Gold Mining in Ghana (GHANGOLD Case)



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     CASE NUMBER:           317
     CASE MNEMONIC:         GHANGOLD
     CASE NAME:             Gold Mining in Ghana


A. IDENTIFICATION

1. Issue

Caught in low literacy rates, high unemployment and foreign debt, Ghana
is reliant upon its select few commodity sectors for revenue.  Since the
16th century Ghana has been a world leader in the export for gold. 
Although increased levels of foreign direct investment have increased
the overall output of the handful of major mines a 1989 law legalizing
small-scale gold mining is leading to major environmental problems. 
Small-scale companies use outdated machinery and techniques and the
situation is further compounded by lax government regulations and
oversight.

2. Description

The Republic of Ghana is often held up as a turn around success story
by many western economists.  In the last decade the country has
stabilized itself following almost twenty years of political strife and
economic stagnation.  It, like so many other African nations, is blessed
with natural resources that have enabled it to carve out a shaky nitch
for itself in the competitive international market place.  As the country
continues to adhere to capitalist free-market doctrine it is still fighting
the legacy of underdevelopment that British colonial rule imposed upon
it.  Ghana is actively courting foreign investment to counter the trend of
decreasing levels of international aid in order to diversify its primary
industry base which suited the British and the core of more recent
investors.

Great Britain long reigned as the most powerful nation in the world and
its interests in West Africa comprised the territories of Gambia, Sierra
Leone, Gold Coast (Now Ghana following its independence) and Nigeria.
The strength of Britain's economy was based in consumer and industrial
goods, and it relied upon its unrivaled navy to enforce and protect its
vital trade routes.  Industrial Britain was dependent upon markets for
its products and raw material sources to fuel its industrial base.  British
manufacturers attempted to control all aspects of production and in
doing so British colonial policy saw the benefits of a large empire.  The
žJewelž of the British empire was India and British colonial policy was
primarily concerned with the protection of the important route to India.  

During the colonial period British trade and foreign policy were virtually
undistinguishable because of the need by British producers to not only
fueled their factories with foreign resources, but also to create new
markets for their products and develop areas for their capital to move
into.  In short, a global economy was created by the British in which
political dominium was exercised over very large areas such as Ghana.  

Colonialism was developed in to an art form by the British deriving its
ideology from a number of nineteenth century British theories:
evangelical Christianity and social Darwinism, and on the other side free
trade and laisser-faire.  Ghana fit in to the British scheme of things by
acting as an open economy where free trade, bolstered by the pound,
ruled.  The British did not become grossly involved in the inner
workings of Ghana and instead continuously stressed the importance of
increasing trade to move the country along further.  However, because
the British did not substantially invest in those parts of the
infrastructure which were not tied to the short run profit derived from
trade, Ghana remained continuously underdeveloped.    

When in 1957 the British did finally withdraw from Ghana its people were
left to assemble the pieces of a newly independent nation which were
completely dependent upon the external trade of a select few
commodities.  Although it traded its raw materials it did not have the
ability to consume or even fully manufacture them.  In exchange for
exports Ghana imported manufactured goods from abroad, chiefly
consumer goods.

The government relied heavily upon duties levied upon external trade
for revenue.  The high percentage of raw materials exchanged for
imports, and the dependence of public revenue related to such trade
practices, left the economy unable to invest in projects to diversify its
economy and enable it to maneuver to a more stable position.  Naturally,
finished manufactured goods are more expensive than raw materials and
thus the Ghanaian government is constantly fighting an uphill battle.  To
compound the problem further, Ghana is so reliant upon its raw material
exports that a change in the world demand for the products results in
economic peril.  Today Ghana finds itself in an only slightly better
position and is classified as a peripheral capitalist economy.  It is unable
to completely shake the weak manner in which its economy was
structured by the legacy of underdevelopment of its capitalist potential
during the  British colonial period.
   
Ghana has a rich history of trade with Europe dating back to the 15th
century when Portuguese traders rented land from the dominant tribes
in the region and built trading forts.  Trade accelerated at such a rate
that the country accounted for more than one-tenth of the worldžs gold
supply by the end of the 16th century.  British traders quickly
recognized the countries potential and became the main presence in the
country by the 18th century.  They declared the Gold Coast an official
colony in 1901, following the defeat of the ruling Ashanti tribe after they
had taken the side of a rival tribe, the Fanti, to prevent the highly
organized Ashanti nation from trading with other European countries. 
The Gold Coast became one of the most successful European colonies, in
terms of trade, and a substantial amount of capital was invested by the
British into the infrastructure of the country in the forms of railways
and ports to exploit the countries riches.  

