Unsettled Currents of Restoration: Governing Natural Resources in a pandemic context in Ghana

Learning from history?

In Christopher D. Wraight’s 2011 book on trade and aid he summarised vividly the ethics of international charity that got the British people considering carefully its aid delivery mechanism in the 2000s. Silent Spring by Rachel Carson appealed to an American audience that shook the foundation of U.S. policy on use of pesticides in the early 60s and inspired the creation of the Environmental Protection Agency. Though not published, Covid-19 virus is more or less a ‘book’ whose unforgiving impact the world has so easily felt its whack. Shuttered economies; broken dreams and new questions of globalisation that many have asked but not had answers are visibly troubling. Around the world from Asia to Europe; Africa to the Americas, these effects are all remnants of the pandemic which by far have been the most talked about and reported on in the media. But beyond the veil of socio-economic disruptions are many other unheard realities which I attempt to piece together from Ghana.

Why we went back to the IMF: Public Financial Management indiscipline or Covid-19?

‘…never again will we go back to the IMF…’ was a pithy message from the President of Ghana a few months ago when Ghana’s last tranche of the Extended Credit Facility was disbursed, and Article IV review completed. One would have thought this was an epitaph on loans from the IMF which had been grounded deeply in our economic history and I daresay has become ‘our friend’! But before many could digest this message came a new request for one of the biggest the IMF has transacted with Ghana: $1 billion! Covid-19 was to blame for this and many would say it is true. But it is important to ask questions of why the appetite to reach out to the IMF every now and then?

It is economically rational to lend money or even give freely when one has more but in defiance of this logic, many African countries tow a different path – the ‘arm-chair’ path of attracting foreign direct investments. If it is not the IMF supporting a recovery from fiscal downturn, it is an effort of such countries, to grant excessive and unnecessary tax concessions which are tantamount to issuing a blank cheque to development partners resulting mostly in crippled economies. Whichever way this is looked at, the shared and related aim is often to restore investor confidence and to stimulate foreign direct investment. Many studies concur on the correlation between reduction in statutory tax and foreign direct investment. However, such concessions when not backed by rigorous domestic resource mobilisation become problematic. A typical case is Ghana for which reason we have had to visit the IMF for at least 16 times for help. Government of Ghana has decried the rise in tax concessions, granted by itself, from 0.9% of GDP in 2010 and to a whopping 2.6% of GDP seven years later. At the same time, its rate of collection is abysmal. Assessed in relation to GDP of its peers in Africa, Ghana collects relatively low tax – about 13% of GDP below the average of its peers.

*Data unavailable for Africa average before 2008.

Author’s construct using data from OECD, 2019

It is fair to say that with little home-based revenue sources; the economy thus rides on a turbulent tide and would easily succumb to any little shocks. The obvious reality would thus be to turn to loans from lenders to finance critical development needs and the IMF comes in handy. While covid-19 shows a rather different situation for many countries because of the scale of the impact, many countries felt its whack more and it would make sense to reference the overall unsound fiscal discipline and limited domestic resources as one of the key reasons for this scale of impact aside the slowdown of industrial activity, slump of oil prices and many others. This impact in turn influenced the amount of funds applied for and approved by the IMF as can be seen below.

Why our best bet: natural resources could not help the economy withstand the pandemic

A year after Ghana’s first commercial export of petroleum in 2010, if anything was not certain it was at least clear that the newly-enacted petroleum revenue management law (coming into force in 2011) had measures to protect the economy from global shifts in oil prices. The law, admired as one of the best on the African continent, provided for a stabilisation fund into which a portion of oil revenues are put to guard against future revenue shortfalls in case oil prices were lower than projected. Proving its usefulness, in the 1st quarter of 2020 when covid-19 struck, the government approved a withdrawal of at least $200 million from the fund as the world battled a record dip in oil prices way below $12 per barrel. Now given the scale of impact of the pandemic on the economy – about 2.5% of GDP – more money was required, and the only option was to look to the contingency fund, a constitutional provision! But there was a problem! While the petroleum revenue management law was expected to be a cash cow of this fund, government barely implemented this provision thus raising the question: do we have to let the needs of today make us lose focus of the future? Thus, the state had an empty piggy bank which effectively was reduced to an insurance without premium. Since 2011 there is evidence of only two-year allocations to the contingency fund, in 2014 and in 2015 as can be seen from the table below. According to ACEP, an energy think tank and Oxfam partner, a budgetary allocation of GHS50 million (approx. $9m) and GHS177 million (approx. $30m) were made to the contingency fund in 2019 and 2020 but there is currently no evidence of actual disbursements. Certainly, this trend is worrying and if price control measures and fiscal contingency options are a force to go by in the management of natural resource rents, now is the time to ask questions.

Author’s construct (2020) using Ghana Ministry of Finance data.

After having mined solid minerals for centuries, the mining sector is even more exposed to the dangers of price fluctuations. Unlike with the petroleum sector, regardless of the challenges, the mining sector is at the mercy of externalities hinged on price of for example gold which is one of Ghana’s biggest foreign exchange earners as biggest producer in Africa. Many arguments have been made for replicating Ghana’s petroleum revenue management laws in the mining sector for a variety of reasons. While others advocate for the benefits that such a law would have including enhanced fiscal controls for price fluctuations; there is drift of perspective positing transparency and accountability through citizen oversight. Through whichever lens this is looked at, the urgency for this law is even more needful with current pandemic given its impact on petroleum revenues. This call is also a reminder to the government of Ghana to respond to its campaign promise nearly four years ago, to deliver on this law. What is also important to note is that three main mining companies responsible for a combined minimum of 70% of mining tax revenues in Ghana, Newmont Ghana Limited, AngloGold Ashanti and Goldfields all hold licences that allow them pay royalties based on gold prices rather than the mandatory 5% flat rate sanctioned by law. With lower prices such as has happened in the petroleum sector, it follows logically then that less royalty would be received by the government should a pandemic trigger such developments. For petroleum sector with price controls, though not robust, the price slump was pervasive enough and responsible for losses amounting no less than a billion dollars. The big question here is, with non-existent price controls, what would have been the fate of the mining sector?

