Improving the impact of mining royalties at the local level in Ghana

How the recommendation of the EITI is leading to better spending by sub-national governments.

Franklin Ashiadey is the national coordinator for Ghana EITI (GHEITI). Here, he shares the experiences he has gained from implementing the EITI in his country. 

Ghana is endowed with tremendous wealth of natural resources such as oil, gas, gold, diamonds, manganese, forests etc. Mining is one of the leading industrial sectors in Ghana with gold production ranking ninth worldwide and second in Africa. Over the past decades, the contribution of the mining sector to Government revenues and to the economy at large has been increasing steadily. In 2012, the sector contributed 27% of Ghana’s total tax revenue.

Ghana is also a decentralised country, divided into ten administrative regions and sub-divided into 275 districts or municipalities. As the local communities are affected most by the mining activities, making sure that the money arrives at the local level is crucial for citizens to see results from our natural resources.

Ghana’s latest EITI Report, covering 2011, confirmed that sub-national (local and regional) governments continue to receive significant revenues in form of royalties and taxes from the mining sector. Roughly 40% of the budget of local governments comes from mining.

Making the EITI relevant to the affected communities

Local communities have become increasingly wary about the operations of mining companies and the level of contribution they make towards local development programmes. So the GHEITI’s interest in sub-national reporting is clear: to ensure that the impact of the EITI process is felt at the community level through accurate reporting of amounts received from companies and government, and that these payments were used for the intended purposes as determined by the communities themselves. For the companies, this level of reporting would help bridge the information gap and reassure them of a cordial business environment if communities are aware of the contributions they make.

Covering sub-national payments is now required by the new EITI Standard (Requirements 4.2.d and e), but Ghana has been tracking these payments back to 2003. By implementing the EITI at the sub-national level, the Ghana EITI is deliberately embedding the EITI practices in its national and sub-national systems, thereby making the EITI relevant on all levels of government, and particularly to those who are affected most.

Ghana’s gold royalties supplement local budgets for districts mining areas
– but not always as they should

The tracking of the payments over the years has brought clarity to if, and how, the revenues reach the mining communities.

The flow of revenues works as follows: 80% of all royalties are paid into the government’s consolidated fund to support the budget.

The remaining 20% is destined for the sub-national level. As such, it is earmarked for sharing between various national regulatory and oversight bodies, the local government authorities (district and municipal assemblies), the traditional land-owning authorities and other communities which are impacted by the mining activity.

These 20% are split in two: half is paid into the Mineral Development Fund (MDF), established in 1992. The MDF supports the public mining agencies, funds research, training and special projects aimed at promoting the mining industry and where necessary to supplement the operating budget of the sector Ministry and institutions.

The other half is transferred on a quarterly basis through the Office of the Administrator of Stool Lands (OASL) for onward distribution to the various local levels of government to compensate for any detrimental effects of mining on the communities and to support development in the local level.

Misapplication of these funds by local authorities financing expenditures other than those that benefit the local mining communities, as well as and lack of proper accounting for and reporting of the use of these resources, are some of key findings of Ghana EITI Reports covering the period 2004-2011.

For example, much of the revenue is spent on recurrent expenditures such as waste management, purchase of fuel and vehicles instead on economic development projects. Furthermore, the GHEITI report showed that actual payments by the regional Offices of the Administrator of Stool Lands (OASL) to district or municipal assemblies were often smaller than they should have been. It was found that regional offices did not always forward the full sum received from Head Office to districts and municipalities, and that payments were made in instalments, which made planning and budgeting difficult for the District Assemblies.

Improving the management of resources – improving lives

Following the recommendations from the EITI process, several sub-national governments have established dedicated bank accounts for these revenues, and the Minerals Commission, a member of the multi-stakeholder group (MSG), has developed policy guidelines for the use of mineral revenues at the subnational level. The guidelines were developed alongside tracking mechanisms to ensure that the guidelines are being followed. Guidelines for corporate social responsibility, such as community health projects, construction of schools and support for sports infrastructure have also been developed and applied.

Furthermore, our secretariat and the multi-stakeholder group are working closely with the Office for the Administration of Stool Lands to ensure that the correct amounts of mining royalties are passed on to districts and municipalities.

While this is not exhaustive of the impact of sub-national reporting, it shows how meaningfully these incremental steps can support a culture of transparency beginning at the local level – where the impact of the mining activities is felt most. I am looking forward to seeing how these reforms improve the livelihood in local communities, the working environment for companies and the management of funds on the side of the government.

For further information about the EITI Ghana, please visit the country page on the EITI website and the national EITI website.