In 1957 Ghana became the first independent African country when the
United Kingdom handed over control of the country to the democratically
elected Convention Peopležs Party (CPP).  Between 1957 and 1983 Ghana
was pulled from side to side by differing political ideologies in the form
of nine different governments and four military coups.  The last coup
occurred in 1979 when the current President, Jerry Rawlings, took
power.  In 1992 the country held free and fare multiparty elections for
the first time since 1972.  The incumbent Rawlings, although accused of
"erratic and authoritarian behavior", won.

Following independence Ghana was seen as a country with a bright
future.  It was the largest producer of Cocoa in the world and boasted
profitable timber, mining and manufacturing sectors.  Like so many other
developing nations Ghana later fell prey to the dependence it had placed
in the select commodities that provided it with an economic base.  When
the world price of Cocoa collapsed the countries deficit subsequently
soared and the economy languished.  

Today, following two decades of economic decline, Ghanažs economy is
being heralded as a model for African development.  Between
independence in 1957 and 1983 Ghanažs economy was in general decline
as world bank figures indicate with GDP growth decreasing from an
average of 3.4% in the 1960s to 1.3% in the 1970s.  In 1979 inflation was
at 120% and the country was seen as yet another African country with
rife corruption and mismanagement.  By 1992 following the privatization
of more than 50 state owned businesses, and battling inflation down to
10% the country is a bright spot amid notably murky political waters in
the region.  

The government is actively promoting Ghana as a country ready for U.S.
investors with the hope of permanently stabilizing the country with the
free market system.  In a speech during his 1995 official visit to the U.S.
Ghanažs president spoke of a vision for Ghanažs economy as žimbibed
with the attributes of democracy, the rule of law and with political
pluralism.ž  Further, the government is aiming, under such free market
policies, to be able to reach 8% Gross Domestic Product (GDP), reducing
the current yearly population increase from 2.7% to 2% and decreasing
the alarming 30% unemployment rate which has plagued policy makers.

Foreign investors are looking to Ghana because they are encouraged by
the governments proactive stance on attracting investment.  For example
all foreign initiatives are guaranteed a turn around of no more than
three months upon issuance to the government of Ghana.  European
investment and particularly British, is strongest in Ghana with examples
in steel and coca production facilities, but the U.S. is also moving in with
Coca Cola looking to invest in the soon to be privatized bottling plant of
Ghana National Trading Corp.

Of particular interest to foreign investors is the Ghana Stock Exchange
which began trading in the 4th quarter of 1990 and is open to foreign
investment with a 10% withholding tax on dividend income.  The stock
exchange shows a true development in the creation of the much needed
capital market in Ghana.  The shares quoted on the stock exchange
constitute the most profitable sectors in Ghana, namely oil, mining,
tobacco, and plastics.  The Ghana stock exchange began operation
concentrating in the areas of corporate equities, bonds, and government
securities.  In 1994 the stock market was further strengthened following
the successful privatization of Ashanti Goldfield Corporation. 

Other recent improvements in the Ghanaian economy to attract foreign
investment include:
- Bank deregulization
- The Ghanaian central bank introduced a floating exchange system
which allows foreign investors to hold foreign exchange with which ever
bank they want.  This allows investors to more easily extract their
profits from the country.
- The recent creation of the Ghana investment Promotion Center which
strives to assure foreign investors that Ghana is an environment in
which investors will: Receive profit repatriation, that property will not
be repatriated, and foreign exchange can be freely moved.
- The government recently allowed foreign investors to explore and
exploit the countryžs geological resources.  This is of particular interest
to many investors because annual production in Ghana's gold mines
places the country as the second largest producer in the continent after
South Africa. 
 
A clear indication of British colonial influence in Ghana can be seen in its
weak educational system which is based along the same lines as the
British system.  However, unlike Britain, Ghana is cursed with
appallingly low literacy rates.  Currently adult literacy only averages
40% which is below the Sub-Saharan average of 50%.  Equally as
alarming is the disparity in school attendance between gender with 77%
of boys and only 38% of girls attending primary and secondary
schools.   These figures are not appealing to foreign investors who are
seeking work forces that are educated and trainable.  The government of
Ghana is attempting to rectify the situation, which it recently outlined as
a major concern in its report "Ghana Vision 2020".

Although in the last ten years Ghana has substantially turned its
economy around by reversing GDP from negative to positive figures the
rates are not high enough considering its 2.7% population growth rate
which is currently increasing.  World Bank estimates claim that at the
current rate it will take Ghana 50 years to become a middle-income
country.  The same World Bank report goes on to state Angolažs
situation very well:

     The arithmetic of growth is thus very clear.  Without a
     substantial inflow of foreign direct investment, Ghana cannot
     achieve its target of becoming a middle-income country by
     the year 2007 (the 50th anniversary of its independence). 
     The government thus has to prepare an enabling environment
     to attract this investment...Equally important, and especially
     so in light of the new democratization, there has to be public
     education and debate about foreign direct investment, in the
     context of a society where this has associations with colonial
     exploitation.  

