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-pricing where mining companies under-value or over-value transactions with affiliates usually in tax havens in order to shift revenues and profits from one jurisdiction to another. The 2012 Budget Statement and Economic Policy of Ghana revealed that recent studies in the mining sector showed that Ghana loses about US$36 million through transfer pricing. And this lost was not incurred in just a year or two but annually for several years. The main challenge here is that public servants are supposed to monitor these transactions and ensure that they are in conformity with the Internal Revenues Act which requires these transactions to be at arms-length. The arms-length principle necessitates that prices at which transactions between affiliates are undertaken must be related to prevailing market prices. The reference in the budget statement to losses incurred in the mining sector in relation to transfer pricing clearly shows that the miners have been breaking the law. The government is yet to prosecute any mining company on this issue.
The Parliament of Ghana passed a regulation last year to stem transfer mis-pricing in the country, providing for greater reporting rules. While the regulation could help the situation (in theory) the multinational companies are smart enough to out-wit the people of Ghana, likely with the connivance of some elites. This can be done with the submission of voluminous reports that either exclude or hide transactions. The figure in the appendix below indicates how Canada based Barick Gold Corporation in 2005 had structured itself as a global mining giant with unimaginable number of subsidiaries in tax havens to facilitate transfers of revenues and profits. This strategy is not exclusive to Barick Gold or mining companies and it is done in a manner that is clearly difficult (if possible for public servants in African countries) to follow let alone make legitimate claims to portion of these revenues and profit made from the peoples precious and irreplaceable mineral resources.
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 continents 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-shore account foreign currency earned from their operations and use them for their sole purpose, following the situation in the mining sector, the economy of Ghana will almost certainly run amok! The 1980s is way behind us and the miners foreign exchange retention basis can no longer be sustainably established. When the miners return the foreign exchange, it will be readily available to them. It is quite unfair to other sectors of the economy, such as manufacturing and agriculture, which create larger employment opportunities to be placed at a disadvantage as far as foreign exchange allocation is concerned.
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 continents 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.