Thursday, Sep 29

Ghana To Practice Resource Nationalism?

Ghana To Practice Resource Nationalism?

It is a maxim for every natural resource-rich nation to maximize the benefits attainable from its resource endowments. In the quest of doing so, such countries have gone through cycles of asserting control over natural resources in their territories — including but not limited to making reforms to resource-exploitation agreements and increasing taxes or royalties from multinational corporations. While such moves are in the interest of the imposing country, they rather conflict with the interests of multinational corporations operating in such environments.

Meanwhile to impose or not to impose depends on the game that is being played. Ordinarily, resource-rich nations and multinational corporations operate a non-zero sum game— a situation where one’s win (or loss) does not necessarily result in the other party’s loss (or win). However, resource-rich nations ‘now’ feel as though agreements with multinational companies have switched into a zero-sum game— a situation where one’s win means the other party’s loss.

Within this context, resource-rich nations assume that if multinational corporations are gaining from exploiting their resources, then they must be losing. Hence, they are more likely to assert control over their resources to recoup potential benefits they deem to be losing.

Recent findings by Verisk Maplecroft, a risk consultancy firm, in its ‘political risk outlook 2021’, indicate that resource nationalism is on the rise, and COVID-19 has worsened the outlook.

According to the report, in 2020, “34 countries have witnessed a significant increase in risk on our Resource Nationalism Index (RNI). Reasons for the recent surge vary but one thing is clear – the economic impact of COVID-19 has aggravated an already growing tendency for government interventionism in the natural resource sector.”

The bullish run of commodity prices, especially mineral resources, during the heat of the Covid-19 pandemic is considered to be one of the major factors for countries’ increased risk towards resource nationalism.

“With 18 of these countries dependent on the minerals and hydrocarbons they export, we expect the threat to expand over the next two years as their governments try to claw back the financial loss.”

Verisk Maplecroft, specifically cited Ghana among the 18 resource-rich countries experiencing significantly high risks to resource nationalism. It asserts that the economic impact of the pandemic has heightened the already growing tendency for resource nationalism.

Meanwhile, resource nationalism is the tendency of people and governments to assert control over natural resources located on their territory.

Then the question, is Ghana intending to practice resource nationalism?


After 100 years of exploiting mineral resources in Ghana, practically little has been achieved as benefits from these resources. Further perspective of Prof. Daniel K. Twerefou suggests the benefits from these resources have only been marginal including employment and taxes.

According to the Associate Professor of Economics, “[In] Ghana, we have gold, [and] other resources, the question is how much do we get from it? As far as I know, some employment is being generated directly or indirectly, corporate and some other taxes are being paid to government. Apart from that, we don’t get anything from [the sector].

“… If you look at the data, the mining sector, for example, has not contributed more than 5% to GDP, even though we have more than 40% of all investments going into the sector.”

He also noted “…the implementation of the local content law is not the best. There is nothing like real serious local content… I have had the opportunity to review the implementation of the local content. What do we call local content? When you give catering services and the manufacturing of bolts and nuts, retreading of tyres to a company in Ghana, you call that local content after being here for over 100 years?...

“There are more serious components of local content like insurance, legal, banking services as well as many other items that are used by the mining companies that can be manufactured here and more revenue would accrue to the economy. We don’t go into those areas. Yes, there are supply constraints and we have been made to understand that some of the items cannot be manufactured here and we have accepted it. Can’t targeted government policies facilitate the production of such items? What we get from the implementation of the local content policy is very small; it is nothing good to write home about.”


Contrary to the assertion by Verisk Maplecroft, Ghana is currently not aggressively pursuing resource nationalism, Prof. Twerefou averred. Practically, the government has stabilized the fiscal regime in the mining sector for some time. As such one cannot conclude that the country is pursuing resource nationalism. He further indicated that there have also not been any significant reforms in the implementation of the local content policies.

“The fiscal regime in the mining sector has not changed. As far as I know the tax regime, the regulatory regime over the past 5 years or so, have not changed. If it’s going to change then based on the nature of the change, we can conclude the country is pursuing resource nationalism or not. The local content policy is there; it’s been there for a long time…

“If there is going to be an intensification of the implementation of that policy, then [that is another thing], but it has not changed. All the mines that we have in the country belongs to foreigners with government having about 10% stake. How can one conclude that Ghana is pursuing resource nationalism?”

However, he indicated that if going forward, the government is going to assert control over these natural resources “then we can say that we are moving towards resource nationalism.”

