Assessing Ghana’s government policy on contract mining and local economic benefits

Adopting the Minerals and Mining (Local Content and Local Participation) Regulations, 2020 (L.I. 2431) in Ghana has led the Ministry of Lands and Natural Resources to mandate indigenous Ghanaian companies to administer contract mining for surface operations. For underground mining, partnerships are required, with Ghanaian-owned companies owning at least 50 percent of the venture.

Contract mining entails an agreement where a mineral rights holder appoints an independent corporate entity to manage mining activities, including drilling, blasting, excavation, haulage, equipment maintenance, dewatering, and rehabilitation. This policy represents a progressive move for Ghana's mining sector. However, for its successful execution, the government needs to address potential obstacles and comprehend the policy's potential advantages for the nation's mining industry.

Contract mining can bring numerous employment opportunities for Ghanaians, both skilled and unskilled. The workforce involved in mining operations would comprise professionals operating heavy machinery, such as dump trucks, excavators, drill rigs, and service trucks. Although advanced academic qualifications aren't mandatory, workers would require necessary training, licenses, and practical competencies.

According to the Ghana Chamber of Mines, around 42 percent of employees in mining firms are locals, indicating that transferring mining operations to local contractors could increase employment among Ghanaians and provide sustainable jobs for the country's significant youth population.

Contracting Ghanaian firms to conduct mining operations could also aid in retaining a larger share of mining-related expenditure within the local economy. Contractors would distribute earnings among their workers, procure locally available spare parts, and employ local transport services for workers and materials. By replacing foreign service providers with local contractors, some payments would remain in Ghana, reducing foreign-exchange outflows and putting pressure on the cedi.

However, contractors' reliance on imported equipment, spare parts, fuel, and other inputs could affect the extent of these benefits.

Another potential benefit of contract mining is an increase in government tax revenue. Currently, there are sixteen large-scale mining companies in Ghana. If indigenous Ghanaian companies assume a more significant share of mining operations previously handled by foreign contractors, the government could generate more revenue through corporate income tax, PAYE income tax from workers, and other applicable taxes, such as withholding tax on contract payments. The revenue generated could support the government's development projects across the country.

The policy also offers an opportunity for Ghanaian-owned businesses to develop and expand. Entrepreneurs could establish specialized companies for haulage, drilling, blasting, equipment maintenance, or other mining-related services. Existing indigenous mining companies could also capitalize on this policy to broaden their businesses, strengthen their operational capacity, and improve their competitiveness in securing mining contracts.

However, indigenous Ghanaian companies face potential challenges in undertaking mining operations. One of the major concerns is access to substantial capital, especially for surface mining operations that require considerable investment in dump trucks, excavators, bulldozers, drill rigs, and other machinery. Indigenous companies might struggle to obtain the necessary funding.

Hence, there should be suitable financing arrangements between financial institutions and contractors, developed after a thorough cost-benefit analysis and an assessment of the project's financial viability by qualified engineers and financial experts.

Furthermore, the introduction of contract mining could create opportunities for public-private partnerships involving Ghanaian businesses to establish companies offering mining-related goods and services. Addressing these challenges and harnessing the potential benefits will be crucial in assessing this policy holistically.