The Miners’ Foreign Exchange Retention: Essence, Concerns and Way Out
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Declaration of civil society organisations at the meeting of the Africa Trade Network, Cape Town, South Africa
22nd February 2008
We, civil society organisations, including farmers, workers, women’s, faith-
At our meeting in Cape Town, South Africa, from 20-
When the EPA negotiations were launched, civil society organisations from all over Africa, the Caribbean, the Pacific and Europe warned that the EPAs were profoundly anti-
The latest developments in these negotiations have exposed even more sharply the fundamental outrage represented by the EPAs.
At the end of 2007, Europe deployed manipulative and heavy-
On Monday, August 19, 2013, the Public Accounts Committee expressed shock at foreign exchange retention schemes operated by mining companies in the country and asked for investigations to be carried out with immediate effect. The committee had just begun to examine reports of the Auditor-
Parliament’s Lack of Knowledge on Foreign Exchange Retention Arrangements Worrying
The shock expressed by MPs on the public accounts committee is worrisome and quite disappointing. On one hand it reflects the much despicable secrecy in the mining sector in Ghana and across the continent. Given that the mineral resources belong to all Ghanaians, arrangements and contracts regarding their exploitation should be available to all Ghanaians therefore the parliament’s lack of knowledge on fundamental issues such as foreign exchange retention is clearly an important source of worry. On the other hand, Newmont’s agreement which also came up and amazed the MPs is being renegotiated since the beginning of last year (and they ought to know both the content and processes around this renegotiation as well as provide support for the Government Negotiating Team). So the fact that some of the MPs are new and either came to parliament in 2009 or 2013 (after the law had been passed and related contracts ratified) can simply not explain away their ignorance of the law and more importantly content of contracts such as Newmont’s. The MPs expression of shock at aspects of the law and terms of mining contracts is a sad indication that the Parliament is not paying enough attention to an issue of such high importance. This is regrettable. So how are the MPs preparing to ratify the renegotiated contracts when they lack basic information about the content of the existing contract? Will they ratify whatever is put before them or do due diligence?
On 4th July, 1986, the Provisional National Defence Council acting for and on behalf of the Republic of Ghana made the Minerals and Mining Law, 1986 (PNDCL 153). This law was part of the reforms that took place under the erstwhile Structural Adjustment Program (SAP) and Economic Reforms Program which were heavily influenced by the World Bank and IMF in design and implementation. These international financial institutions put optimum pressure on Ghana and other developing countries to narrowly focus on attracting foreign direct investment (with all kinds of incentives). The essence of this law and other related reforms was to “resuscitate” the mining sector that had collapsed together with the entire economy of Ghana in the preceding decade. At this time, the mining sector (like other sectors of the economy) was characterized by worn-
Essence of Foreign Exchange Retention
It is against this background that the law allowed mining firms (with the permission of the Bank of Ghana and Ministry of Finance and Economic Planning) “to retain in an external account, not less than 25 per cent of foreign exchange earnings for acquiring machinery and equipment, spare parts and raw materials as well as for debt servicing, dividend payment and remittance in respect of quotas expatriate personnel” (Section 29 of PNDCL 153 on Transferability of Capital). The Ministry of Finance was required to consult the Ministry of Lands and Natural Resources and the Minerals Commission in granting such permission. The essence of the foreign exchange retention aspects of the law was therefore to enable mining firms take the necessary decisions to invest in Ghana. And from experience, those decisions were made and the miners came.
The expectations at the time (on the bases of PNDCL153) were that over time the bases for retention of foreign currencies by mining companies would be nullified with government taking greater stakes in mining entities, Ghanaians trained to replace expatriate workers and local sources of mining inputs developed. In relation to increasing government’s stakes in mining, the law right from the word go made it mandatory for the state to “acquire a ten per cent interest in rights and obligations of mineral operations in respect of which no financial contribution shall be paid by Government” (Section 8 of PNDCL 153 on Government participation). This has sadly been reneged in some mining entities (Newmont and Anglogold Ashanti are examples). The section goes further to provide the state an option to acquire further twenty per cent interest in mining entities and in the case of salt an additional forty-
Regarding employment of Ghanaians and the utilization of local inputs (to enhance linkages between the mining sector and other sectors of the economy), Section 78 of the law (titled “Preference for Ghana products and employment of Ghanaians” and quoted below) is worth noting.
78. (1) The holder of a mineral right shall in the conduct of his mineral operations, and in the purchase, construction and installation of facilities, give preference to –
a) Materials and products made in Ghana;
b) Service agencies located in Ghana and owned by
ii. Companies and partnerships registered under the Companies Code 1963 (Act 179) or the Incorporated Private Partnerships Act, 1962 (Act 152);
iii. Public corporation,
to the extent possible and consistent with safety, efficiency and economy.
