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Ghana Priorities: Illegal Mining

The Problem

Artisanal and Small-Scale gold Mining (ASM) is an important economic activity in several gold-rich developing countries around the world (Kahhat et al., 2019). In Ghana, ASM has provided jobs and supported the livelihoods of many rural communities for over a century (Mantey et al., 2016). It is estimated that over 1.1 million people are currently engaged in it (McQuilken and Hilson, 2016). Since Ghana implemented the mineral sector reforms in the 1980s to attract foreign direct investment into the large-scale mining sector, the contribution of ASM to total gold production has been rising steadily. In 1989, it accounted for 2.2 percent of total production. By 2014 and 2018, the figure rose to 34.4 and 41.1 percent, respectively, (Ghana Chamber of Mines, 2014 and 2019). 

Despite the clearly laid out formalization process in the Ghana’s Mineral and Mining Act (Act 703), bureaucratic bottlenecks and prohibitive licensing costs are compelling between 60 and 80 percent of miners to operate illegally. To minimize production cost, the miners employ technologies that are harmful to the environment, negatively impacting the health of those involved, directly or indirectly, in the mining activities. These environmental opportunity costs are not fully internalized. It is striking that the environmental damages (e.g., land and rainforest degradation, air pollution and mercury pollution of water bodies in the mining communities), occur regardless of whether (or not) the mining operation is formalized. Moreover, owing to weak resource governance institutions, mining laws and regulations are hardly enforced. Over 200 water bodies within mining districts were found to be heavily polluted by alluvial gold mining operations in Ghana. Based on the survey of the existing literature on gold mining externalities, this study proposes and analyses an intervention that could mitigate the environmental impacts, namely the formalization of illegal mining through mining cooperatives.

The Intervention

Overview

Mining cooperatives have proven to improve efficiency, reduce environment impacts and minimize social conflicts, and are currently present in many countries including Rwanda and Democratic Republic of Congo. Operating as a cooperative facilitates access to financial resources and procurement of improved mining technologies, hence ensuring increased production efficiency. In addition, cooperatives ensure collective environmental compliance, which reduces enforcement costs and diminishes the administrative burden otherwise required to manage individual operators. It is assumed that the formation of co-operatives leads to more efficient production processes as noted in Alves et al (2019). This increases costs, since co-operatives will use more expensive, improved technology. However, it is assumed to lead to improved revenue, safer production processes and fewer environmental externalities.

Implementation Consideration

Of the total number of 1.1m ASM operators in Ghana, 60 percent (660,000 operators) are illegal or unregistered, and therefore must be targeted to form co-operatives. One thousand one hundred and twenty (1120) co-operatives, representing approximately one per community, in 40 mining districts across seven (7) mining regions will be registered co-operative unions for five (5) years under the Co-operative Societies decree of 1968 (NLCD 252) and Co-operative Societies Regulations, 1968 (L.I. 604). Each co-operative will include 590 ASM operators. According to Ghana’s Minerals and Mining Acts 2006, a license issued to a co-operative shall last for a period of five years and is renewable for a further period to be determined by the Minister. Furthermore, a co-operative society shall be granted a mineralized land not exceeding 25 acres to be mined for 5 years at a time. For the purpose of the cost-benefit analysis, it is assumed that the mining co-operatives will operate for a period of 5 years.

Costs and Benefits

Costs

The cost elements related to the establishment of mining co-operatives comprise both one-time set up costs as well as ongoing operational and administrative costs. The largest one-time set up cost relates to sensitization of mining communities to the opportunities of co-operatives. Here we assume a fixed cost of GHs 500,000 per cooperative, which is intended to cover promotion materials, grassroots outreach and community level seminars. Additional minor costs of set up including fees for legal registration, crafting by laws are estimated at GHS 2,130 in the first year. Total one off set up costs across 1120 co-operatives are therefore around GHS 562,000,000.

In terms of ongoing costs, the largest cost category relates to the costs of improved technology, estimated at a marginal cost of GHS 510,000 per cooperative. Across 1120 cooperatives this equates to GHS 574,000,000 per year. Another large cost category is the cost of grants provided by the government to support cooperatives, which we estimate as GHS 192,000 per organization, totaling GHS 216,000,000 per year. Remaining costs include mining concession fees, office and utilities costs, and monitoring and evaluation are estimated at GHS 162,000 per cooperative or GHS 182,000,000 per year.

In total the costs are therefore estimated at GHS 1,534,000,000 in the first year and then GHS 917,000,000 every year after that. At an 8% discount rate over 10 years the total cost of the intervention is therefore GHS 7,040 million.

Benefits

There are several benefits that we assume arise from the formation of cooperatives. They include increased revenue from improved production practices, reduced environmental damages, reduced deaths and injuries from accidents, and reduced in-utero exposure to mercury from harmful production practices. Additionally, the grant transfer is also considered a benefit. Mechanised investments yields an annual revenue boost of GHS 593,000 per operator in 2018, or GHS 664,000,000 per year across all cooperatives. The benefit from reduced environmental impacts was estimated at GHS 19,000,000 annually. In addition, the values of water for the industrial sector and household consumptive use were estimated based on current usage and market prices, which summed up to GHS 136,000,000 per year. The total value of benefits from reduced fatalities yield around GHS 132,000,000 per year with the vast majority of benefits coming from avoided injuries, while avoided mercury exposure yields an annual benefit of approximately GHS 64,000,000. Lastly, the government grant is also considered a benefit, since it is a transfer to miners under the cooperatives. Total benefits are therefore GHS 8,265 million with most of the benefit coming from improved revenue.