Momentum shift: Pressing the reset button and future outlook

A trillion Euros (€3 trillion) package announced in May 2020 is what the European economic bloc, the EU, recently agreed as a relief for its member states as Covid-19 continues to test the limits of economies around the world. Across the Atlantic to the United States a record $2 trillion was approved by lawmakers for same reasons. For Ghana bailouts may be necessary but that is just immediate and short-term especially with about 2.5% of GDP impacted negatively by the pandemic. For this reason, a gaze over the long-term is critical to address the systemic issues.

Fiscal smoothing and insurance protect against future uncertainties and for the extractives industry price hedging is one of the best bets in a sector where prices of the commodity swing almost every now and then. The past few months witnessed a global price slump in crude oil to an all-time negative low. For countries like Mexico however, this shock did not affect them because their price control insurance worked quite reasonably for them. In a Bloomberg report, the country is set to cash in about $6.2 billion in its price insurance of at $49 per barrel at a time prices were way around single digits. Quite a strategic insurance programme has paid off and can be adopted by many other countries. Ghana’s attempt at hedging particularly in the petroleum downstream, until is abrogation in 2013, was carried through a strategic risk management policy. It may not have performed the way industry players expected but there is room for reform.  Reactivating this and thoroughly assessing a price insurance programme in the oil sector and expanding this to the minerals sector at government level could guarantee an insulation from the global market swings and externalities. For mining, the entry point could be a mineral revenue management law similar to its petroleum revenue management with some contingencies designed to

By now it is no news that no country that is successful today did so without galvanising tax revenues. While Ghana is at this, there is need to streamline all its tax revenues particularly from the extractives sector by scaling back its grant of tax reliefs which now cost the economy about 2.6% of GDP. Further Ghana needs to fast-track the passage of its exemptions bill which will give legal backing to controls of tax exemptions. It is also critical that audits of cost are given serious attention. In an Oxfam report undertaken in 2018, cost audits were revealed as crucial in the revenue generation chain in Ghana, Kenya and Peru however there was need, in the case of Ghana, to carry out timely assessments of cost and subsequent collection of revenues due the government.

Ghana should pay attention to the findings of the Ghana Extractive Industries Transparency Initiative & annual Auditor General’s reports and speedily retrieve all funds owed the state through misappropriations by public officers; quasi-government institutions etc; non-payment of dividends due to the state by mining and oil companies etc. A catalogue of these are glaring in the statutory audits conducted by the supreme audit institutions and other oversight bodies whose findings have hardly been given state prosecutorial attention.

In its seventh and eighth reviews in April 2019 under the Extended Credit Facility programme in Ghana, the IMF highlighted a fiscal risk in the energy sector particularly for loss-making enterprises in the value chain. It is imperative that urgent measures are taken to rationalize efficiency and switch power sources from Heavy Fuel Oils to domestic gas in the operations of these power plants. The proposal based on evidence gathered by ACEP, is for a renegotiation of agreements to halt LNG imports and to cream off cash from this to support a programme that would minimize state debt on crude and LNG imports using gas next door.

Conclusion

No country can end pandemics, and this is a well-known fact. What countries can do however is to build and maintain an economy that will not only withstand the shocks long enough to bounce back alive, but to transform based on fiscal prudence and management of the backbone of its economic basket. For natural resource dependent countries, the daily discipline in management of this backbone is even more important given its susceptibility to global price pressure. This remains unresolved but is a golden key to unlocking the real potential of natural resources.

In the search for real change two Ghanaians refuse to be Spectators

It is almost as if these two Ghanaians are joined by the hip: Benjamin Boakye and Bright Simmons. The former an Energy and Extractives Policy Expert; the latter, an Innovator and sage Analyst! Let us agree to call them the duo in this write up. Together they embody what I call the ‘B-effect’ on the policy space in Ghana. Put differently, what they comment on, gains traction almost always. Driven by the belief and passion to provide credible alternatives to topical issues especially in areas where they cut their teeth in social commentary, they have remained resilient. As I write I am reminded of the likes of Malala Yousafzai, Pakistani Activist and Nobel Peace Prize laureate who stood up for women’s rights to education in Pakistan and the late Wangari Maathai, Kenyan environmentalist and Nobel Peace Prize laureate. Amongst them a common thread is that they believed; acted and were resolute.

Bringing it back home in Ghana, the consistent activism of this duo asserts the fact that real power lies in the bosom of an active society; not a government in power. Believe it or not, when the stakes are high and the topic complex such as with corrupt decisions in the extractives sector; they will break it down and distill the issues for public framing and they are good at it too. The discipline of consistency and resilience for me are critical to understand the drive of the duo in speaking truth to power. To sketch this requires uncovering snippets of what has earned them that coveted public policy spotlight. I highlight a few major issues from 2010 when Ghana first exported oil amidst an alleged bid rigging and beneficial ownership scandal of the E.O group, through 2015 when a power crisis led to a 250 MW emergency power deal with Africa Middle East Resources Investment (AMERI) group and its fallout. I also touch on a recent public debate about the dangerously and potentially corrupt gold monetization deal ‘Agyapa’ yet unfolding.  

