public private partneship

Growing Ghana’s economy through Public Private Partnerships

by Ina King (Potgieter) September 12, 2019

Ghana’s mining industry accounts for about 5% of the country’s GDP, with its minerals making up over 35% of its exports. Over the past seven to eight years the country has been encouraging Public Private Partnerships (PPP) to bolster its infrastructure.

There has been a renewed focus on PPPs of late, and perhaps this is to do with the fact that Ghana’s Public Private Partnership Bill, 2016 (originally 2011) should soon be going through the legislative process again. It had previously reached consideration stage but was delayed due to elections.

It must be noted that Ghana’s PPP focus is not targeted at the mining industry specifically, but rather to bolster Ghana’s infrastructure as a whole. Interestingly, South Africa’s focus on local content is almost duplicated here. In addition to a clause that states “the PPP arrangement, as much as possible, shall facilitate the promotion of local industries and the private sector in Ghana”, it stipulates that one of the main objectives of Ghana’s PPP Bill is that projects will be structured to encourage the maximum use of local content and technology transfer.

The Ghanaian government has three key reasons for adopting the PPP concept:

  • Promote the quick delivery of public infrastructure projects
    Historically, public projects procured through the traditional bid-build method in Ghana are often delayed due to lack of public funds, improper planning and design variations. PPP contracts in Ghana bundle the design and construction of projects together, which overcomes these challenges. Additionally, private investors need to recoup their investment by ensuring that a project is constructed within the stipulated period. For these reasons, the PPP ideology is considered by the Ghanaian government as an alternative to bid-build projects in order to ensure that public projects are completed on time.
  • Reduce government’s financial burden:
    The PPP concept is seen as an innovative approach to make use of private finance in public infrastructure delivery. Aside from the huge funding gap, infrastructure funds are in serious deficit. As a result, under the traditional bid-build method, local contractors are often not paid on time. This has resulted in many abandoned public projects – particularly roads and public schools. Additionally, many local contractors are in bankruptcy and some have been liquidated. Considering these conditions, PPPs are the ideal option for the government to deliver the needed infrastructure in Ghana.
  • Allows for shared risk:
    Generally, risk sharing is a critical component of PPP arrangements. Unlike, the traditional bid-build system where the majority of project risks are retained by the public client, in a PPP the private partner retains a large component of project risks. This reduces the public sector’s administrative costs in developing public facilities.

As reported in my Mining Gold in Ghana piece (15 August 2019), the Ghanaian government has realised that in order to encourage and maintain investment, they need to create an attractive climate for new business and for infrastructure development. Proper PPP implementation will go a long way in achieving this. Ghana may be considered a worthwhile investment due to its investor-friendly mining policies, new development projects and cheaper and easier to mine ore deposits. Combine this with the facts that there are 78 mining projects in Ghana owned by 32 mining companies, and that one of the areas in which government is actively promoting PPPs is transport (railways, roads and ports), there may be PPP investment opportunities for mining houses.

A promising example

Ghana’s Precious Minerals Marketing Company (PMMC), originally the Ghana Diamond Marketing Board, is a state-owned enterprise that focuses on assaying minerals prior to export and is the government’s assayer. It therefore assays large scale mining companies’ and smaller producers’ production. This entails the PMMC grading, valuing, and testing gold for its contents and quality prior to export, strengthening the government’s oversight of the sector, and boosting its revenue-collecting capabilities.

This role, significantly larger that of its predecessor, the Ghana Diamond Marketing Board which focused on buying gold and diamonds from small-scale miners for export, has necessitated a partnership with international counterparts. This became necessary for the PMMC to bolster both its capacity and technology. In September 2018 it signed a memorandum of understanding (MoU) with the UK’s largest gold refinery, Baird & Company.

The MoU foresees the establishment of an assaying company with an assaying centre at Kotoka International Airport in Accra. PMMC and Baird will each have a 50% ownership stake. The MoU lays the groundwork for knowledge and technology transfer to PMMC over the medium to long term, which will strengthen domestic capacity in the field of assaying. The Accra assaying centre will generate automatic tax invoices for exporters following the assessment of the minerals it handles, contributing to increased tax revenue.

A different kind of partnership

In South Africa illegal miners are known as ‘Zama Zamas’, and in Ghana they are referred to as ‘Galamsy’. In an effort to regulate small scale mining and offer secure jobs for small scale minors, as well as to protect the environment, the Ghanaian government launched the Community Mining Programme aimed to formalise mining in communities.

Under the programme at least one community mine will be set up in each of the country’s mining districts providing combined employment to more than 4 500 miners. All of them will be trained by the government at the University of Mines and Technology at Tarkwa.

Is it possible, that some enterprising mining house may look at the possibilities inherent in forming PPPs with community mines? South Africa’s role

In November 2018 a South African consortium signed a $2.6 billion with the Ghana Infrastructure Investment Fund (GIIF) to develop the Ai Skytrain, an elevated light railway system that will provide low cost transport to Ghanaians. Construction of the project is expected to begin in 2020. While certainly not relevant to the mining sector, it is an example of the type of partnership that can be entered into with the Ghanaian government – and an example of the skills and technology that can be brought to the Ghanaian mining sector.

Gauteng Premier David Makura, speaking at the Africa Investment Forum where the deal was signed, said that as much as government wanted to attract investment into South Africa, they also wanted to encourage South African businesses to invest in economies on the African continent. With Ghana’s focus on expanding its infrastructure, investing in a PPP to enhance Ghana’s road, rail and ports infrastructure may be worth consideration by multinational mining houses.

A parting note

While there are no definitive statistics as to whether PPPs and/or the resultant infrastructure enhancements have directly benefitted Ghana’s mining output, what is certain is that in 2017 Ghana saw almost twice the economic growth compared to 2016 – according to the World Bank. Additionally a large number of recent investments boosted gold production and improved cost efficiency in both gold and manganese mining.

It seems that the GIIF’s pursued activities of attracting investments through the domestic and international capital and financial markets; as well as providing debt and equity financing for Ghanaian infrastructure is paying off. It is achieving these through various avenues – just one of them being Public Private Partnerships.

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