Mindful of costs, mining companies are focused on necessary services and either fiercely renegotiating fees with contractors, such as consulting companies, or letting go of some services altogether.
How has the pandemic affected business in Ghana?
Ghana had its first Covid-19 case on the 12th of March and, on the 22nd of March, the President was already imposing restrictions, including borders closure. As a result, business activity slowed down and capital inflows dropped significantly. Local businesses were also severely impacted by lower sales and reduced cash flows, which made cost sustainability a challenge. Mindful of costs, mining companies focused on necessary services, either fiercely renegotiating fees with contractors, such as consulting companies, or letting go of some services altogether. Another key challenge for companies during this period has been their employees’ safety. And finally, it has been very difficult for contractors to meet customers' expectations in the context of movement restrictions.
How was the economy impacted, and what was the government’s response?
On the macroeconomic front, the original target for the 2020 Budget was premised on 6.8% GDP growth, but that number was revised down to less than 1%. The inflation target of 8% was also adjusted to 11.1%. Meanwhile, Ghana's budget deficit limit of 5% of GDP was significantly surpassed, the figure reaching 11.4%. We had originally budgeted for a primary balance surplus of 0.7%, now downgraded to a deficit of 4.6%.
The government rolled out a Covid-19 alleviation program designed to protect households and livelihoods, support SMEs, minimize job losses, and ensure supply chain continuity. The Bank of Ghana also reduced the interest rate from 16% to 14.5%, lowering the cost of borrowing. The GRA (Ghana Revenue Authority) gave an automatic extension of the filing requirements of companies by two months, and some penalties have been scraped for companies who were able to settle their liabilities in full by the 30th of June.
How has the higher gold spot price changed the mining climate in Ghana?
In terms of commodity prices, Ghana finds itself somewhere in the middle: as the top gold producer in Africa and with gold becoming a safe haven for investment on the backdrop of weakened currencies, those in the gold mining sector benefited from this upside. However, on the industrial minerals side, demand has decreased. Normally, we would have expected a rush in M&A triggered by the higher gold prices, but because of the shutdown and the pandemic itself, we did not see that investment flow yet. As countries lift their bans, confidence in the mining business will continue to grow. Ghana's crowning as the top gold producer of the continent happened when there was a nationwide clampdown on illegal mining, and this suggests that Ghana had probably been in the first place for a much longer time, but the data was not captured properly. With higher production and higher gold prices, companies can expand their workforce, local employment in well-paid jobs can grow, and some producers may even pay dividends. Proportionately, royalties and taxes will also grow with governments benefitting too. Because of these reasons, I am convinced the government will be more involved in maintaining Ghana’s top position and support the industry.
The government initiated "community mining" as a solution to informal activity. Could you elaborate on this initiative?
The community mining initiative mobilizes and trains indigenous people to engage in small scale mining as a group. Before, Ghana offered concessions to some people who entered the mining communities as outsiders and thus created friction: the local communities felt their properties were being usurped, while the mining operators were always on guard, distracted from doing proper mining. The previous model was not advantageous for anybody. In response, through community-based mining, locals are organized in cooperatives and they are trained and given the legitimate right to mine themselves. They also find it to be in their own interest to take care of the environment and understand issues of sustainability, because they know that, if done well, their children and their grandchildren will also benefit. They are thus more willing to take responsibility. I believe this is the way to go forward, but we should keep reviewing and improving this concept.
Do you have a final message for our audience?
With respect to PwC, we remain committed to providing high-quality services in assurance, tax, advisory and company secretarial services to help our clients. The biggest opportunities for us as a firm will be in cost-optimisation and Covid-19 impact minimization. The government is also seriously looking at the digitalization of the economy, which is the next step for the country, and we have the competence to do that.
The mining industry has been a staple of Ghana's history for centuries and it remains the bedrock of our investment profile. As a country, we should better appreciate the contribution of mining and support sustainable mining so that it becomes the hallmark for Ghana. We are in an election year, which will be realized as peacefully as always, and whoever ends up in power, I am convinced these positive mining initiatives will be continued.