The E.O Group and award of oil blocks when Ghana started oil production  

When Ghana first found oil in 2007, the ambience was euphoric. Think of a centenary celebration of a loved one or probably even more than that. The expectation prior to first oil in 2010 was for setting up a regime impervious to corruption in the award of oil blocks for a natural resource that held promise for many Ghanaians. This however was not the case when news broke about the E.O Group, a Ghanaian company that was investigated for acts of corruption on its 3.5% stakes in Ghana’s lucrative oil fields and allegedly said to have had close ties with then President of Ghana. One might say this tainted the excitement among citizens that Ghana’s story on petroleum was going to be different – free from corruption –from what many observed were the challenges our distant neighbours like Nigeria, faced. With the disquiet came a push back. Probably one of the alleged scandals on which many activists tested their patience; this came earlier than expected. While unconfirmed reports in sections of the public later suggested that the E.O Group meant good for Ghana by stimulating investments for the country, the horse had already bolted from the stable. The clean page Ghana could have started with in its petroleum journey somehow was scarred by this controversy but there is at least something to celebrate. That chapter of advocacy was awash with lessons around best practices for the award of oil blocks. It is not surprising that from that point CSO advocacy pivoted competitive bidding as a best practice in the award of oil blocks. Commenting on this, Mr. Boakye shared that Ghana’s new upstream petroleum law which was under construction at the time, failed to capture clearly provisions for competitive bidding as a nascent oil producer. At a time when the civil society space was relatively new to the oil governance and the legislative space not robust to grip corrupt moves, small voices from activists mattered hugely more than anything. For other voices, this phase of oil production in Ghana was a rushed process without due regard for best lessons on governance mechanisms to prevent environmental pollution among others. One of such voices was Bright Simmons’. The duo’s contribution to public framing paid off when in 2018, competitive licensing rounds were initiated. Nonetheless, the range of governance issues raised earlier continue to linger on. Evidence suggests that some of these concerns linger on. From the Public Interest Accountability Committee (PIAC) reports natural gas is largely re-injected into wells and flared than it is used for commercial purposes raising questions as to whether as a country Ghana has been prepared for optimizing the real value of its natural resources. The table below paints this reality:

The peak of power outages in Ghana

On an issue that has shaken the Ghanaian media space roughly between 2012 and 2015, activists stood up again. Ghana suffered debilitating power crises that popularized a term ‘Dumsor’ which loosely translates in the Twi dialect as ‘off and on’. It depicted the frequent power outages that rocked the country similar to South Africa’s current power crises. At the time emergency power measures were introduced to stabilize the situation one of which includes a 250 MW deal with United Arab Emirates based AMERI Energy at a cost of about US$510 million under a Build Own Operate Transfer arrangement for 5 years. Fast forward, when a new government took over, a process was started to renegotiate the deal on grounds it is overpriced. This got sour as the then Minister of Energy was eventually dismissed for misleading the President of Ghana into signing an  executive order that would have further indebted Ghana beyond the initial contract period of 5 years to 15 years at further cost of US$1.2 billion. This progressive move of relieving the then Minister of Energy of his job benefited from close constructive criticisms from civil society organizations. Mr. Boakye played a critical role in this! From media framing to short analysis he distilled it for public debate and understanding. I am not surprised to note that similar analysis were undertaken by Mr. Simmons that got Ghanaians talking on the facts of the original contractual obligations and discrepancies of same.

Agyapa gold deal: Domiciling Ghana’s gold assets in a tax haven in perpetuity without regard to its sovereign rights.  

The Agyapa deal is a sad initiative by the government of Ghana to sell off of 49% of Ghana’s gold royalties in perpetuity in exchange for an upfront amount of US$500 million on the international market. In design, this comes across as a creative way to maximize returns from gold mining but looking beneath exposes serious corruption risks such as bid rigging, conflict of interest etc which had already been investigated and reported by Ghana’s office of the Special Prosecutor. The hoopla from this deal was not just about the undervaluation of Ghana’s mineral assets but squarely about plans domiciled a state company to manage the gold assets in Jersey, a secret jurisdiction. I wrote about this last year and shared my frustrations. Others like the Duo distilled the issues for public understanding. On the undervaluation, for instance, Bright Simmons questioned in his writing the value of Ghana’s gold assets under the deal at US$1billion explaining that it serves not state interest and does not demonstrate propriety. What is interesting is that contrary to government’s valuation his arguments peg the figure at three-fold more at US$3.6 billion. Indeed many CSOs sided with this in other papers written to put pressure on a surprisingly uncompromising government bent on undercutting the true owners of mineral resources – the people.  About the same discussion, Benjamin Boakye’s analysis uncover that Ghana will be better off without a gold monetization scheme. His modeling compares a business as usual scenario of royalty collections from mining companies, as is the status quo, with a gold monetization scenario proposed by government under the deal. The results are stark. He demonstrates that on a yearly basis, Ghana will lose $61 million should the current royalty scheme be replaced with the Agyapa deal. Adding salt to injury, the legal ramifications of the deal are unfathomable and this was raised again. The duo decried the tax incentives to Agyapa Royalties and the attack on Ghana’s sovereignty as the agreement denies the government any right neither to vote to seek the  sole interest of the country nor against shareholder resolution even though it is a majority shareholder. Yes, you just read that and the fight continues not only in the natural resource sector but generally other sectors where procurement has been in the crosshairs.

Public Procurement and financial impropriety

Why would any leadership pursue a deal that not only throws its sovereignty on its head but denies the rightful owners of natural resources a say? Answer to this lies not only in the fecklessness of institutions with regulatory power but a gap that celebrates partisan politicking and its dispensation over and above patriotism. Readily coming to mind is the politics of tax incentives, waste and how I am convinced, played a part in Ghana’s current sad economic situation that has led the country to the IMF, the 18th time. I will spare a few lines to show how the duo has responded to these. On waste and tax frauds, Mr. Simmons has consistently called out state authorities and reference here is to the Minister of Communications on a scandalous telecommunications monitoring platform that is alleged to have set the country’s coffers back by US$178 million and many others including the 2020 national elections IT infrastructure mired in procurement controversy and criticisms of economic loss of up to US$150 million to the state. Procurement irregularities have consistently been highlighted as well and here Mr. Boakye and others decry non enforcement of sanctions for public procurement breaches and the like. En bloc, if these calls on the need to manage public finances prudently were without merit, external bodies such as the International Monetary Fund (IMF) will not corroborate them. But guess what? Echoes of same are reflected in the fund’s Article IV reports. In 2021, the fund decried Ghana’s tax exemptions regime and asked for a rationalization of VAT and import duty exemptions. The energy sector debt alone based on the Fund’s analysis could be at least US$1 billion yearly through 2024. To learn that today, Ghana government has made a U-turn to the IMF to negotiate support for its ailing economy is an indication that that the ‘noise’ from CSOs and indeed, Mr. Boakye and Mr. Simmons, has been worth it.

