Assessing Government's policy on contract mining and the local economic benefits

Pursuant to the passage of the Minerals and Mining (Local Content and Local Participation) Regulations, 2020 (L.I. 2431), the Ministry of Lands and Natural Resources has announced that indigenous Ghanaian companies are to undertake contract mining for surface mining operations, while underground contract mining should be conducted through partnerships in which Ghanaian-owned companies hold not less than 50 percent interest.

For purposes of clarification, contract mining refers to an arrangement in which a holder of a mineral right engages an independent corporate entity to execute mining operations, including drilling, blasting, excavation, haulage, equipment maintenance, dewatering, and rehabilitation. With this explanation, it is clear that the policy is a step in the right direction.

However, for the successful implementation of this policy, the government must consider the myriad challenges that could hinder it, while identifying the potential benefits of this groundbreaking policy for Ghana's mining sector.

Contract mining would undoubtedly create opportunities for direct and indirect employment for many Ghanaians. Both skilled and unskilled members of the Ghanaian workforce would have roles to play in mining operations.

Operators would be required to operate dump trucks, excavators, drill rigs, service trucks, and other equipment. Some of these positions do not require advanced academic qualifications, although the necessary training, licences, and practical competencies would be required.

According to the Ghana Chamber of Mines, nearly 42 percent of employees in mining firms are indigenous people. This suggests that transferring mining operations to local contractors could create opportunities to increase employment among Ghanaians, thereby providing sustainable jobs for the country's large population of unemployed youth.

A Ghanaian-owned company conducting mining operations for a mining company can help retain a greater share of mining-related expenditure within the local economy, in both cedis and foreign currency. The contractor pays its workers from the revenue it earns, purchases locally available spare parts, and engages Ghanaian transport companies to transport its workers and materials.

These activities promote the circulation of money within the economy while supporting other businesses. Where local contractors replace foreign service providers, some payments that would otherwise leave the country could be retained in Ghana.

This could contribute to reducing foreign-exchange outflows and easing pressure on the cedi, particularly where local businesses also replace imported goods and services. However, the extent of these benefits would depend on the contractors' reliance on imported equipment, spare parts, fuel, and other inputs.

Another potential benefit is an increase in government tax revenue. According to the Minerals Commission, there are sixteen large-scale mining companies in the country. If indigenous Ghanaian companies undertake a greater share of the mining operations currently performed by foreign contractors, government revenue could increase through corporate income tax, PAYE income tax from workers, and other applicable taxes, including withholding tax on contract payments.

The resulting revenue could support the government's efforts to finance development projects across the country.

Contract mining also presents an opportunity to develop Ghanaian-owned businesses. A Ghanaian entrepreneur could establish a company specialising in haulage, drilling, blasting, equipment maintenance, or other mining-related services.

Existing indigenous mining companies could also take advantage of this policy to expand their businesses, strengthen their operational capacity, and improve their competitiveness in securing mining contracts.

In assessing this policy holistically, it is important to consider the challenges that indigenous Ghanaian companies may face in undertaking mining operations.

One of the major challenges is access to substantial capital. Surface mining operations, in particular, are equipment-intensive and require considerable investment in the acquisition of dump trucks, excavators, bulldozers, drill rigs, and other machinery.

When a mining company transfers its load-and-haul operations to a contractor, the contractor is expected to provide a fleet of equipment capable of hauling ore and waste materials every day. Indigenous companies may struggle to obtain the necessary funding.

Therefore, there should be appropriate financing arrangements between financial institutions and contractors. These arrangements should be developed after a thorough cost-benefit analysis and an assessment of the project's financial viability by qualified engineers and financial experts.

The introduction of contract mining should also create opportunities for public-private partnerships involving Ghanaian businesses to establish companies that provide mining-related goods and services.

Page 47 of the Ghana Chamber of Mines' 2024 report details expenditure of approximately US$240.7 million on imported consumables, including drill rods, drill bits, drill pipes, blasting consumables, and mobile equipment consumables such as tyres.

Establishing local companies to manufacture or supply some of these goods could help retain a greater proportion of this expenditure within the Ghanaian economy and reduce the country's dependence on imported mining inputs.

The transfer of mining operations to indigenous Ghanaian companies could also raise concerns about workers' wages, job security, allowances, and other employment benefits. Workers who previously worked directly for mining companies may experience changes in their conditions of service following the transfer of operations to contractors.

Differences in salaries, allowances, and medical coverage could generate dissatisfaction among workers. Such grievances could lead to labour disputes, reduced morale, and the loss of experienced workers, thereby affecting the productivity of mining operations.

The Ministry of Lands and Natural Resources, in conjunction with the Minerals Commission, should therefore be commended for recognising the importance of addressing these concerns. However, there must be effective enforcement of fair wage and allowance standards for contract mine workers.

Workers should receive fair and transparent remuneration that takes into account their skills, experience, and job responsibilities. Particular attention should be given to basic salaries, overtime payments, night-shift allowances, and adequate healthcare benefits for contract workers.

In conclusion, Ghana's contract mining policy presents a significant opportunity to transform the country's mining sector into a stronger engine of local economic development. By empowering indigenous Ghanaian companies to undertake mining operations, the policy has the potential to create sustainable employment, promote local entrepreneurship, retain more value within the domestic economy, reduce dependence on imported mining inputs, and increase government revenue.

However, the realisation of these benefits will depend on the government's ability to address the financial, technical, operational, and labour-related challenges that may confront indigenous contractors.

Ultimately, the success of contract mining should not be measured solely by the number of Ghanaian companies awarded mining contracts but by the extent to which the policy builds competitive Ghanaian businesses, creates decent jobs, strengthens local industries, and improves the economic well-being of Ghanaians.

By Agyarko Ebenezer

Principal Mining Consultant and Head of Technical Communications, West Africa Cooperatives Networks (WACoN)

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