The government of Ghana launched its energy transition framework in November 2022 at the COP27 climate conference in Egypt.
The plan is to guide the country’s transition plans and map its resource needs for the coming 50 years. With global demand for oil anticipated to fall, Ghana’s oil revenues will soon begin to decline. That will have a direct impact on the government’s domestic revenues and subsequently on spending on critical areas such as healthcare, education and social protection. The oil sector contributes approximately 16 percent annually to Ghana’s domestic revenue and 4 percent to its GDP and absorbs a further 30,000 of the country’s labor force through direct, indirect and induced employment opportunities. But Ghana’s future is not in oil.
An aging fiscal regime
Graphite and lithium (recently discovered in large quantities in Ghana) are critical for the energy transition beyond fossil fuels, as these minerals are crucial inputs to green technologies. Ghana’s energy transition framework identifies graphite and lithium as future opportunities for state revenue.
But while Ghana’s fiscal regime includes revenue management laws specific to the waning oil sector, it has no such revenue management provisions for mining. Ghana’s petroleum revenue management laws require the government to report both revenue and expenditure and compel it to allocate a significant portion of oil revenues to specific programs and sectors.
To maximize revenue and broader benefits during the transition years, Ghana needs a new fiscal regime that specifically governs its transition minerals. A business-as-usual approach will hurt the country’s domestic revenue and slows plans for its own transition.
Regulations specific to transition minerals will offer a context-specific framework to guide and govern the sector as well as respond to ongoing global regulatory reforms on transition minerals.
Ghana can learn from other countries’ examples. In 2020, Canada and the United States finalized a Joint Action Plan on Critical Minerals Collaboration. The Canadian government subsequently published a list of 31 minerals identified as “critical.” In 2022, it released a policy statement on how the Investment in Canada Act will apply to investments in Canadian entities and assets in transition minerals sectors. Among others, acquisition of control in companies in this sector will now require ministerial-level approval
The U.S. passed the Energy Act 2020 to introduce reforms and increase investments in technologies to help the country’s energy transition. There are specific provisions for a national strategy on critical minerals production and the country’s independence in the production of such minerals.
In response to the 2022 Versailles Declaration, European Union President Ursula von der Leyen announced the Critical Raw Materials Act in March 2023 to address the EU’s dependency on imported critical raw materials by diversifying and securing a domestic and sustainable supply of critical raw materials. (Though the draft CRMA does not adequately protect against corruption.)
These exact objectives of these regulatory reforms may differ slightly from what Ghana may need. However, they all aim at maximizing states’ interests in these “critical minerals” in the context of the energy transition. Ghana can thus take a cue and act proactively.
Fiscal frameworks designed for Ghana’s transition
These examples indicate that the world is moving at a very fast pace on transition minerals access and control. Can Ghana afford to revert to its old mineral fiscal regimes in this highly competitive environment for transition minerals? To do so may lead to substantial revenue losses and would reduce the country’s status in the transition race to that of a mere producer of raw materials. (The existing regime has several provisions such as development agreements and exemptions that are not tailored to the transition minerals.) The current fiscal regime for mining provides several stability clauses, development agreements and other tax exemptions that erode the country’s domestic revenue. Ghana’s mining sector is prone to illicit outflows, and loses an estimated USD 2 billion annually through smuggling. The government can address these loopholes with targeted sets of regulations.
Ghana needs a transition minerals law to govern the contracting, extraction, processing, export and usage of revenues. The country will benefit from specific regulations to ensure that our transition minerals are refined domestically, and not exported in their raw states as has happened for over a century with Ghanaian gold, bauxite and other minerals. Adding value to these minerals will enhance Ghana’s export revenues to compensate for the expected decline in proceeds from the export of fossil fuels.
The regulation should also guarantee access to secure, affordable and sustainable transitional mineral supplies for the country’s own nuclear and other energy generation operations dependent on green technologies. Most importantly, the government must enforce the law when passed so that it does not suffer the fate of so many other laws that remain toothlessly unimplemented.
And the law should include specific provisions for investment in the sector, including foreign ownership and controls.
Without a new set of regulations that are fit for purpose, Ghana will soon find itself playing catch-up to the rest of the world amid the energy transition. Even with revenue from fossil fuels, Ghana continues to struggle with high unemployment, weak domestic revenue, negative trade balances and persistent balance of payment problems. Weakness in its governance of increasingly crucial transition minerals will only exacerbate these problems.
To conclude, having a new framework specifically for transition minerals will ensure fit-for-purpose governance structures that promote responsible access, increase investment and ensure Ghana’s share of the revenue needed for its own energy transition. To achieve a triple win for Ghana’s minerals, the approach must be different this time.
Alex Ampaabeng is a senior economic analyst at the Natural Resource Governance Institute. Abdulkarim Mohammed is a team leader at Act Africa. Barnabas Anane is a program officer at Citizen Aid Africa.