As to whether a joint analysis should be delivered by Mr. Simmons and Mr. Boakye on a major policy issue such as we have with the IMF bailout currently, I would not be able to tell but what I can say is they are probably joined somewhere even if it is by a thread thought! To anyone else, think of the discussions underscored above as a compendium of thoughts and opinion of two social activists in Ghana and you may have made a point. But when you think of them as the oomph of civic movements pushing for real change, you probably would have lit a torch that others will continue with in their own corner of this governance journey. My two cents though are that a lot of house cleaning is necessary to turn Ghana’s fortunes around and civic movements driven by passionate activists with the ability to trigger a ‘B-effect’ will be the nerve wire of this sought-after fortune.    

Small-holder farmers should take their rightful place in agricultural value chains

Tea farm in Mau, Kenya. Photo courtesy Patrick Shepherd/CIFOR

After water, Tea is the world’s most popular drink with over 70,000 cups drunk every second. Humans love it so it is not surprising that Iran accepted, in a barter deal, a repayment in Ceylon tea from Sri Lanka for a US$251 million oil debt owed to it. This human ‘love’ though, wanes out somehow when we talk about the share of incomes of the actual producers, the small-holder farmers down the value chain whose toil ironically is the groundswell of this ‘love’. Recent data from the International Institute for Sustainable Development (IISD) speaks to this. Up to 8 million small-holders from Africa and Asia are responsible for 70% of global production of tea. Many have barely earned above the World Bank’s poverty line of US$1.90 per day for poor countries in the recent times. This is not just the struggle of tea farmers; it is the untold story of many small holder farmers around the world who are integrated into unfair global agriculture supply chains trade regime. For those in Africa, the least said, the less depressing.

Numbers have always amused me but what numbs me is to learn from a University of Wageningen paper that has sketched the struggles of cocoa farmers in Ghana and Cote D’Ivoire and their counterparts growing tea and other crops in Kenya. Summarizing datasets from different studies and evaluations, the researchers conclude that only 10% of smallholder tea farmer households in Kenya earned above US$1.90 and 20% and 25% for Cocoa farmer households in Ghana and Cote D’Ivoire respectively.

Now these statistics are intriguing and I am sure asking about how we got here will be a fair question. ‘… sometimes we throw them away because of lack of market…’ is a sober expression of concern by a farmer’s child in one of the agricultural baskets of Kenya with whom I closely exchange ideas on agriculture supply chains. I believe this concern is in sharp contrast with those of powerful agriculture companies on the forward end of the value chain who celebrate profits; cashing in, thanks to the sweat and toil of the poor farmer. At this point a little more statistical evidence will put this into perspective. With only 3 multinational companies controlling about 20% of the global tea market, you can be assured that inequality, the basis of the call for the people’s vaccine as we face a ravaging pandemic in our world today, is not a problem with Covid-19 vaccines alone. Large pharmaceutical firms with technological dominance have used this to maintain advantage in richer countries while constraining vaccine production and access in poorer countries at a time the world needed them more. The agricultural value chains spin right into this struggle. At the heart of this are intermediaries or so-called ‘traders’ who have capitalized on anonymous transactions and auctions of about 70% of global tea production affecting pricing for tea farmers for so long. Traders are able to do this because they have many options of sourcing, switching between producers and driving down prices.

For those directly employed by large chains, labour rights and wage under-payment are of concern too but just like corruption attempts must be made to expose it lest it lingers on. One such attempt to unearth these issues is the work by the Sheffield Political Economy Research Institute (SPERI) through the Global Business of Forced Labour, a research firm focused on supply chain issues in tea and cocoa value chains. In their 2018 report, after talking to thousands of tea and cocoa workers as well as business and government workers in Ghana and India, they came to the conclusion that employers systematically paid less than required wages to tea workers in the case of India. For Ghana, complex financial calculations were used to undercut workers through wage deductions for inputs provided to cocoa farmers. Building the evidence and highlighting the issue must not be the end but rather provide a means to other actions such as citizen activism.

Other attempts that readily come to mind are Oxfam’s Behind-the-brands initiatives; Fairtrade certifications and Rainforest Alliance certifications. All of these aim to support supply chain sustainability and living income standards of accountability in the food and beverage industry around the world. The task at hand is sadly overwhelming and demands consistent advocacy, reparations, national conversations on trade rules and huge financing to scuttle the inequalities and unfairness especially given that compliance to these standards by multinational is not 100%. Could reparations play a critical role in addressing this value chain onslaught? About 90,000 hectares of land belonging to Kipsigis and Talai clans in Kericho, Kenya are reported to have been taken by British colonialists decades back. Today these lands are tea plantations owned by western multinational companies and on these plantations descendants of the usufructs can hardly boast of a fair share of the pie. They seek reparations and the United Nations supports that course. With origins of this supply chain inequality going back in time, it is safe to say that the issue is as enduring as it is structural and governments and multilateral lenders ought to take an active role.

Have countries taken steps to address fair wages with some pockets of success? From a cursory check notable are Ghana and Cote D’Ivoire’s direct interventions on cocoa. Ghana and Cote D’Ivoire produce about 70% of the world’s US$100 billion cocoa output and secured a US$400 per tonne differential above the floor price for farmers from the 2020/21 season. This was borne out of bilateral negotiations and collaboration between the two countries in a unique farmer premium labeled ‘Living Income Differential’ which piqued industry’s interest as the ‘OPEC’ of cocoa. The implication of this premium according to the 2020 Cocoa Barometer report was a 28% increase in farm gate price per tonne of cocoa in Ghana to US$1,837 and by 21% in Cote D’Ivoire to US$1,840. As farmer cooperatives are encouraged generally to beef up price of farm produce, the role of governments can be strategic with quick returns in the medium to long-term as has been the case of Ghana and Cote D’Ivoire. As celebrations greeted this deal little expectations of fallout in the supply chain were discussed until it was alleged that some cocoa companies like Hershey and Mars avoided purchases of beans from Ghana and Cote D’Ivoire so that they will not pay the agreed premium. Subsequently Ghana and Cote D’Ivoire pulled out of the sustainability programmes of these companies. There were also some debt-related effects which came about especially when Covid-19 broke out. In July, 2020 the International Monetary Fund (IMF) raised concerns about risks of the initiative to the net operating losses of the Cocoa sector regulator in Ghana, COCOBOD. Low international demand for the cocoa because of a high price meant that the surplus had to be refinanced by the government because of an accompanying debt which stood at about 2.5% of GDP at the end of 2020. Who would have thought that an attempt to correct unfairness in global trade will hurt the economy? Is this cost worth it? Whichever way this is viewed, these lessons are critical for cocoa, tea and other crop-producing countries in Africa as policies and measures are conceived to improve lives of small holder farmers.

