Gold

wpid-gold.jpgAdnan A. Mohammed, Economy Times

Miners in the country are bitterly complaining of the loss of interest in the mining industry due to high taxation by government and other payments coupled with declined in metal price on the world market.

According to them, these taxes are being disincentives to attracting new investments into the country?s mining sector thereby cutting down the value of foreign direct investment which contributes significantly to the growth of the economy.

The miners are of the view that instead of the government using the industry as its ?cash cow? to mobilise or increase its tax revenue, it should rather think of allowing the sector to grow which would guarantee a sustainable income source to the government as well as maintaining a prospective mining future to the younger generations.

They say, too much fiscal tightening will shrink the mining pie and eventually shrink the national economy when the mining companies all close down or cut down production the government would no more receive any revenue in the form of taxes from the mining sector.

It is estimated that, in 2012, the mining sector contributed US$ 3 billion in value to Ghana?s gross domestic product (GDP) representing? 26 percent of total export.

?let?s try and grow the pie and not shrink the pie?, this is according to Alfred Baku, the Executive Vice President for West Africa at Gold Fields who spoke to the Economy Times reporter on the sectors? perspective? and? challenges.

?Do not believe all is about tightening the fiscal regime but widening of the tax net? Mr. Baku advised the government, adding that, fiscal tightening as well need to be a collaborative decision of key players in the sectors of the economy.

?Shrinking the pie?

The mining sector as it is now is faced with numerous challenges in the wake of falling metal prices, escalating input cost, increase in taxes and other payments to government and communities (including royalties, ground rent, dividends to government, compensations to communities among others) and increasing incidents of violence between mines and surrounding communities and illegal mining activities.

Miners believe that, the 35% corporate tax and 5% royalties payment to government alongside dividends payments (of 10% of shareholding in mining companies), ground rent in the country is out of context compared to global standards of 25% corporate tax and 9% royalties only paid by mining companies to government. To depict a more clearer picture of the situation of ?shrinking the pie? in Ghana, while all it costs Gold Fields in Peru is around US$ 700 per ounce of gold, but in Ghana is around US$1,200 per ounce of gold, Mr. Baku emphasized, stating that, these situations are contributing to the declining profitability of the mining sector.

It is estimated that, US$87.5 billion new mining projects have either been delayed or cancelled globally which includes that of Ghana in the last few years. This has been attributed to the decrease in price of gold and skyrocketing cost of operation.

It is also estimated that cost of mining activities accounts for 90% whilst dividends and retained profits are less than 10% of total earning annually in Ghana.

In the case of company specific, Gold Fields Ghana for the past two was recording losses at its Damang concession in the Western Region to tune of US%100 million, while the profit margin of the Tarkwa concession continues to decline. Mr. Baku had told Economy Times. ?Cash cost hides profitability of gold mining?, he added.

The direct economic impact of gold

The gold mining industry has often been criticised for not making a significant socio-economic contributions to countries they operate. Similarly, the mining companies are also alarming that, governments have increased their fiscal and regulatory burden on the industry in the false belief that the sector focuses mostly on distributing profits and dividends to its shareholders.

In view of this blame games, the World Gold Council (WGC), which represents over 20 of the world?s largest gold mining companies, tasked the PwC to conduct a research into the direct economic impact that gold has on world economy.

The research report which was launched in October last year, revealed striking insights into the direct economic contribution of gold in the world?s major gold producing and consuming countries. It covered the entire value chain of the gold industry, from mining and refining to end-user consumption.

The research revealed that, in 2012 at least US$210 billion of value was created by the gold industry and added to global GDP, approximately the equivalent of the GDP of Beijing or the Republic of Ireland.

The report, ?The direct economic impact of gold?, showed that gold mining made an economic contribution of over US$78.4 billion to the economies of the top 15 mining countries in 2012 of which Ghana was a key player. Without taking into account the indirect impact of infrastructure, and employment in suppliers to gold mines, gold produced from mines contributed more than twice the gross value added, per tonne, than recycled gold.

Proportionally, however, gold mining has the most substantial impact on growth and wealth creation in developing countries; greatest in Papua New Guinea (15 per cent of GDP), followed by Ghana (8 per cent of GDP) and Tanzania (6 per cent of GDP). For these nations, gold is also a major source of exports and, therefore, foreign exchange earnings. In 2012, gold provided 36 per cent of all Tanzanian exports and 26 per cent of the exports of Ghana and Papua New Guinea. The economic impact of the mining sector is also critical for employment in these 15 countries.

Value distribution

In November last year, the WGC again released a study report entitled ?Responsible gold mining and value distribution? which sought to illustrate the significant role gold mining plays in supporting sustainable socio-economic development, particularly host countries. The country-by-country view on how value generated by the formal gold mining sector is distributed and how much of that remains with host nations

The study indicated that, out of a total spend of US$55.6bn, US$35.2bn (63%) went to suppliers and US$8.3bn (15%) to wages. An additional US$8.4bn (15%) was paid to governments in taxes and US$3.4bn in payments to providers of capital (including dividends and interest). The study also found that more than 80% of that total spend (US$44.6bn) was made in the country of operation.

The study covered 28 countries and analyzed data from 15 companies with over 220,000 employees and contractors.

The research accounted for gold production of 804 tonnes, approximately 30% of mined gold in 2012. Of this, 468 tonnes was produced in non-OECD countries, demonstrating the importance of the gold mining sector to many developing countries.

Terry Heymann, Managing Director, Gold for Development at the World Gold Council said: ?There is already a high level of transparency among responsible miners at an individual company level but until now, there has been no systematic attempt to build a comprehensive picture of the economic value created by gold mining companies collectively. This work provides deeper insight into the mine production component of the global gold industry value chain. Greater transparency can help interested parties better understand the sometimes complex economics of mining and ultimately contribute to better development impacts and outcomes.?

?Gold, produced in conformance with high safety, environmental and social standards, provides opportunities in the form of jobs, skills, improved infrastructure and tax revenues. But maximizing the development potential of mining requires continued attention and discussion.?

Looking for solutions to grow the pie

Mr. Baku is of the view that, the mining sector is a key player in the country?s? economic growth and therefore governments need to consult or even notify them whenever, the government plans of introducing a new policy on either regulation or fiscal regime.

He said, this would allow room for more deliberation and consultation to take place so that a desirable and favorable consensus decision arrived at which will not affect the mining sector so much while the government also get more revenue.

He made this statement on the note that, the government did not involve or even consult miners in the country before increasing the corporate tax to 35% from the previous 25% and the royalties from 3% to the present 5% which was a big blow to their operations.

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