Ghana is yet to have standards for local production and monitoring of Grinding Media, a crushing material widely used in the mining industry,” said a senior member of the Ghana Standards Authority.

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He mentioned that standards are a critical tool for effective marketing. At least, they give consumers emotional assurance that the product is fit for purpose.

“Mining companies have good reasons to support the procurement of locally manufactured inputs. While these may not be altruistic, the business case is paramount.

“It is our considered view that having a Ghana Standards Authority logo embossed will provide a vote of confidence for the quality of these inputs.  It will help deepen supply of locally manufactured goods into the supply chain of the mining industry, both in Ghana and the sub-region.”

Legislative

The issue of local content – which has in recent times been highlighted as giving Ghanaians an opportunity to share in the exploration and production of the country’s minerals resources – seems to be a fad; the policy has reflected in the country’s mining Legislation since the Minerals and Mining Law PNDC Law 153 of 1986 was enacted.

This, law required that mining companies procure inputs from Ghana to the maximum extent possible – consistent with the economy, efficiency and safely. The subsequent law, the Minerals and Mining Act (2006), Act 703, has similar provisions.

However, to give real effect to the Act, in 2012 Parliament passed the Minerals and Mining General Regulations (2012), LI 2173.

This LI, among others, contains specific provisions for regulating the procurement of local goods and services in the mining industry. In particular, it requires mineral rights-holders and support service companies to each present a five (5) year procurement plan to the Minerals Commission for consideration and approval.

The procurement plans are to be developed based on Procurement Lists, which the Minerals Commission is to publish regularly: it must be noted that LI 2173 benefitted immensely from a collaborative work among the Minerals Commission, Chamber of Mines and International Finance Corporation (IFC) on a broad National Supplier Development Programme in the mining industry in 2010.

A key objective of the programme was to support local enterprises to improve their competitiveness for participation in the mining value chain.

The collaboration identified 28 mining inputs which could be sourced locally, albeit with varying degrees of quality improvement. The Procurement Lists issued by the Minerals Commission have so far been selected on the list of 28 items identified.

The initial Procurement List issued in 2014 had eight items, and the second in 2015 had eleven (11). There is therefore no gainsaying the fact that the Chamber takes local content very seriously, and we fully appreciate that supporting the participation of local business in the value chain goes a long way to strengthening the economy.

This notwithstanding, the Chamber is of the view that strategic focus on local manufacturing and supply of goods and service will better enhance Ghana’s efforts to quicken the pace of industrialisation, economic growth and job-creation.

While the mining industry has over the years endeavoured to support the local manufacturing of inputs, an impression is often created that the mining industry is an enclave with limited direct linkages to the non-mineral economy.

Having reputable companies manufacturing and supplying good quality inputs will give mining companies the necessary peace of mind. It will obviate the need for them to keep stock, thereby improving their cashflow and reducing their working capital.

However, the challenges of poor or inconsistent quality, delays in delivery of inputs produced locally are banes which need to be addressed.

As an industry that is essentially a price-taker – an output whose price as a commodity, such as gold, is externally determined – any endeavour that improves efficiency, productivity and costs will come in handy.

Outlook
The mining sector should be viewed as an economic ‘windfall’ with which to accelerate structural change, rather than as the backbone of the country’s economy.

The long-term outlook for the country’s mining sector is bright, but requires the acceleration of political, economic and industry reforms to ensure that the mining communities and the indigenes derive  full benefit from the earnings generated by the mining and extractive sectors.

In assessing the implications of existing mining law, no one can question the positive strides relating to increased productivity in the sector.

However, an evaluation of the sector’s contribution – to employment creation, to government revenues, net foreign exchange retained in the national economy, and the social and environmental impacts of the upsurge in mining activities – paints a quite different picture.

Given concerns raised about governance of the mining sector to the detriment of the poor, and regardless of mining laws’ potentials, the country is still very far from obtaining optimal benefits from its mining sector.

Legalisation of small-scale mining was and remains a laudable policy objective. Yet merely legalising the activity without adequately capturing its fast-evolving and complex social dynamics may prevent the attainment of other social objectives, such as enhancing the potential of the small-scale mining sector’s contribution to better livelihoods and poverty alleviation.

The country has mineral deposits which can be mined profitably. If the correct methods are used to mine the deposits, employ the best mining practices to prevent or minimise associated environmental damage, and manage corporate social responsibility to improve the socio-economic life of local communities, then the country can enjoy the economic benefits of mining peacefully.

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