TRANSPARENCY SNAPSHOT

Ghana stands at a crossroads: Its historic 2007 oil discovery is expected to create a windfall in an extractives sector dominated for centuries by gold mining. As Ghana plans for this new oil wealth, it must also work to extend its efforts on transparency to this new and volatile arena.

Transparency in the use and distribution of mineral wealth continues to be a challenge in Ghana. Although commercial gold mining has existed for over a century, and artisanal mining dates back more than 500 years, neither has played the leading role in economic development that one might expect. There is no clear national policy to guide the effective use of mining as a catalyst for development. The country still struggles with ineffective use of local resources—especially royalty payments at the local level which could alleviate poverty in local mining communities. Legislative oversight of mining is very weak and hindered by conflicts of interest, including the seating of legislators on the boards of the mining companies they oversee and the financing of legislator mining site visits by the mining industry.

Ghana has large reserves of a variety of minerals. Gold, diamonds, bauxite, manganese and salt are commercially exploited, along with substantial resources of iron ore. Ghana's geology holds promise for other mineral discoveries, and recent oil and natural gas finds are expected to alter the economic outlook significantly. Gold, however, is the most visible mineral mined, accounting for 90% of mining sector revenue, over 34.3% of total exports, and up to 40% of revenue in some mining area district assemblies. Gold production increased 700% between 1983 and 2007, rising from 282,229 ounces to more than 2.5 million ounces. Similar jumps in production include an 800% increase in manganese, 920% in bauxite and 150% in diamonds.

The mineral industry stagnated prior to the comprehensive Economic Recovery Program (ERP) in 1983, which encompassed major macroeconomic and structural policies including the new Minerals and Mining Law of 1986. Mining has become an important segment of the Ghanaian economy since then. It contributes an average of 5% of the GDP and 12% of government revenue, and it employs nearly 15,000 workers.

Since 1983, Ghana has achieved a measure of success in its reform programs. Overall annual real GDP growth rates have hovered between 4 and 5.4% in the last decade. The GDP growth rate for 2007 was 6.3%, and inflation declined from over 40% in 2000 to 10.5% by 2007. The economy remained largely resilient in 2008 but there is recent concern over the current fiscal deficit which is estimated at 13.8% and a debt stock of 50% of GDP, which is largely due to huge government spending over the last two years. As of January 2009, inflation stand at 18%.

In 2003, Ghana signed on to the Extractive Industry Transparency Initiative (EITI), to help the country's resources to better support development. Despite the positive growth indicators, the country still has major challenges in the redistribution of resource revenues for the public good. Ghana ranks 135th on the UN Human Development Index, and 78.5% of its population lives on less than $2 a day. The country has slipped on numerous critical Millennium Development Goals (MDG) targets such as halving poverty, reducing child mortality and ensuring gender parity in school enrollment and completion.

Revenue Transparency

Mining companies pay 3-6% of their revenue to Ghana's government as royalties. According to the 2004 EITI aggregator’s report, government receipts from the mining sector totaled $27 million US in 2004, including royalties, taxes and dividends.¹ Royalties constituted 84% of that total, and dividends 13%. Property rates, ground rent and licenses constituted only 1%. Despite these gains, little success has been achieved in utilizing this income.

The first audited report of Ghana's mining revenue was published in January 2007 and included subnational reporting from district assemblies. The report raised serious concerns over royalty computations, payments by companies, and the opacity of contract details, investment agreements and royalty usage by district assemblies and traditional authorities. It also revealed that some district assemblies spent their royalty income on capital expenditures that would continue to benefit the community, while others applied them less efficiently to recurring expenditures.

Other complaints regarding royalty payments included:

• inadequate royalty amounts and lateness in the release of funds by the controller, accountant-general and the administrator of stool (tribal) lands
• insufficient release of information to the beneficiary institutions regarding company payments for mining rights
• failure of local institutions to publish the royalties received to their local constituencies
• the lack of meaningful reporting procedures, or any method for auditing how the funds are used
• limited participation by local communities in directing the use of the funds
• an absence of legal enforcement for Minerals Development Fund standards

Ghana's Publish What You Pay (PWYP) coalition has engaged the public in discussion around these issues and demanded that the government pursue EITI principles, along with a broader range of complementary reform initiatives, including aligning existing mining law with the EITI's transparency requirements, formulating a broad mining policy, and implementing anti-corruption legislation. One key demand is the increase of communities' share in royalties from 9% to 12%. Presently, by law, 80% is put into the consolidated fund, 10% is directed to the Minerals Development Fund, and 1% is sent to the office of the administrator of stool lands. Others goals include public discussions around stability agreements, mandatory disclosures, and the integration of the growing oil sector into the Ghana EITI.

