The Ghana Chamber of Mines has expressed worry over the continuous decline of exploration investments in the mining sector, warning that production and revenues could drop if urgent steps are not taken to incentivise and expedite exploration spend.
With exploration needed to guarantee the continuous production of minerals – and thus revenue to the state, the Chamber says the situation is alarming for a country where mining is critical for forex and fiscal revenue generation.
For instance, although the country remains Africa’s top producer of gold, it is least ranked among the most attractive mining destinations in the 2022 Fraser Institute’s Annual Survey of Mining Companies.
The survey ranks countries’ attractiveness in terms of policy, mineral potential and other metrics based on responses from companies operating and exploring in these mining jurisdictions. This is meant for governments to assess whether their policies are attracting or driving away investments.
Among the top jurisdictions in the world for investment based on the Investment Attractiveness Index, Botswana emerged as the only country from Africa. Meanwhile, Burkina Faso – one of the country’s closest competitors and emerging mining destination, was ranked ahead of Ghana.
According to the Ghana Chamber of Mines, indigenes hold a greater share of exploration licences issued by the Ministry of Lands and Natural Resources but are usually constrained in raising capital to finance the high-risk business of exploration.
It is against this background that president of the Chamber, Joshua Mortoti, noted that locals stand to benefit if the hurdles of exploration – upfront costs – are reduced to facilitate effective exploration and consequent commercial finds.
“It is crucial to put in place an incentive scheme that will reduce the cost associated with exploration, which therefore requires critical investments into this high-risk business of mineral exploration,” he said.
Mr. Mortoti was speaking at the Chamber’s 95th annual general meeting in Accra, and subsequently advocated tax exemptions for exploration companies.
“VAT is payable on exploration expenditure, and it cannot be recovered by exploration companies unless they make a commercial find and commence production. This implies that where exploration is unsuccessful, VAT will not be recoverable.
“Effectively, the extent of actual exploration activity is diminished by upfront costs such as VAT on inputs. Thus, relieving the usually illiquid exploration companies from paying VAT will not only improve their cash flow and reduce their operational costs, but also enhance the country’s image as a competitive destination for exploration investment,” he said.
He is optimistic that this will guarantee continuous mineral production and flow of fiscal and forex receipts, as well as other benefits from the minerals sector.
This comes at a time the minerals and mining quarrying sector has emerged as the largest contributor to direct domestic taxes as mobilised by the Ghana Revenue Authority (GRA) in 2022.
The sector’s fiscal payments amounted to GH₵6.380billion, which represents 18.6 percent of aggregate direct domestic tax receipts.
The impost receipts comprised corporate income tax (CIT) of GH₵3.580billion, mineral royalties of GH₵1.796billion, employee income tax (PAYE) of GH₵1.002billion and a residual impost revenue of GH₵1.108million.
Due to the upturn in export revenue, the minerals sector consolidated its position as the country’s largest source of forex in 2022. Data from the Bank of Ghana suggest that mineral export revenue outstripped the proceeds from exports of crude oil and cocoa, as well as inward remittances in 2022.
The contribution of the minerals sector to total merchandise exports also increased from 36 percent in 2021 to 39 percent in 2022, which was higher than the outturns of 31 percent and 13 percent attributable to the crude oil and cocoa sectors in 2022 respectively.