The proposed sliding scale royalty regime announced by the government has received a rousing welcome by experts in the natural resource governance sector, but not without caution.
Natural resource governance expert, Dr. Steve Manteaw, has offered a verdict that is both welcoming and cautionary. He believes that the idea is fair, but only if it is done properly.
Commenting on the plan announced by the Minister for Lands and Natural Resources, Emmanuel Armah Kofi Buah, Dr. Manteaw described the sliding scale approach as a “fair game” that shares both the risks and the rewards of mining between the government and companies.
He was, however, quick to add that the system must be pegged to price, not profit, if the country is to avoid costly loopholes.
What a Sliding Scale Royalty Really Means
The experts explain that a sliding scale royalty simply means that the royalty rate changes depending on mineral prices on the world market. When prices rise, companies pay slightly more. When prices fall, the rate adjusts downward so that miners are not overly burdened.
In practice, for instance, if gold prices boom, the government earns more revenue. If prices dip, mining companies get some breathing room. This creates a more flexible and balanced system, especially in an industry where global prices move up and down frequently.
According to Dr. Manteaw, this approach “allocates rewards and risks equitably.” In other words, both sides share the sweetness when the market is favourable and share the pain when conditions worsen.
Why the Sliding Scale Could Benefit Ghana
As confirmed by the Minister and other analysts, if implemented properly, the sliding scale model can boost the country’s mineral public revenue during boom years
This means that when gold prices are high, the government automatically earns more without renegotiating agreements or imposing new taxes.
On the other hand, it also protects mining companies during downturns. The regime lowers rates when prices fall to help keep their operations stable, preventing job losses and mine closures.
Moreover, the sliding scale system also reduces fiscal shocks since the built-in flexibility makes government revenue more predictable over time.
Why Benchmarking to Profit is Dangerous
Despite supporting the idea of a sliding scale, Dr. Manteaw emphasized that the system should be calculated based on price, not profit.
This caution stems from the belief that profit is easy to manipulate. Mining companies can report high costs, claim various deductions, or adjust their accounting in ways that reduce their declared profit. If royalties are calculated on that basis, the government risks earning far less than it should.
Price, however, is transparent. International mineral prices are publicly available and cannot be altered by companies. Benchmarking to price, therefore, prevents revenue loss and keeps the formula honest.
“Sliding scale is a fair game. It allocates rewards and risks equitably. CAUTION: It must be benchmarked to price and not profit,” Dr. Manteaw remarked in a post commenting on the announcement.
A System with Favorable Potential, If Done Right
The sliding scale system, as welcomed by analysts and CSOs, is a sound and progressive option for Ghana’s mining sector. However, a poor design, such as benchmarking royalties to profit, instead of price, will make it counterproductive.
This means that the government must embrace the flexibility and fairness the system offers, but build it on a foundation that cannot be manipulated.