Looking ahead, the government is considering the introduction of a fiscal responsibility law to expand the existing Financial Administration Act of 2003. This would anchor fiscal expectations by crafting long-term strategic plans for resource usage regardless of short-term political changes.

Expenditure Transparency

There is evidence that Ghanaian authorities are making progress in improving expenditure transparency. An evaluation conducted by Public Financial Management (PFM) in 2006 under the auspices of the World Bank and the Department for International Development (DFID) concluded that, "the PFM system in Ghana is based upon a solid legal and regulatory framework."

Some of the recent legislation introduced to ensure accountability, transparency and efficiency in public resource management includes:

• The Financial Management Act of 2003, which regulated the public sector to ensure transparent and effective management of state revenues and expenditures
• The Public Procurement Act of 2003, which aims to foster competition, efficiency, transparency and accountability in procurements

Public Expenditure Tracking Surveys (PETS) in the education and health sectors were launched in March 2007. Ghana included in its EITI framework a requirement that district, municipal and metropolitan assemblies report royalty receipts and how they are used.² These are incorporated into the EITI report to enable the public to track how the assemblies use their royalties in mining communities. Additionally, Ghana's PWYP coalition is supporting an ongoing community capacity-building exercise to track these disbursements.

However, the PFM report identified critical weaknesses in budget documentation, and in the transparency of inter-governmental fiscal relations. Such weak points are confirmed by the reported discrepancy of US$7,685 between documented government receipts and mining company payments in the 2004 EITI audit. This also illustrates the need for effective internal audit systems. Although civic engagement on the budget process has increased, Ghana only scored 42% on the Open Budget Index, indicating significant room for improvement.

Ghana’s constitution mandates that the parliament ensures sound management of public finances through oversight of the Public Accounts and Finance Committee (PAFC). But the parliamentary committees charged with such oversight have failed the public by ignoring these rules. The audit process has seen some reforms in recent years, including the clearing of pre-1993 backlogs during 2003 and 2004. The work is hampered by inadequate accounting systems, the absence of clearly defined audit standards, and the weak legal capacity and insufficient autonomy of the committee itself. In 2007, the PAFC belatedly held public hearings on the 2004 audit report to identify misappropriations. But now it has been compelled to act in a timely manner and to authorize remedial actions.

Contract Transparency

The secrecy surrounding mining and oil contracts is a major issue. Before Ghana endorsed the EITI in 2003, all discussion of contract transparency was branded as anti-business. The 2004 EITI report, however, recommended that all of Ghana's mining contracts, including investment agreements, be made public.

Unfortunately, with the discovery of oil, the government's commitment to the EITI seems to be waning. The Ghana National Petroleum Corporation is not committed to contract disclosure—a core demand from civil society—and has instead prepared a sample contract (module contract) and related laws for distribution to the public on CD ROM, a format that denies access to anyone without adequate technology. The past government of John Kufour set up a separate, parallel inter-ministerial committee for oil, which reported directly to the president's office and was not related to – or accountable to—the EITI management committee. The contracts of Tullow Oil, US Kosmos Energy and Anadarko were awarded through direct negotiation instead of open competitive bidding. There is a draft National Oil Policy and draft bill which proposes to set up a Ghana Petroleum Regulatory Authority (GPRA) and transform the Ghana National Petroleum Corporation into a commercial company that also manages state interests. However, there is no clarity on Regulatory Authorities independence and no clear transparency provisions are made.

The challenge for the new government of Professor John Evans Atta Mills is to reconcile the gains and commitments made through the EITI process for the traditional mineral industries with the euphoria now surrounding the historic Jubilee Field oil discovery, including reviewing the proposed bills. If the nation wishes to continue to enjoy the mining reforms already enacted, it must work swiftly to extend the same openness, transparency, public accountability and trust to the contracting process for oil.

Freedom of Information

There is a strong call for Ghana to enact a Freedom of Information Law and affirm the public's right to information as a critical means to bolster and promote transparency. Continuing public and media discourse is taking place on this issue, and discussion regarding the EI sector has increased since the launch of the EITI and the recent oil discoveries. The new government has expressed its intention to initiate a FOIA bill, but without continued pressure, there is no evidence of that happening any time soon.

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¹ The full Ghana EITI / 2004 EITI Audited and Reconciled Report can be found at www.geiti.gov.gh
² See Ghana EITI reporting templates at www.geiti.gov.gh