Avocado is also another crop where small holder farmers have faced stiff supply chain struggles. As the world’s third largest producer of Avocado, this text deliberately pivots Kenya’s experience. Over 70% of production is led by small-scale farmers and they face a similar challenge as tea or cocoa farmers. Constantly they are faced with exploitative behavior of middlemen whose activities limit good prices for produce. If food security was anything to go by, I would be extremely worried but in relative terms this crop is witnessing some decent growth. Yield quantities as seen below, are quite steady over a five year period although farmer incomes remain generally and relatively unfair.

Generally production hikes are recorded from between 2015 to 2020 in part because compared with tea and eucalyptus; many farmers consider having better prices in avocado farming. With this growth in size and recognizing the opportunities to integrate into the export market, the government of Kenya is supporting grower schemes that connect avocado farmers to buyers. It is not clear if this is a sure way to guarantee higher prices for farmers but is a considerable effort. In a study targeting 790 smallholder Avocado farmers, it is observed that nearly 39% earnings are recorded by farmers participating in export markets who also had the benefit of technical expertise exchange; were engaged in contract farming or an out-grower scheme, cooperative and got support from farmer groups. We must note that the fairness or otherwise of producer price connects very closely with market dominance and monopoly. As small holder farmers in Africa, how to break away from the control of this dominance is an unanswered question that is relevant to the agriculture landscape. Leadership from government as seen in the Living Income Differentials initiative between Ghana and Cote D’Ivoire referenced earlier could be carefully considered as one of the ways to assert calls for fairness in agriculture from farm to fork.

Investment will be a catalyst to revolutionize small-holder farmer income protection in Africa. Existing models prioritize farmer capacity enhancement; access to markets; contract farming and the like with the assumption that once these indicators are positive, small holder farmer livelihoods and incomes will appreciate. The missing links though are what I label as the ‘externalities’: the turbulent market space driving prices up and down; a middleman syndicate that mostly shortchanges small-holder farmers among others. To manage these state and multilateral investment options including equity funds must provide a sustained mix of products with a long-term focus. These should be angled in a way that fosters export promotion, farmer extension services, tailored research and development etc with a core business of insulating small-holder farmers from these externalities. Here I will reference a number of investment funds on the African continent. The Africa Agriculture and Trade Investment Fund (AATIF), a public private debt and equity financing mechanism with interest in agriculture value chain investments is an instrument to explore. Upfront investments from as low as US$3 million to a high of US$15 million, small-holder entities could secure better incomes for farmers when tailored properly. AgDevco is a similar mechanism supporting small holder farmers with similar instruments as AATIF. I carefully selected major investment funds on the continent and mapped them by selected investments in the table below. What I find is interesting. Although ‘Africa-tailored’ they are not wholly African when looked at closely. The real funders behind such instruments are mostly of western origins. African governments and private sector entities can and must take up this challenge to fill the void.

Investment FundAmount InvestedAfrican CountryInvesteeCommodity invested inFunding Sources (selected)
AgDevcoUS$6.9 millionGhanaBabator Farming CompanyRice, Maize, soya and GroundnutsVarious including UKAID
Africa Agriculture and Trade Investment Fund (AATIF)US$5 millionZambiaMount Meru MillersSoya, Sunflower and CottonEuropean Union; Federal Ministry for Economic Cooperation and Development, Germany
Agri Business Capital (ABC) Fund€1 millionKenyaApolloFinancial & farm support services to small holdersEuropean Union; Swiss Agency for Development & Cooperation; Luxembourg Aid & Development
Author’s construct (2021) of selected Agricultural investment Funds in Africa

Probably demanding but rewarding as it can be, exploring agricultural social franchising is one way to chart a means to income independence as small holders. Social franchising essentially combines commercial models of business and social goals of alleviating poverty in a way that promotes scalability and profitability for actors within the franchise. In agriculture Farm Shop is an example in Kenya where agricultural inputs; service extension, trainings services have made it possible for franchisees to run modern retail points among others. Similar models are notable such as with the dairy business, Fan Milk in Ghana and Babban Gona which extends investment support to small holder farmers in Nigeria. These models have the potential to guarantee better market opportunities and ultimately higher incomes and financial independence for small holder farmers in the long term. State policy reform in this area could trigger this in scalable proportions.  

We can say that whoever sets the standards gets to the shape the rules of engagement on compliance and its implication for farmer incomes. All the major agricultural value chain standardization efforts are mostly from the global north. Existing ones such as the Good Agricultural Practices (GAPs) and FAIR Trade certifications have hardly had a sustainable influence on compliance of private sector players when it relates to equitable distribution of wealth and farmer income protection. While demands for higher standards for the produce of small holders is expensive and can put undue pressure on their profits, small holder farmers must strive to stay above average performance and maintain homegrown standards for intra-African trade. Recently, a shortage in imported potatoes affected sales of potato fries as reported by global food chain KFC in its outlets in Kenya. The argument is that local potatoes have not been cleared per the chain’s quality assurance standards. Neither the public outcry following this nor the reality of KFC’s concern is the subject of this write up but rather the implications of the opportunity cost of external sourcing on the potential incomes of 800,000 small holder potato farmers on Kenyan soil. Whichever way this is looked at, standards within the supply chain must be looked at closely to close the existing gaps in agricultural value chain income inequalities. What is needed is targeted state leadership and progressive policy and private sector investment. Through these, real progress could be made for the poorest of farmers on the continent.   

