Mining and dynamic responses of the host community

Researcher: George Adu

Communities hosting mining in Ghana and other sub-Saharan countries are lagging behind in terms of economic and social development in comparison to non-mining communities (local resource curse)1. Development challenges presented by the extractives sector in developing countries have been blamed on poor governance of the sector as pertains to the fiscal regime, particularly the generous tax incentives (including capital allowances), low royalty payments, non- enforcement of capital gain taxes, environmental pollution and livelihood destructions as well as the lack of a clear-cut compensation policy to affected (host) communities and households. On the basis of this, Ghana has certainly booked a place on the list of developing countries that have difficulties in translating their rich natural resources wealth into sustainable growth and development through a good management of natural resources; by way of minimizing the social and environmental costs, maximizing returns and ensuring optimal allocation of revenues accruing from the sector.

An important question confronting policy makers and the other stakeholders of the mining sub- sector of the Ghanaian economy is “what measures can Ghana take to turn the apparent local or community curse of natural resources into a blessing?” This research is motivated by this policy relevant question. In particular knowledge about winners and losers in the extractive industry is of relevance to the design of policy instruments aimed at minimizing the unequal distributions of “nature’s gift”.

The establishment of a new mine introduces some important dynamics in the host community (local economy) which are likely to have adverse effects on the subsequent development in the mining district. This research highlights three of such dynamics. First, wages adjust upwards in response to opening of a new mine in the local economy, undermining community competitiveness for non- mineral resource industries (local Dutch disease effect). Second, new mines produce an environment that discourages local business start-ups and act as a disincentive to schooling, especially, post- secondary education and to a greater extent school dropout and its attendant child labour activities. Third, new mines divert land and labour from agriculture to mining, degrade the environment and water resources and raise the value of landed properties. These dynamics are likely to produce winners and losers which have the tendency to produce inequalities in the distribution of the costs and benefits of the mineral resource extraction. This research project seeks to examine these dynamics in selected mining communities in Ghana.

The main objective of this research project therefore is to examine the impact of mining on and the dynamic responses of the host community with focus on selected mining communities in Ghana.

Specifically, the following issues are to be addressed:

  • Are there systematic wage differentials in mining and non-mining communities in Ghana?
  • Do opening up of new mines affect business start-ups in mining communities in Ghana?
  • Who wins and who loses from opening up of a new mine in a community? What are the possible pathways from mining operations to the winners and losers in the local economy?
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