Government urged to increase investment in extractive sector

The Institute of Fiscal Studies (IFS) has advised the government to purchase controlling interests of not less than 55 per cent in the Ghanaian operations of the large-scale mining companies in the country.

The institute said this should, however, not be done in terms of mere equity holdings, but rather the large-scale mining companies’ operations should be turned into joint venture arrangements between the Government of Ghana and the foreign investors, either in terms of profit sharing or preferably production sharing.

Presenting a research by the institute on the extractive sector and its contribution to revenue generation, Senior Research Fellow of the Institute, Dr Said Boakye, said this would enable the government to get actively involved in the management of these companies, thereby getting around the problem of information asymmetry, which would lead to significant increases in revenues from corporate investment tax and royalties.

“As we saw with the case of Botswana, this will also enable the government of Ghana to enjoy greater proportion of mineral rents through dividend/ product sharing,” he stated.

Poor public sector revenue

Dr Boakye said its research showed that the performance of Ghana’s public sector revenue was very poor, compared with those of peer countries in the developing world.

He said this was a major cause of the country’s profuse borrowing, leading to the high debt service costs, thereby undermining the country’s development.

“We have provided evidence to show that the extractive sector is the main source of the country’s poor public sector revenue performance,” he noted.

Like Nigeria and Botswana, he said, Ghana should aim at capturing not less than 80 per cent of the oil and mineral rents generated in the country as government revenue. Increase participation in the oil industry.

The IFS also asked the government to purchase additional interests in all the Ghanaian operations of the oil companies in order to increase Ghana’s interests to at least 55 per cent in each of the ventures.

To effect these changes, Dr Boakye said the government should renegotiate with the oil and mining companies first.

“Admittedly, unilateral cancellations of the existing oil and mining contracts will be interpreted as breaches of trust on the part of the government.

“However, what is worse than unilateral cancellations of the contracts is continuous implementation of agreements that are skewed in favour of companies extracting resource endowments of the poor while repatriating the lion’s share of the rents to rich nations, even though the rents are supposed to be entirely for the government,” he stated.

He said this should not be allowed to continue to stand, since it contradicts basic human values and the principle of fairness.

“The government should, therefore, not mind unilaterally cancelling these contracts and thus nationalising the assets of these companies while paying fair compensation to the investors, if they choose not to enter into renegotiations or unnecessarily drag their feet,” he said.

Financing investments

On how the government could finance the additional investments which would come as a result of increasing its participation in the extractive sector, he said the government must treat investment in the oil and mining subsectors as if they were investments in infrastructure.

“The government should follow the same steps it uses to raise funds for infrastructure investments. In fact, since investments in the extractive sector will lead to higher levels of revenue for further development, including infrastructure development.

“God willing, the government can even decide to scale down its currently planned investments in infrastructure and redirect such funds to the oil and mining sub-sectors so that more money could be generated in the future for accelerated infrastructure and other developments,” he said.