Establish state-owned firms in oil and gas, mining sectors—IFS

The government must establish state-owned firms operating in the oil and gas and mining sectors, the Institute for Fiscal Studies (IFS) has said.

The think tank also said the government must purchase controlling interests in the large-scale mining companies and increase the paid and participation interests in all the Ghanaian operations of the oil and gas companies in order to increase interest to at least 55 per cent.

That, IFS said would help the country to raise more revenue from the extractive sector to improve public finances and reduce government’s borrowing.

These suggestions are contained in the latest IFS’s research on the extractive sector titled “The Role of the Extractive Sector in Ghana’s Comparatively Low Public Sector Revenue Mobilisation.”

Speaking at a forum in Accra on Tuesday on the theme “Ghana’s Domestic Revenue Mobilisation Woes: How Do We Fix It,” to share the findings of the report, Senior Research Fellow of IFS, Dr Said Boakye, said the government was not making much revenue from the extractive sector accounting for the poor revenue performance of the country for the past several years.

“We found that the main causes of Ghana’s very poor revenue generation from the country’s oil and mining sub-sectors are that the government of Ghana over relies on the use of fiscal instruments (royalties and corporate income tax) under concessionary arrangements, with limited participating interest, production sharing agreement, overarching liberation and privation and aversion to risks,” he said.

Dr Boakye said the resources beneath the soil/offshore were publicly endowed and thus held in trust by the government for collective benefit, stating that  “in principle, net revenues (revenues less costs, including normal return to capital, called economic rent), generated from the extraction of those resources belong to the government for public benefit.”

“It, therefore, does not make rational sense for a government to use taxation as a means of mobilising revenue from the extractive sector. By using taxation, the government is treating the extractive resources as if they are privately owned and the net revenues/rents as privately earned, just like the other sectors,” he said.

He said Ghana was raking in only 10 per cent from the revenues from the extractive sector, while Botswana was making more than 50 per cent of its extractive revenues.

The Senior Research Fellow indicated that extractive resource endowments, when appropriately managed, were one of the major sources of economic growth and development.

“It is well known that countries like Norway, Chile, the United Arab Emirates, Qatar, Saudi Arabia, Botswana, Trinidad and Tobago and many others have achieved rapid economic growth and high income levels mostly through exploitation and export of extractive resources,” he said.

Dr Boakye said the agreements in the extractive sector had been crafted to favour multinational companies.

To this end, he said the government must renegotiate with the oil and mining companies, saying the “government should treat the renegotiation with the urgency and seriousness it deserves, given the poor state of the country’s finances.”

Commenting on the research, the Chief Executive Officer, Sulemanu Koney, said the research could have focused on a gold producing country instead of Botswana which is rich in diamond.

He also said Ghana was one of the highest jurisdictions in the sub-region with the highest cost of mining.


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