Small may be relative in a rather ‘large’ small-scale mining sector as Ghana pushes its formalization.

The small-scale and large-scale mining sub-sectors sum up the entire mining sector in Ghana. Now that sounds like an obvious equation isn’t it? But for the curious minds, drilling further reveals some realities which throw this equation off balance. Take a closer look and it becomes apparent the scale and depth of operations of the small-scale mining sector in Ghana have now outgrown their classification and warrants a third scale.

In a head-turning moment, Ghana overtook South Africa in 2018 to become the largest gold producer in Africa with a production output of 4.8 million ounces compared with South Africa’s 4.2 million ounces. An extra 0.6 million ounces guaranteed this leadership. In all, the small-scale mining sector contributed circa 40% of total output. Then in 2020, reports from the state mining regulator, Minerals Commission, show that the sector generated 31% share of total ounces of almost 4.1 million produced. At such a scale, it is only a matter of time before the sub-sector closes the gap with the large-scale. Thus, it begs the question whether a medium scale sub-sector is needed and should the growing ‘small scale sub-sector be regulated differently? Having followed the trends in the mining landscape for some time now, it came as no surprise to me when the government of Ghana recently ramped up efforts to strengthen the formalisation of the sub-sector to target, control and manage ‘small-scale’ mining amidst its growth and accompanying value chain struggles. For many, it is understandable and reminds me of a series of policy and institutional shifts of the past years within the sector which I shall spotlight in the next few paragraphs.  

The journey: the transition and changes in Ghana and other countries

I was privileged to pay a courtesy call on the Ghana secretariat of the now defunct Inter-Ministerial Committee on Illegal Mining in 2017. I noted on my visit, the national priorities, and the intentions to apply technology (e.g. drone technology, G.I.S etc.) and digital strategies to strengthen controls and management of small-scale mining operations. It is heartening to recount that initiatives such as these found favour with many Ghanaians and helped to shape the steps that were taken to purge the looming environmental disaster from unregulated mining. There is more: it ushered in a ‘second phase’ of policy reform, political will, and commitment from the highest office of the land – the Presidency – to fight illegal mining a central theme of the small-scale mining formalisation efforts. Earlier reforms which I call the ‘first phase’, are given meaning by the Small Scale Gold Mining Law, 1989 (PNDCL 218); the Minerals and Mining Act, 2006 (Act, 703) and allied regulations and amendments but we shall focus on the second phase in this discussion.

Currently there are two main formalisation instruments deployed in Ghana: the upstream control instruments and financial instruments. As part of an economy-wide digitalization agenda, the Vice President of Ghana courts a public drive and shift of the economy from its informal nature to a bank-driven formal economy through digital payment systems, deployment of tech-based business systems and processes in state regulatory institutions to name a few. While it is not given that this is the silver bullet for an economic leap, it does carve the way for efficient targeting (a critical element in the formalisation efforts) of operations of businesses including the small-scale mining sub-sector. This measure is one amongst a few others. Under what is termed the Community Mining  Scheme, a cooperative type of arrangement is instituted to cluster small scale mining operations in specially delineated concessions that will pool resources and support services to specific areas and at the same time, help to control and manage the environmental risks to mining. It appears this is not only happening in Ghana. To the east, there is a similar initiative in Nigeria. This scheme aims to pivot kaolin, barite and other minerals under a minerals processing cluster initiative envisaged in the country’s Economic Sustainability Plan. For Nigeria, this initiative could save the government up to US$300 million in imports of barite. Thus revenue motivation has been instrumental in these national level efforts to formalize small-scale mining.

Changes such as in the preceding analysis have not only been in West Africa. In East Africa, there have been some movements which qualify as financial formalisation in this area as well. These reforms are not related to community mining schemes but are critical for sector reforms and growth in the region and so I will unpack a few examples. In April 2021, Uganda whose largest export commodity is gold, proposed a US$200 tax bill per kilogram of gold exported. The purpose was to help revolutionize the mining sector revenue collections, but it faced stiff opposition by players in the gold mining sector. Ghana was not spared by the mining associations when a similar effort was introduced. Currently a 3% withholding tax on export volumes of gold is blamed for increased cross-border smuggling of gold. This is a claim by the small-scale mining associations which could be re-examined as it could pose a potential stonewall to integrating financial instruments, a subject I will visit later in this write up. Elsewhere in Kenya, there is a new twist similar to Ghana’s ‘second phase’ reforms where new gold finds by companies such as British Acacia Mining and Shanta Gold in the Kakamega-Busia gold belt have come with some fiscal regime efforts to give back 30% of gold revenues to the small scale miners. Other reforms include mine safety trainings and skills building for small scale Miners. In these formalisation efforts, financial instruments are involved. But will the government, in Uganda for instance, yield to pressure? Ghana’s has already, regardless of the cost to revenue inflows, with the current 2022 budget statement proposing to reduce this tax from 3% to 1.5%. Ghana’s external debt as at July 2021, stood at about US$28 billion and government will spend up to 45% of its revenue on debt servicing in 2021 alone. It is not clear with this there is enough fiscal leg room to address many critical development priorities. It also begs the question whether it was a political decision announced on this tax cut or otherwise and should Parliament approve this? Deliberations are ongoing and I observe with keen interest.

Between proper formalisation controls and tax cuts at point of export: What is the choice?  