This notwithstanding, the government has begun rolling out actions in the small scale mining sector to clamp down on illegalities and protect the nation’s resources. He underscored that those actions have no semblance with resource nationalism and are rather required due to the intergenerational implications of illegal mining activities.

In responding to recent calls by the government seeking reforms in mining regulations to recover benefits from the sector, he hinted that this has arisen due to the government’s inability to ascertain the true cost of production of mining firms.

“In theory, governments are not supposed to charge royalties. We are supposed to allow the companies to mine the resources, be honest with us in terms of their cost, and then once they have taken out a reasonable profit that can be determined based on the interest rate in the sector, what is left is the resource rent which should be given to the government and then we plough back to support the environment or sustainable development. It is because we do not know the true cost of production that royalties are prior determined.”

“Unfortunately, in many cases, we don’t know the true cost of production of the mining companies. Mining companies are not angels. In the Board room, they think about how to make money for the shareholders more than thinking about Ghana… that is where the issue is. There have been allegations of transfer pricing and over-invoicing by the companies that make it difficult for us to know their true cost of production.”


One determinant invariably used to identify resource nationalism is the upswing in market cycles: a rise in primary commodity prices portends a high tendency for countries to adopt resource nationalism. On the other hand, when prices plummet, mining firms possess greater leverage and are able to push governments to adopt more favorable regimes.

The Environmental Economist indicated that the possibilities cannot be ignored. “It will all depend on the exigencies on the market. It also depends on how interest rates may change with time and [volatilities] on the stock market.”

He further noted that in a case where the government implements the Agyapa deal and goes further to raise royalty rates for the purpose of raising more income to defray the debts, this will affect investors. And obviously, such an action may go a long way to affect the country’s current status as the largest gold producer on the continent.

“But, one has to be very careful, because, implementing the Agyapa deal and raising rates will lead to a situation where the country becomes risky [and] many people will not put their money in the sector.

“So one has to study the variables that affect the amount government needs to pay in future and how government will deal with those variables. This will inform government’s decision in raising rates or otherwise and consequently help us to know if the country is pursuing a resource nationalism or otherwise.”


Undoubtedly, Ghana’s mining sector faces an avalanche of problems that require long-term solutions. The issues, for the most part, have been tackled as fiscal issues, thus, the delay in addressing them. And Agyapa deal is not a solution that suffices for the problem, Prof. Twerefou asserts.

The Agyapa deal, is one of the government’s resource-financing strategies which involves the sale of about 76 per cent of the country’s future gold royalties to a special corporate entity, Agyapa Royalties Company. In return for giving out such a large share of these future royalties, the government has argued that it could raise US$500 million in capital to ease growing debt crisis by listing the remaining 49 per cent of shares.

According to the expert, “these are short-termist sort of decisions that are unsustainable and has more political advantage than economic. Because, you get the money today, you spend and then [people] know you are doing well as a government. The people in the village do not know where the money is coming from but they know things are going on in the country. This is not the best way to go. The money will be paid in future. There is no free lunch anywhere.

“Agyapa deal is just like borrowing. You are going to borrow, you will pay later with the royalties… Adding value to the resource, ensuring the real implementation of the local content policy and being transparent to the people through good governance is the way to go. We are even not talking about the environmental problems that we are causing now.

“…your rivers, your trees, your cocoa, your soils are all being degraded. This is going to be a serious conflict in our rural areas in the next 10 to 20 years, when all your water bodies are bad and you cannot drink them, when all the land is degraded and there is no land for agriculture in certain parts of the country. But, we are just overlooking it.”

Prof. Twerefou then suggested that ensuring the mining sector is vertically and horizontally linked with the economy, would greatly improve the country’s fortunes. For a long time, the country has focused incessantly on raising revenue from taxes without equal attention to adding value to the raw metal, he further noted.

“Look at countries like Saudi Arabia, they don’t have any gold. The value addition is what is allowing them to grow. But that direction [value addition], we pay less emphasis on and the people who are supposed to ensure this are just relegating it to the background.”

Overtly or covertly, playing the cards of resource nationalism has the tendency of undermining investments in the country’s natural resources. Having recently surpassed South Africa as the largest producer of gold in Africa, the government may risk these feat implementing policies that may worsen the sector’s woes.

 Daniel Kwabena Twerefou

Prof. Daniel Twerefou
Dept. of Economics