The Ghana government has been called upon to scrap the stability agreements it has with two of the major mining companies in the country – Newmont Gold Ghana and AngloGold Ashanti because there is no justification for these agreemennts.
Speaking to ghanabusinessnews.com in an exclusive interview on the sidelines of the ongoing second conference of African Ministers responsible for mineral resources and development in Addis Ababa, Ethiopia, Dr. Yaw Graham, Executive Director of the Third World Network said, government must scrap the agreements because some of the tax holidays that these companies have “are quite extensive.”
He said the proposed increase in Ghana’s mining tax “is not only long overdue, but in order.”
The Finance Minister Dr. Kwabena Duffour, who presented the 2012 budget in Accra November 16, 2011, told lawmakers that government from the 2012 fiscal year will increase the corporate tax rate for mining firms to 35% from the current 25%.
In a reaction to the announcement, Dr. Toni Aubynn, the Chief Executive Officer of the Ghana Chamber of Mines told ghanabusinessnews.com in an exclusive interview November 17, 2011, that the tax increase is “not comfortable to the chamber” since it would lead to cost of production.
He also said it would lead to decline in investment in the country’s mining sector – indicating that mining companies make large investments in Ghana.
“It will not encourage investments…lead to cost of production. These are business entities and they operate on demand and supply,” Dr Aubynn said.
Gold Fields Ghana has also voiced its displeasure with the proposal threatening to halt a planned $1 billion investment into the country’s mining sector.
Dr. Graham however, said “the problem African countries face is not that they are taxing too much, but that they are unable in many cases to appreciate fully just how much profits companies are making when prices go up.”
He also said most countries do not have strong mechanisms even when they raise the taxes to be able to achieve the intended benefits that the tax raises and reduction of privileges for mining companies are made.
The top 40 mining companies operating in Africa are reported to have made a net profit of about $110 billion in 2010 alone and have a net asset worth about $1 trillion, while African countries endowed with these mineral resources are known to be poor, under-developed and dependent on development aid assistance.
Jean Noel Francois, the Acting Director, Department of Trade and Industry at the African Union (AU) Commission has said, even though Africa’s mineral resources are fuelling growth and development in many industrialised and emerging economies of the world, Africa still remains poor, under-developed and dependent on donor assistance for national budget support.
Section 48 of Ghana’s Mining Code – the Stability Agreement says agreements entered into with government by the mining companies cannot be changed to the detriment of the investor, and this has been cited as a disadvantage to the country in the face of rising gold prices – gold is the major mineral mined in Ghana. Current world market price for gold is around $1,700 an ounce.
Dr. Graham contends that since the price of gold has been rising for sometime now, the mining companies are not suffering any revenue risk warning that future fiscal policy-making in Ghana will be disrupted “unless we bring an end to those stability agreements.”
By Emmanuel K. Dogbevi, in Addis Ababa, Ethiopia