For a growing small-scale mining sector in Ghana and other parts of the continent, purging gold smuggling might be a conversation of interest in this formalisation process. On 17th November 2021, the 2022 national budget and economic policy statement was delivered to the Ghanaian Parliament. A key fiscal policy instrument in the budget reduced the current 3% withholding tax on unprocessed gold exports to 1.5%. With a careful diagnosis would there have been another alternative? Available research shows that between 2015 and 2017, while Ghana’s official records showed that about US$13 billion worth of gold was exported to countries such as Switzerland, United Arab Emirates and India, those countries reported even higher imports[1] from Ghana. To reduce a tax (from 3% to 1.5%) on exports which only came into force in 2020 on grounds of a spur in smuggling without addressing the export volume and problematic trade tracing mechanisms amounts to a lack of will to stem the real issues. The bigger question to ask is, what will be the impact on revenues on an economy whose public debt, I referenced earlier, is about 80% of GDP? Will such a roll back in tax lead us to the ‘race to the bottom’ and drift Ghana into a hub of illicit gold exports as happened in Mali? In that jurisdiction, years back, above a threshold of first 50 kilograms of gold, exporters paid no further taxes, and this facilitated a surge in smuggled and transit gold from other countries. Reforms reversed this situation later with a current flat rate of 2%. So, these are critical questions (and lessons) that ought to be asked by government. In any case, a look around the sub-region shows that a 3% tax rate is not an outlier in Ghana. In Togo, Niger, Nigeria it is pegged at 3% rising to about 5% in Senegal and 6% in Cote D’Ivoire as indicated in Table below:

COST OF EXPORTING 1 KG OF GOLD in West Africa

CountryRoyalty and other export taxes
Benin5%
Burkina Faso1%
Cote D’Ivoire6%
Ghana3%
Liberia3%
Mali2%
Niger3% royalty of 80% value
Nigeria3%
Senegal3.5% (locally refined gold) 5% (foreign refined gold)
Sierra Leone3% 
Togo3%

Source: UNIDO, 2018

[1] They claimed about US$20 billion of gold came in from Ghana within the same period. This creates an unexplained amount of about US$7 billion dollars that went untaxed.

What is the best way to strengthen the small-scale mining sector?

Ghana and indeed many other African mining countries can retain as much value in the artisanal and small-scale gold mining sector and this requires just simple solutions. Article 268(1) of Ghana’s constitution subjects all mineral exploitation to ratification by Parliament. In practice, the focus sways away from small scale mining operations focusing largely on bigger mining companies. The benefit of risk control, Parliamentary due diligence and depoliticization of the grant of mineral rights that would have otherwise been served by this constitutional process is lost. The time to rethink the current regime is therefore now as the small-scale mining sector grows in both size and value. We must ensure that a special mechanism is introduced for Parliament to perform its role of ratifying small-scale mining agreements without increasing processing times for leases.

The classification of small-scale mining also requires a second look. With growing value and level of heavy-duty machinery such as excavators used on concessions, the boundaries are pushed beyond small scale. In terms of output, out of the total of 4,090,070 ounces of gold produced in 2020, small scale sector contributed 1,264,029 ounces. Obviously scale matters! Impetus should also be drawn from the level of devastation of forests, farmlands and wildlife as well as the need to meet Ghana’s climate change adaptation and mitigation priorities. The proposal for a medium scale category should therefore be closely considered and reflected in legislations to enhance regulation and subsequent revenue retention through tax.

Progress made is only as good as its substance and value. A few weeks ago, Ghana’s Parliament approved a US$200 million fund to promote the Technical, Vocational and Education Training (TVET) for a skills and jobs overhaul. While this mirrors progress, for a major foreign exchange earner and multimillion-dollar mining sector, this might just be a drop in the ocean as the fund does not target only mining industries. A deliberate targeting must be conceived specifically to enhance value creation by low-to-semi-skilled artisans, jewellers, polishers etc to prepare them for the regional and global markets. One such market will be presented by Africa’s Continental Free Trade Area (AfCFTA). This at least will complement the high-end training capabilities of the University of Mines. In today’s knowledge-driven world, we can always learn from others, too! In Zambia, the Gemstone Processing and Lapidary Training Center, a national training facility, offers a classic example of how the gemstone sector is benefitting from state-led skills transfer initiatives for small-scale miners. The center has played a critical role in value addition laying a fertile ground for access to the international gemstone market. Understanding its operational strategies; ways of working and mandate will be an entry point for the small-scale mining sector in Ghana.

As the discourse advances on the size of the small-scale mining sector in Ghana and whether it should even be given its due attention, we must be clear on how worthwhile this is given our sketchy history of reforms. Could we at least agree to view the small-scale mining sector as the soul of our local content agenda and from that standpoint, current regime and subsequent reforms ought to ask more urgent questions on scale, size and depth as the formalization efforts gain traction. It is only through this lens we can be justified in our explanations to posterity when the last mine closes.

What is the true motive of natural resource valuation in Ghana?

Oil fields offshore the coast of Ghana

In a beautifully crafted publication on accountability titled, Do We Mean What We Say for Accountability in Ghana, I was reminded by the author that ‘Paemu Ka’, an Akan phrase which means: say it as it is, anchors accountability. So, I choose to draw attention to this phrase as I share my thoughts on recent resource-backed investment intentions in Ghana that so far unsuccessfully discredits CSO advocacy. But before I continue, brace yourself for the discourse that the utility and by extension monetary value ascribed to some of Ghana’s natural resources have over the past few years been mired in public banter. The most recent being the hoopla following the $1.65 billion GNPC-Aker Energy oil deal steeped in such controversy that one could compare it to a debate between an atheist and a theist on the existence of a supernatural God. To dissect the issue at hand I pose some questions and share some comments.  

Is the core of this debate valuation? Known for ascribing utility to natural resources, valuation has proven to serve two opposing interests at every point in time. With the right intentions, true owners of resources could derive maximum benefits from the exercise of valuation. With an ulterior motive, I daresay parochial interests paraded as public interest, could rip off rightful owners of resources all owing to valuation! While I proceed cautiously on these sentiments, the stark evidence from unfair community compensation schemes in mining operations mirror this reality where ill-intentioned valuation takes from the poor and gives to the rich. We have seen this in cases where mining concessions are issued to powerful companies who can exploit gaps in national laws using valuation to unfairly compensate poor occupants and owners of land within their concessions. This is but a tip of the iceberg.  But why is the devil in the valuation when it comes to natural resources in Ghana?  With up to 13% of GDP drawing from our natural resource rents there is enough reason to broach this question.

