Extractive sector revenue: Ghana’s 19.3% far lower than African economies– Report

Ghana extractive sector revenue as a ratio of extractive sector value addition of 19.3 per cent is far lower than African economies average of 50.9 per cent, a research by the Institute of Fiscal Studies has identified.

This the economic and policy think tank is calling for a relook at oil and mining agreements with producers to enable the nation benefit significantly from the sector and close the tax revenue gap.

Middle income economies and developing economies average are 54.2 per cent and 49.7 per cent respectively.

According to the report led by Senior Research Fellow, Dr Saed Boakye, given its size, Ghana’s extractive sector revenue generation was expected to be not less than the average of its peers in the developing world in relative terms.

Comparing Ghana to its middle income peers, the findings indicated that Ghana would have earned an additional amount of GH¢13.26 billion or $2.89 billion in 2018 alone, representing 4.4 per cent of GDP.

However, if the oil and mining subsectors’ revenue ratios had been equal to the averages of Nigeria and Botswana respectively, the country would have earned an additional amount of GH¢19.82 billion or $4.32 billion in 2018 alone, representing 6.6 per cent of GDP.

Indeed, the total revenue gaps between Ghana and Africa and middle-income economies were found to be 4.7 per cent and 6.2 percentage points respectively.

The IFS therefore said “if the government of Ghana had matched the middle-income economies’ average earning ratio, it would have covered about 94 per cent and 71 per cent of the total revenue gaps between Ghana and its African and middle-income peers, respectively.”

“However, if the government of Ghana had earned average revenue ratios as those of the government of Botswana in the mining subsector and the government of Nigeria in the oil subsector, the additional revenue that would have been received would have more than covered, on average, the total revenue gaps between Ghana and its African and middle-income peers,” it added.

It said the additional revenue of $4.32 billion or GH¢19.82 billion that the government of Ghana would have received in 2018 from the extractive sector had the country earned the same ratio as the average ratios for Nigeria and Botswana would have caused the government of Ghana’s total revenue in 2018 to be GH¢67.46 billion. This represents 22.4 per cent of GDP, instead of the GH?47.64 billion which is just 15.8 per cent of GDP it actually received in 2018.

“We, therefore, conclude that poor extractive sector revenue generation is the main source of Ghana’s comparatively low public sector revenue mobilisation,” the report stated.

The report said due to the serious problem of information asymmetry, it is difficult to know the true profitability of the extractive companies, as they tend to have free rein and complete control over their operational and productive activities under concessionary arrangements.

Secondly, it said “several obstacles to full taxation of rents arise. Asymmetric information means that host governments (as principal) generally need to forego some rents in order to provide appropriate incentives for better-informed producers (their agents). Practical difficulties arise in accurately observing revenues and costs, and from tax avoidance devices.”

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