(2) The holder of a mineral right shall, in all phases of his operations, give preference in employment to citizens of Ghana to the extent possible and consistent with safety, efficiency and economy.
Sadly for Ghana sections 8 and 78 of PNDCL153 which needed to be pursued vigorously in nullifying the bases for foreign exchange retention were clearly not implemented (and at worst ignored) by state agencies mandated to apply the law. It is therefore no wonder that two decades after PNDCL153 was passed the new law that was passed in 2006 retained, almost word for word, the section on foreign exchange retention with the same title. There is virtually no difference between section 29 of PNDCL 153 on transferability of capital and section 30 of Minerals and Mining Act, 2006 (Act 703). Section 78 of PNDCL 153 is also reproduced in section 105 of Act 703 word for word and with the same title. It is over two decades since and no visible efforts can be seen to implement these aspects of the law, beyond reproducing these sections in mining laws. New regulations were passed in 2012 (six years after the law was passed) to support departments and agencies implement aspects of the law but evidence of the impact is yet to emerge as these regulations have variously been described to be weak.
Challenges and Concerns Associated with Foreign Exchange Retention
The foreign exchange retention section of the current Minerals and Mining Law (Act 703) is no longer serving its purpose and regrettably has been associated with some challenges in the mining sector. One of these challenges is “transfer mis-
The Parliament of Ghana passed a regulation last year to stem transfer mis-
Another challenge which is partly related to blanket foreign exchange retention is illicit financial flows. Foreign exchange retention remains an important part of the framework that facilitates illicit financial flows out of the continent. The African Development Bank recently estimated that the continent of Africa lost up to US$1.4 trillion between 1980 and 2009 through illicit flows. There is a sea of difference between the value of financial flows (from aid and grant to commercial loans) that came to Africa over the same period and the quantum revealed to have been lost to the continent through illicit financial flows. The continent’s paradox of being poor in the midst of plenty is therefore being explained in part by this phenomenon. Foreign exchange retention is therefore no small matter.
Dealing with the Foreign Exchange Retention Problem
In April, 2013, Zambia asked all mining companies to return to the country all the foreign exchange earned from the exportation of mineral resources they produce. This can guarantee the ability of the government agencies follow transactions made by mining companies that requires foreign exchange. Then, probably, they can stop the obnoxious ones. Ghana must take a cue from this and annul the section on foreign exchange retention in Act 703. The regulation on transfer pricing and public servant implementing it will benefit substantially from such annulment. Companies that are engaged in all manner of transactions and essentially transferring profits out of the country can then be better checked. In the wake of conflicting reports on the exact amount of foreign exchange returned to Ghana by the miners, it is only by annulling the foreign exchange retention section of the law that can put the matter safely to rest. In 2010, the chamber reported having repatriated 68 per cent of revenues back to Ghana. It further claimed that an average of 20 per cent was sent through Bank of Ghana and remaining 48 per cent through private banks, a claim fiercely disputed by other stakeholders including government officials.
There are two other reasons why this section of the law must be annulled. The first regards the pursuit of other aspects of the law which deals with developing local sources of mining inputs and enhancing employment of Ghanaians in various aspects of mining (possibly replacing all expatriate workers at a specified time). This is of particular importance in view of rising unemployment in Ghana, which is partly responsible to increasing and widespread illegal activities (such as illegal mining). The case with developing local sources of mining inputs cannot be overstated, as it provides a more reliable source of enhancing developmental benefits of mining.
The second reason for annulling foreign exchange retention aspects of the law relates to equity and economic expediency and pragmatism. If all foreign investors had the option to retain in an off-
The foreign exchange retention conundrum is just one of several challenges facing the mining sector in Ghana and across the continent. It is therefore important that a more holistic approach is used in dealing with the current challenge. There is no need for new policy prescriptions. The government has endorsed the Africa Mining Vision which provides the basis for using the continent’s mineral resources as a pillar for transformation and inclusive growth and development. All the arms of government (especially the legislature and executive) together with various government agencies are being urged to pay attention to the AMV. Given the heavy influence of the mining industry on governance of the mining sector and potential efforts to forestall the implementation of the AMV in a manner that ensures optimization of mining benefits and their equitable distribution among all stakeholders, the government is being urged strongly to reach out to citizens group. This is to ensure that various interests in the sector, not only those of mining companies, are well considered. An important citizens group worth reaching out to is the National Coalition on Mining (NCOM) and the Ghana Mineworkers Union (GMWU). This is very important because these citizens groups, unlike the Ghana Chamber of Mines, do not have the resources to hot MPs on regular basis as is the case with the Ghana Chamber of Mines.
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