Valuation and State-Owned Enterprises like GNPC

News of the single biggest deal by GNPC which I referenced earlier may have clogged the airwaves in Ghana lately. The proponents of the deal, GNPC, stake their claim based on a so-called independent valuation exercise that adopted an unusually high price of US$65 per barrel of crude oil for a long-term forecast. CSOs did and have not taken this lightly. They responded and advanced counterarguments to the extent that industry forecasters like Wood McKenzie and others do not apply such high prices; facts I totally agree with. My claim in addition is that the ‘smoke screen’ of energy transition being the need for this deal to go through with such lightning speed is as problematic as it is unfathomable. This is sadly so because the proponents of this deal superintended the flaring of 19,753.51 MMScf of natural gas in just 2020 alone. This is a little over a ton of carbon dioxide emissions, the contributory consequence of which is the energy transition. The additional smoke screen is the details in the valuation which state companies have so well used to throw dust in the eyes of an unsuspecting public for sympathy. The bawling responses by proponents of the deal to CSO’s arguments suggesting that they are empty is sad for constructive criticism. If anything, CSOs have played a central role over the years in ensuring that the public purse is protected regardless of the government in power. There are many examples of this role as referenced by Ben Boakye, Executive Director of ACEP and Bright Simmons, Founder of Mpedigree and  many others within the CSOs space. For a compromise at least, what should be agreed on between CSO’s position and proponents of the deal is the debt issue that could be and potentially instigated by this deal. One thrust of CSO’s argument is that the ballooning public debt situation the country faces should warrant careful debt management which obviously the GNPC-Aker deal does not serve the public with. Our friends from the International Monetary Fund (IMF) share CSO’s concern on the public debt and what the energy sector’s contribution to this is. According to their Article IV report of July, 2021:

‘’ …Public debt grew from 23 percent of GDP in 2007, the year of the first Eurobond issuance, to 79 percent of GDP in 2020, pushing gross financing needs above 25 percent of GDP and debt service (including amortization) above 129 percent of revenues. The adverse debt dynamics were driven by large and persistent government deficits (including financial and energy sector costs)…’’

Requesting a loan, about 2.2% of GDP to finance this oil deal based on a supposedly spurious valuation at a time the country’s debt situation is over the roof, is of concern to CSOs and must be re-examined. While the recent IMF transfer to Ghana of SDR1 billion will add to the debt situation, the fact remains that incurring avoidable debts through questionable valuation exercises is not anything CSOs are prepared to remain aloof about.

Who else is ‘enthralled’ by this tussle between CSOs and state companies on the facts and risks?

With about 38% and 42.22% licence and participating interests respectively, in the Deep Water Tano/Cape Three Points oil block, the subject of controversy highlighted earlier, Lukoil, a Russian multinational company expressed worry and concerns about the Aker-GNPC deal. On 9th August, 2021, the Russian company wrote to Ghana’s Minister of Energy posing questions on changes to block operatorship; financing plans etc. See extract below:

The Energy Minister did respond to Lukoil and in my opinion these exchanges do not only vindicate CSO’s concerns on the entire deal but also tacitly, from the corroborated risks in Lukoil’s letter, confer onto extractives sector CSOs, the hard-earned credibility that warrants a permanent seat at the table of natural resource discourse.   

There have also been similar transactions in the mining sector that I shall address in the unfolding paragraphs. Notable is the Agyapa mineral royalty monetization deal introduced in 2020 and on this I ask a similar question: How did valuation play out in this deal?

 History has taught us many things in the natural resources space. First, we have not been able to maximise the benefits from our mines for optimum economic development although we have mined for centuries. Read more about this in my previous posts. Second, the golden opportunity for Ghana when we found oil was to leverage petroleum resources to make a difference which is why a petroleum revenue management law, a product of persistent CSO activism, was put in place in 2011. Years later CSOs asked for a similar law in the mining sector to which the current government while in opposition committed in their party Manifesto. But the mineral revenue management law was not delivered. Rather, a mineral income investment law was enacted. This law provided the legal framework on which a mineral monetization deal based on a valuation or rather undervaluation of mineral royalty assets at about US$1 billion was birthed. Many publications from press releases to sound analysis, have been  made by CSOs in the extractives and anticorruption space against this deal as we wait for it to morph into a much better version. In this deal, about 48 mining leases would be used to capitalize a special purpose vehicle incorporated in a tax haven. The government of Ghana will retain 51% ownership of this vehicle even as the government invests in the stock market in return for $500 million upfront cash.  What is suspected again, like the GNPC deal, is the valuation issue whose similarity has been elaborated in the earlier texts. In an analysis done by CSOs, it was evident that by using a Business-As-Usual scenario, i.e, should Ghana decide not to monetize its mineral royalty, it would be US$61 million better off than monetisation proposals which offers less return on investment. As to whether this was heeded remains an unanswered question. What intrigues me though is, concerns raised by international ‘foreign’ companies on risks from ill evaluated investment decisions by government such as by Lukoil referenced in earlier texts, may be listened to by state authorities but not from citizens. This makes me wonder: to whom does the state lend its listening ear; the private company or the citizenry? The answer to this question I shall attempt in the future.

In this discourse on natural resource in Ghana, I am convinced that the main connecting tissue to deals of this nature is valuation and it must be closely monitored. The question and merits of whether we need special accountability controls and regulation on economic and asset valuation as relates to natural resource transactions is not something this write up opposes. It sure is, a path we may want to chart as a nation to address policy failure, rent seeking, and potential corruption. Until such a time, for resources governed by fiduciary power such as provided for in the laws of Ghana on hydrocarbons and minerals, state authorities owe it to the public to remain accountable and as an entry point, commission a national conversation on value drivers in the exercise of power on investment decisions. This is taxpayers’ money in the crosshairs and whatever the reason, every dime ought to be efficiently accounted for. It would therefore be the unfairness of reasoning to seek effectiveness over and above efficiency given the scale of the transaction. As CSOs, our check on this is to unpack issues and let the public debate it in the interest of value for money and accountability as the phrase goes, ‘Paemu Ka’!