Today Ghana's colonial ties to the United Kingdom continue.  Britain is
still Ghana's major import source and export destination (41.4% and 27%
respectively) levels much greater than any other country in West
Africa.  The country, while posting impressive figures for Africa, is
still lagging behind when compared to other emerging economies in Asia. 
Much, although not all, of Ghanažs economic woes can be attributed to its
former colonial ties and the debilitating start to international competition
that it encountered. 

Ghanažs gold sector provides a good example of the countries continued
reliance upon a select few commodities and the importance of foreign
investment to not only enhance exports of those commodities, but also to
protect the countries environment.  Ghana has been a producer of gold
since the 16th century and today boasts one of the largest and richest
reserves of gold in the world.  The Ghanaian gold mining industry is a
relative success story in the governmentžs attempts to turn the
fledgling economy around.  The sector followed the countriesž general
trend of economic stagnation during the 1970s and by the early 1980s
was starved of foreign investment to modernize and improve output. 
However, following the governmentžs policies of market liberalization
aimed at increasing foreign investment the industry was turned around
and in 1992 output exceeded 1 million oz.


Table 1 - Ghana's Top 3 Exports

Exports1991199219931994Cocoa360346302280Gold201304343434Gold (ž000
oz)919.91,107.41358.8N/ATimber118124114142
Table 1 indicates the importance of Ghanažs gold mining to the countries
economy.  Although it does not play a large factor in the countriesž
overall GDP, it is the countries single most important source of foreign
exchange and thus price and output fluctuations affect the countries
important external accounts.

Over 90% of the countries output originates from underground mines in
the Ashanti region of the country and following the privatization of the
Ashanti Goldfields Corporation (AGC) in 1993 the company, through
investment form a British company, Lonrho, has modernized its
operations.  The company now uses an environmentally friendly
production process known as naturally occurring bacterial oxidation.  
However, an increasing portion of the countries remaining 10% of gold
output is from small-scale miners.  Following the governments 1989
legislation legalizing unregistered gold mining (referred to as galamsey
in Ghana) there has been a large increase in the number of small-scale
mining operations which, unlike AGC, do not extract gold in such
environmentally friendly ways.  The government legislation was enacted
to prevent illegal gold extraction which it claimed constituted 20% of
Ghanažs total output and thus a major decrease in the countriesžs
potential revenues from gold.  

The majority of small-scale gold mining activities extract alluvial
deposits of gold.  Their processes of extraction are outdated and harmful
to the surrounding environment.  The major environmental impact
results in the diversion of rivers.  After the mining is completed, the
rivers are not redirected to their original courses which in turn results
in the pollution of waters and destruction of surrounding flora and
fauna.  The mining activities also degrade the surrounding land by
increasing atmospheric air pollution, contaminating surface and ground
water and increasing soil erosion and leaching.  The pollution is, in the
most extreme cases, leading to desertification and permanently changing
land use from agriculture to waste rendering it useless to traditional
inhabitants when the mining operations are completed.  In the short run
the inhabitants of the region are suffering from sickness and disease
related to contaminated drinking water supplies.  Such diseases include
dissintry, Malaria, schistosamiases and Biomphalaria pfeiffer.    

Often times the small-scale mining operations use mercury to separate
the gold particles from the sediment.  This results in mercury entering
and contaminating local water supplies.  Fish and their supporting
ecosystem are the first species to be affected by the increased levels of
mercury in the rivers, but the process also affects humans through
consumption of contaminated water and fish.  Mercury is a highly
poisonous substance which is passed down the food chain causing
detrimental affects on many animals and plants.

While the numbers of small-scale mining outfits only constitute a fraction
of the countries total gold production the problem is increasing and the
government must take action.  By passing its 1989 legislation and
attempting to obtain more revenue from the important gold mining
industry the government has given birth to an environmental problem. 
If left unchecked it will infect the important cocoa and coffee plantations
and cause untold economic and environmental damage for the country.
   
3. Related Cases

BOLGOLD Case
BRAGOLD Case
DIAMOND Case
GEDDES Case
SMELTER Case
VENGOLD Case
YELLOW Case
SIERRA Case
 
4. Draft Author: Sean Morris, May, 1996

B. LEGAL CLUSTER

5. Discourse and Status: DISagree and INPROGress

6. Forum and Scope: Ghana and UNILATeral
The Ghanaian authorities are the sole decision makers as to what actions
should be taken with respect to those harming the environment. 
International environmental groups are not listened to in the semi
democratic country.

7. Decision Breadth: 1

8. Legal Standing: LAW
Recently the Ashanti Gold mines were privatized leading the way for
more foreign investment to increase the size and output of the gold
mining industry.  A 1989 law legalizing previously unlicensed small-scale
mining operations has lead to a large increase in such operations which
do not use environmentally friendly extraction techniques. 

