Africa is not cashing in enough from its large gold resources, despite the spiralling price of the metal over recent years, a working paper published by the African Development Bank (AfDB) April 12, 2012 has said.

The paper, entitled ‘Gold Mining in Africa: Maximizing Economic Returns for Countries’, points out that gold mining is a significant activity in at least 34 of the continent’s 54 countries.

Africa’s annual average gold production is 480 metric tons, or 20 percent of the total average annual global output of 2,400 metric tons.

The price of gold has soared by more than five times since 2000. At more than $1600 an ounce, the spot price of gold is at an almost unprecedented high, surpassed only by the spike experienced in 1980.

However, African governments and its citizens are not benefitting as much as they could from this boom due to unfair agreements between the miners and the countries, according to the authors of the paper.

The unfair agreements, the authors argue, severely limit the gains from gold mining that remain in the producing countries. “This particularly applies to the royalty rate stated in the agreements,” they observed.

“Our analysis shows that royalties, as a share of production cost, are low in Africa,” they pointed out in the paper.

The authors also noted that most gold mines in Africa are majority-owned by foreign multinational companies, so the main way that African countries benefit from gold production is through tax revenues but many mining companies “have negotiated tax exemptions far above the provisions in the relevant mining code”.

Not only does this mean governments are not receiving a fair share of gold revenues, it is holding back development in Africa, the paper stated.

According to the AfDB, some African governments have taken action to solve the problem, which is not always restricted to gold but applies to other mineral concessions.

The authors cite the example of Liberia. “In 2006, the current Liberian government ordered a review of concession agreements signed in the country between 2003 and 2006. Of the 105 contracts reviewed, 36 were recommended for outright cancellation and 14 for renegotiation. Whether Liberia received a fair share was one of the key evaluation criteria for cancellation or renegotiation.”

Ghana, Africa’s second largest gold producer after South Africa, recently announced in its 2012 budget in November 2011 that “Beginning in the fiscal year 2012…following established practice in the extractive industry, and in the oil and gas sector, the corporate tax rate for mining companies will be increased from the current 25% to 35%.”

The government also said a windfall profit tax of 10% will be collected from all mining companies and “a uniform regime for capital allowance of 20% for five years for mining, as is the case in the oil and gas sector.”

The government explained that environmental degradation resulting from mining operations also imposes additional costs on the country. However, the news did not go down well with the miners as they argue that it will hinder their investments.

One of such companies is Johannesburg-based miner, Gold Fields who said it might halt a $1 billion investment in Ghana in the coming years as a result of the increment of taxes proposed in the 2012 budget.

According to officials, the investment is planned for the expansion of its operated Tarkwa and Damang mines in the country.

The company’s CEO Nick Holland told investors December 5, 2011 that it is now uncertain about the $1 billion project pipeline in Ghana due to the tax changes regime, according to a Reuters News Agency report.

The Ghana Chamber of Mines also indicated that the government’s proposal to increase taxes in the mining sector in the 2012 fiscal year will lead to low investments in the sector.

According to the Chamber however, Ghana’s economy has received an investment of $10 billion between 2000 and 2010 from the sector. It adds that the mining industry contributed about 23% of the country’s internally generated revenues in 2010.

The sector was also leader of foreign direct investments (FDIs) into the country since 1998 to 2008, observed the Chamber – the umbrella body for all mining firms including AngloGold Ashanti, Newmont, Goldfields among others.

But these investments are likely to decline according to the Chief Executive Officer of the Chamber, Dr Toni Aubynn.

In an exclusive interview November 17, 2011, Dr Aubynn told ghanabusinessnews.com on telephone that the tax increase is “not comfortable to the chamber” since it would lead to cost of production.

Dr Aubynn said it will also lead to low investments in the sector adding that companies’ corporate social responsibility (CSR) will be affected – “it will be affected below budget”.

“It will not encourage investments…lead to cost of production. These are business entities and they operate on demand and supply,” Dr Aubynn said.

But government said the hikes are not anti-investment. Speaking at a post budget seminar organised by PricewaterhouseCoopers Ghana, Mr Seth Terkper, a deputy finance minister, said the move was in line with the government’s efforts to rationalise tax, adding that discussions would be held with sector players on the implementation of the proposals, the Ghana News Agency reported.

Government has formed a committee to address all the concerns raised by the miners in rest to the taxes and other agreements.

Ghana is said to be losing out on gold revenue despite new 5% royalty rate and the rising gold price.

The Centre for Environmental Impact Analysis (CEIA), based in Cape Coast, Ghana, has lamented that Ghana as a country is losing out in revenue that should otherwise have accrued to it.

In an exclusive interview with ghanabusinessnews.com in November 2011, Mr. Samuel Obiri, Executive Director of CEIA, said Ghana had lost so much revenue and is still losing out in royalties from mining companies operating in Ghana, because despite the 3% to 6% range indicated for payment of royalties in the Minerals and Mining Act, mining companies were still paying 3% as their ceiling.

Ghana has a stable 10% share in all mining concessions.