Ghana’s central bank set to push through cedi-for-gold plan, mining chamber says

By David Whitehouse
Posted on Friday, 15 October 2021 15:43, updated on Sunday, 17 October 2021 11:15

Ghana's small-scale gold miners have suffered from a withholding tax on exports. REUTERS/Francis Kokoroko

The central bank of Africa’s largest gold producer is likely to succeed with its proposals to start paying for gold with cedi rather than dollars, Sulemanu Koney, CEO of the Ghana Chamber of Mines, tells The Africa Report.

Gold miners in Ghana will start transacting with the central bank in cedi “in the very near term”, Koney says. “The miners are not kicking against it.”

In June, the Bank of Ghana launched a gold buying programme, which aims to double its holdings over the next five years. Bank of Ghana governor Ernest Addison said the plan [would] help to grow the country’s foreign exchange reserves and that he was working with the Ghana Chamber of Mines to secure industry agreement. Those discussions have led to “significant progress” made towards the adoption of cedi payments, Koney says.

Every company has its own circumstances which will complicate the process, and some companies are further ahead than others in their discussions with the central bank, Koney says. “It won’t be a walk in the park.” Each company will be able to start selling in cedi to the bank, according to its own timetable, he says.

Koney is confident that the move will not make Ghana less attractive, whether for current or potential future gold miners.

  • Many of the costs that miners face – such as wages and taxes – are in cedi, and miners on average need to spend about 70% of their receipts to support Ghanaian operations, he says.
  • An applicable exchange rate for dollar costs will be agreed [on] by negotiation, Koney says. The central bank is “not looking for a discount or a subsidy,” he says. The proposal is “not compulsion” and “rational investors” will see the merits for the industry in Ghana.

Industrial development

Koney is confident that Ghana’s mining sector can drive the country’s overall industrial development. For that, he argues, the country needs to move up the value chain and start to refine its raw materials to supply the mining industry. He wants to end the use of imported rubber for mining industry components and is in discussions with a multinational company to refine Ghanaian rubber.

  • Koney plans to engage with [the] government on the idea. The country needs a “minerals-based industrialisation strategy,” he says. “I am sold on the concept.”

He is less confident on the prospects for small-scale gold-mining in Ghana. Output from small-scale producers declined at a “frightening” pace in the first half of the year, and Koney does not fully understand why. “We are trying to get answers.”

Part of the problem, Koney says, is the taxation of gold exports from small-scale miners.

  • The introduction of a 3% withholding tax on exports has had “a cascading effect through the value chain,” he says.
  • The tax has increased the risk of smuggling. “The suspicion is that a good amount of ounces is going through unofficial channels.” In September, the country’s Small Scale Miners Association asked the government to review the tax.
  • The 3% tax level on small miners is high compared [to] other jurisdictions, and there should have been a phasing in process from lower levels of 1% or 2%, Koney says. “They should have taken a more gradualist approach. In hindsight, that makes a lot of sense.”

Bottom Line

Ghana’s Chamber of Mines is confident that the central bank has the whip hand in negotiations with miners on cedi payments.

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