Why compare Obuasi to Johannesburg?

At the launch of the West African Mining and Power Conference and Exhibition in Accra, President Nana Akufo-Addo had some criticisms for the mining industry in Ghana.

This time he queried why there is such a large difference between South Africa’s Johannesburg and Ghana’s Obuasi, where, what was for a long time, one of the most well-endowed gold mines in the world, is located.

This he pointed out shows how the mining industry has failed to have a positive impact on its host communities in the country.

By now Ghana’s mining industry must be used to such criticism, originating from top officials of successive governments and echoed by civil society leaders in the mining communities themselves.

But recognition of this simple, yet highly effective strategy of successive governments, shifting the blame for underdevelopment from themselves, who have primary responsibility for providing basic public social and economic infrastructure, to the mining companies who have a commercial contract with the state whereby they pay taxes, royalties and levies on their income to pay for that infrastructure, does not make it any less unpalatable for the mining industry.

A direct comparison between Johannesburg, the commercial capital of Africa’s most advanced economy and Obuasi, a local mining community town in Ghana, West Africa’s second largest economy is dubious.

Reverse comparison

Reversing the comparison, Accra, as Ghana’s capital compares favourably with most South African local mining towns with regards to social and economic infrastructure.

Secondly, government is as much to blame for Obuasi’s still underdeveloped state as the mining industry and indeed much more so than its current owners are, even as the latter takes the heat for governments criticism.

Government had a controlling 55 per cent equity stake in the then Ashanti Goldfields between 1972 and the second half of the 1990s when it sold half of that stake in Initial Public Offers that saw the company listed on the Ghana, London and New York Stock Exchanges.

Instructively, annual production from the Obuasi mine dropped sharply from 533,000 ounces in 1972 to 232,000 in 1980, and it took a combination of a US$111 million loan from the International Monetary Fund and a new Minerals and Mining Law, in 1985, to put the company back on the right track.

Environmental record

It is also instructive that the first major criticism of the company’s poor environmental record was made in 1975, just three years after the government took control of the company.

Since the merger between the erstwhile Ashanti Goldfields and Anglo Gold in 2004, to create AngloGold Ashanti, government’s equity stake has been almost negligible; but so too the net income from Obuasi’s mining activities.

Between 2004 and 2009, annual production was consistently below 400,000 ounces per annum even as cash cost for producing each ounce rose from US$198 to US$630.

More costly

By 2013, with surface mining having been completely replaced with far more costly underground mining, cash cost per ounce had risen to US$1,820 and so the gold price collapse on global markets inevitably led to the eventual closure of the mine altogether by 2016.

All this means that easily the biggest profits derived from Obuasi – and the worst environmental record - came when the government of Ghana itself was the biggest shareholder.

Obviously therefore, any failures with regards to the company’s commitment to developing the premier mining town should lie primarily with the government itself, which instead is the institution doing the criticizing.

But beyond the specific comparison done by President Akufo-Addo, there are genuine, justified questions arising as to why mining communities in general across Ghana have fared so badly. Indeed, towns like Ayanfuri and Bibiani have little to show for all those years of gold mining, and now that mining operations have ceased, they are struggling to throw off the inevitable shroud of environmental degradation.

The towns that are now active mining communities are relatively new in that role, at least on a formal commercial basis. These include towns such as Tarkwa, Damang, Ahafo and Akyem among several others.

Legal model

In all these communities, the basic legal model is straightforward. The mining companies do their business, pay corporate taxes and levies as well as royalties, the latter being meant primarily to finance improved living standards and better socio economic infrastructure.

But the poor state of social and economic infrastructure in Ghana’s mining communities, from which about 45 per cent of the country’s export earnings and 16 per cent of direct domestic tax revenues were earned in 2017, has remained a major sore point with government and the mining industry pointing fingers at each other, a situation which has intensified in recent months. First, the Eastern Regional Minister, Eric Kwakye Dafour, then Vice President Dr Mahamudu Bawumia, and most recently,

President Akufo-Addo himself has over the past couple of months publicly accused mining sector operators of not living up to their fiscal, economic and social obligations and responsibilities, including those to the development of their host communities.

Fiscal contributions

The industry, through the Ghana Chamber of Mines, has responded by arguing that the problem has arisen simply because the government is not using enough of the mining industry’s huge fiscal contributions to the state on the mining communities.

The Chamber points out, as an example of this, that out of the GHc550 million in royalties that the mining industry paid in 2016, only GHc27 million was given to the local government authorities that govern the mining communities.

Mr Sulemanu Koney, the Chamber’s chief executive insists that even the share of the royalties that go back to the mining communities in one form or the other, is dissipated too widely to be sufficiently effective.

The Minerals Development Fund [MDF] the District Assemblies, the traditional councils and the Stool Lands administrators all get a part of this and Mr Koney wants the share given to the District Assemblies to be consolidated as part of the MDF. Indeed, this would ensure that those monies are spent on development projects, rather than primarily recurrent items such as wages, goods and services as is currently the case

Diverting monies

This indeed sums up the situation. Simply put it is government itself that is diverting the monies, provided by the mining companies and meant for the development of their host communities, away for other purposes, including running its own bureaucracy.

To cover up its shortcomings it then goes ahead to loudly accuse the same mining companies of neglect and indifference.

The mining companies, mostly foreign multinationals are soft targets compared with the nation’s government and so the latter can get away with it, making the populace to think that the only contributions from the mining firms themselves are their corporate social responsibility initiatives, which in actual fact are only additional expenditures to the large fiscal obligations they meet to the state.

As long as this strategy, by successive governments continues, do not expect the criticisms to stop, and do not expect the fortunes of the mining communities to get much better either.