C. GEOGRAPHIC CLUSTER

9. Geography: 

     Continental Domain: Africa
     Geographic Site: West Africa [WAFR]
     Geographic Impact: Ghana 

10. Sub-National Factors: NO

11. Type of Habitat: TROPical

D. TRADE CLUSTERS

12. Type of Measure: ADMINistrative and LICENsing

13. Direct vs. Indirect Impacts: INDirect

14. Relation of Measure to Impact:

     a. Directly Related to Product: YES GOLD
     b. Indirectly Related to Product: NO
     c. Not Related to Product: NO
     d. Related to Process: YES HABITAT Loss

15. Trade Product Identification: GOLD

16. Economic Data

17. Degree of Competitive Impact: MEDIUM

The gold mining sector is an important aspect of Ghana's economy.  Like
many underdeveloped economies Ghana relies on a few key cash crops
and primary resources.  To restrict one of the major sectors for export
revenue would certainly adversely affect the countries economy as a
whole.

18. Industry Sector: MINING

19. Exporter and Importer: GHANA and Many

E. ENVIRONMENT CLUSTER

20. Environmental Problem Type: HABItat Loss

Diversion of rivers and in some cases the use of mercury to separate the
gold from sediment both lead to the contamination of water supplies.  The
techniques also adversely affect the surrounding environments causing
soil erosion and leaching and habitat loss.

21. Species Information: Human

22. Impact and Effect: High and Regulatory

Soil erosion and various metals and chemicals leaching into the soil are
threatening many plants, animals and insects.

23. Urgency and Lifetime: MEDium and Loss of Years

The problem has not been properly addressed by the Ghanaian
authorities, but many workers are now suffering from the adverse
affects which often times resemble the affects of malaria (weakness and
loss of coordination).

24. Substitutes: RECYcling and Conservation [CONSV]

F. OTHER FACTORS

25. Culture: NO

Similar to other African nations which emerged from the post-colonial
period following World War two Ghanaians are to some extent arbitrary
with the country being comprised of more than 25 ethnic and cultural
groups.  In addition, while English remains the official language some
72 other languages and dialects are spoken by the Ghanaian people. 
This causes difficulties for the Ghanaian authorities attempting to
implement mining codes to protect the environment. 

26. Human Rights: NO

27. Trans-Boundary Issues: NO
 
28. Relevant Literature:

Birmingham, Walter, and Neustadt, I., and Omaboe, E.N., A Study of
Contemporary Ghana, 1966, Northwestern University Press, Evanston,
U.S.A.

Carney, David, Government and Economy in British West Africa, 1961,
Bookman Associates, New York, U.S.A.

Chand, Sheetal K., Transition to Market Studies in Fiscal Reform, 1992

Congressional Research Service, Africa: U.S. Foreign Assistance Issues,
11/9/95, The Library of Congress, Washington, DC.

The Economist Intelligence Unit, Country Report: Ghana 1994-95, London,
U.K.

Howard, Rhoda, Colonialism and Underdevelopment in Ghana, 1978,
Africana Publishing Company, New York, U.S.A.

Kay, Geoffrey, The Political Economy of Colonialism in Ghana: A Collection
of Documents and Statistics 1900-1960, 1972, Cambridge University
Press, U.K.

Morgan, W.B., and Pugh, J.C., West Africa, 1969, Butler and Tanner Ltd.,
London, U.K.

Nsiah-Gyabaah, Kwasi, Environmental Degradation and Desertification in
Ghana: a study of the upper west region, 1994, Avebury, Aldershot, UK.

Obichere, Boniface, I., West African States and European Expansion, 1971,
The Colonial Press, Inc., Clinton, Massachusetts, U.S.A.

Pakenham, Thomas, The Scramble for Africa: The White Manžs Conquest
of the Dark Continent from 1876-1912, 1991, Ransom House, New York,
U.S.A.

Roy, Lewis, Painting Africa White, the Human Side of British Colonialism,
1971, Universe Books, New York, U.S.A.
Schroth, Peter W., Doing Business in Sub-Saharan Africa, 1991, American
Bar Association Section of International Law and Practice, USA.
 
Sudarkasa, Michael E. M. The African Business Handbook: A Practical
Guide to Business Resources for U.S./Africa Trade and Investment, 1993,
21st Century Africa, Inc. Washington, D.C.

Whetham, Edith and Currie, Jean, The Economics of African Countries,
1969, Cambridge University Press, U.K.

Wickins, Peter, An Economic History of Africa From the Earliest Times to
Partition, 1981, Oxford University Press, Cape Town, South Africa

The World of Information, Africa Review 1993/94, The Economic and
Business Report, 1994, Kogan Page and Walden Publishing/Unwin
Brothers Ltd., Woking, U.K.



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May, 1996