Mineral rights to human rights: mobilising resources from the extractive industries in Ghana
A new report from WaterAid and Oxford Policy Management (OPM), Mineral rights to human rights shows the pressing need to channel more financial resources into Ghana’s water, sanitation and hygiene (WASH) sector. Abdul-Nashiru Mohammed, Country Director at WaterAid Ghana, and John Garrett, WaterAid’s Senior Policy Analyst for Development Finance, explain the major challenge this represents for the Government and the country’s development partners.
Achieving Ghana’s national vision of universal access to safe drinking water and basic sanitation by 2025 requires a significant financing gap to be closed – a minimum of US$100 million a year. How can this be done? How can the country mobilise more domestic resources to improve access and coverage? Is it possible, for example, to make more effective and inclusive use of the country’s natural resource wealth?
A new report from WaterAid and Oxford Policy Management (OPM), 'Mineral rights to human rights', considers how Ghana can mobilise more domestic resources from the extractives industries (EI) – so that the allocation of mineral rights can lead to fulfilment of the human rights to water and sanitation and Sustainable Development Goal (SDG) 6.
Ghana’s economy has historically depended on its natural resource exports – gold, cocoa, timber, and agricultural products. The discovery of offshore oil and gas reserves has added substantially to the available wealth. This endowment offers the Government an opportunity to build on the major development progress made over past decades. Forecast revenue from the petroleum sector, for example, is many times the estimated financing gap for the country’s Water Sector Strategic Development Plan (WSSDP) (Figure 1).
However, this substantial natural resource wealth risks being squandered – at least in the short to medium-term. Interest repayments on public debt have risen sharply in recent years, significantly constraining the Government’s room for manoeuvre and placing Ghana at high risk of debt distress (see Figure 2).
What then are the Government’s options to make better use of its natural resources? There are several actions it could take to strengthen delivery of WASH services and place the country on a more confident path towards sustainable development. These include: ending illegal mining; addressing the lack of regulation of artisanal and small-scale mining; improving transparency in the formal mining and petroleum sectors; combating the underpayment of tax identified in these processes; and investing the resources required to close financing gaps for universal access to water and sanitation and other basic services.
It’s time to value water above gold and address the lack of regulation in the informal mining sector. Some estimates suggest that Ghana loses almost US$2 billion worth of untaxed gold bullion per year because of gold smuggling in the informal sector. This is 20 times the Government’s current allocations to the water and sanitation sector.
The issue goes well beyond lost revenue, however. Unregulated use of toxic chemicals is doing long-term, potentially permanent, damage to Ghana’s water resources. The Ghana Water Company has said that the practice threatens to leave Ghana dependent on imported water. Closing down of illegal mines, banning of mining and use of toxic chemicals in environmentally and socially-sensitive areas, and an overall stronger and more effective regulation of the sector and protection of water resources, are all required.
More transparency in the EI sector will improve governance and accountability – as recognised by the most recent assessment by the Extractive Industries Transparency Initiative (EITI). Legislation covering the mining and petroleum sectors doesn’t require actual agreements, contract documents or the beneficial ownership of companies to be available to the public. This makes it difficult to assess whether the award of contracts, exploration, extraction, sales transactions and the payment of royalties and taxes are following due process, compliant with the law and providing value for money. Documents made available in the Panama papers in 2016 showed that the legal firm Mossack Fonseca assisted one of Ghana’s major gold producers, Anglo-Gold Ashanti, to create multiple companies for offshore tax purposes. This snapshot suggests that steps to strengthen the transparency of the sector are strongly in Ghana’s national interest.
Discretionary tax treatments in the Extractive Industries sector
The Government should call time on the extensive discretionary tax treatments in the EI sector.
The Organisation for Economic Cooperation and Development (OECD) has stated that exemptions, special regimes and tax holidays – many of which are in the EI sector – undermine economic efficiency, fair competition and revenue mobilisation. Across the economy they amount to as much as 6% of GDP, or US$2.25 billion (based on 2015 GDP).
In the formal mining sector, the largest gold producers have stability clauses that keep royalty payments low. In the petroleum sector oil companies can offset new investment against profits – Corporate Income Tax (CIT) was at negligible levels in 2015. The 2017 budget referred to GH¢2 billion of lost revenue from transfer pricing abuses from the EI sector. There are therefore strong economic and financial reasons for strengthening the capacity and reach of the Ghana Revenue Authority (GRA) to improve company audits and strengthen revenue predictability and capture.
Financing WASH services through regulation and revenues
The Government has not met recent financing commitments made at the Sanitation and Water for All (SWA) High Level Meeting, and estimates from the World Bank suggest that achieving SDG 6 will require allocations at almost 3% of GDP a year. A step change of this nature will bring huge health, environmental and economic benefits to Ghanaians and the economy– but it represents a major financing hurdle for the Government.
Addressing some of the domestic resource mobilisation issues raised above can nevertheless make a major contribution. This would be consistent with the commitments in the WSSDP to find additional resources, including from petroleum revenues, for investment in water and sanitation. A ring-fenced fund dedicated to resourcing the SDGs, including SDG 6, with oversight from government and civil society, could be a powerful mechanism and incentive for capturing these revenues and spurring development progress through to 2030.
Finally, it is important that the Government makes long-term plans for its management of the EI. Countries that have successfully managed their EI sector, such as Botswana or Norway, have shown effective governance, transparency and long-term planning. Failure to regulate the EI effectively will cause the country long-term environmental problems and ultimately undermine development. African countries are among the most vulnerable to the effects of climate change because uneven access to safe water and sanitation, dependence on rain-fed agriculture and high poverty all make withstanding climate stress harder. Ghana has significant opportunities for hydro-electricity and solar power and, as the world seeks to transition to a low-carbon economy, Ghana should think carefully about its energy mix, and what this entails for management of its EI.
WaterAid Ghana tweets as @WaterAid_Ghana and John Garrett tweets as @johngarre
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