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.

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