Let me start with something that should be obvious but apparently isn’t: when commodity prices rise by 50% and your negotiating partner’s profit margins more than double, you don’t accept a lower royalty rate. Yet that’s precisely what Ghana appears to be doing with its proposed lithium mining agreement. It’s a textbook example of how developing countries often end up on the short end of resource extraction deals—and why the politics of natural resources remains one of the most consequential (and depressing) areas of economic policy.
THE BASIC ECONOMICS ARE STRAIGHTFORWARD
Here’s what we know. In 2024, when lithium was trading at around $800 per tonne, with production costs at roughly $610 per tonne, an investor was willing to sign an agreement with a 10% royalty rate. The profit margin in that scenario was less than 20%—not exactly a windfall, but acceptable to the company.
Fast forward to 2025. Lithium prices have jumped to $1,200 per tonne. Production costs haven’t changed. The profit margin has ballooned to nearly 50%. And what does Ghana propose? A starting royalty of 7%, with a maximum of 12%.
This isn’t complicated economics. This is basic arithmetic. The investor’s capacity to pay has increased substantially. The government’s take has decreased. That’s not a negotiation; that’s a capitulation.
Now, I’m not one of those who thinks governments should simply maximize short-term revenue extraction from multinational corporations. There’s a real tension between capturing rents and maintaining investment incentives. But that tension doesn’t apply here. The investor has already demonstrated – through its own behavior – that it will accept a 10% royalty. So the question isn’t whether the company will walk away if Ghana demands better terms. The question is why Ghana’s negotiators seem to have forgotten what happened just twelve months ago.
A COMPARATIVE REALITY CHECK
Let me put Ghana’s situation in perspective by examining how other major lithium-producing nations have structured their royalty regimes: Table 1 attached.
Chile, which controls about 35% of the world’s lithium reserves, has implemented a sliding-scale royalty system that goes up to 45% on sales exceeding $10,000 per tonne. Bolivia, with 21% of global reserves, has a flat 45% rate. Even Argentina, which is generally considered to have given away the store on mining deals, collects a 3% royalty at the provincial level—and that’s the floor, not the ceiling.
Ghana’s 7-12% range isn’t just below these benchmarks. It’s in a different universe.
Now, you might argue that Chile and Bolivia can demand higher rates because they have larger reserves or more established mining sectors. Fair enough. But that argument cuts the other way: Ghana, as a newcomer to lithium production, should be especially careful not to establish a precedent of accepting unfavorable terms. Mining agreements don’t exist in isolation. They set expectations for future negotiations. If Ghana accepts 7% now, what will it accept in the next deal? 5%?
THE INVESTOR’S OWN DEMONSTRATED CAPACITY
The most damning evidence against Ghana’s current proposal comes from the investor’s own behavior over the past year. When we examine the shift in economic conditions and negotiating positions, the pattern becomes unmistakable: Table 2 attached.
The investor accepted a 10% royalty in 2024 when its profit margin was 23.75%. Today, with profit margins at 49.2%, more than double, Ghana is proposing to reduce the royalty rate to 7%. This is not a negotiation based on economic fundamentals. This is a negotiation that has somehow moved backward while the underlying economic conditions have moved sharply forward.
The question this raises is simple but profound: If the investor was willing to operate profitably at a 10% royalty when margins were under 24%, why would Ghana accept a 7% royalty when margins exceed 49%? The only answer is that Ghana’s negotiators either don’t understand the economics of the situation or have been outmaneuvered by a more sophisticated counterparty.
THE INSTITUTIONAL PROBLEM
There’s a deeper issue here, and it goes to the heart of why resource-rich countries so often struggle with resource extraction. The analysis correctly identifies that Ghana appears to have conducted no independent feasibility study. All the figures, all the analysis, all the justifications for the proposed royalty rate seem to come from the investor itself.
This is not how you negotiate. This is how you get negotiated.
When I think about successful resource management in developing countries – and there are examples, though they’re rarer than we’d like – the common thread is institutional capacity. Countries that do well on natural resources have:
1) Independent technical expertise to evaluate projects without relying on company data
2) Strong tax administration to monitor compliance and prevent transfer pricing abuse
3) Transparent processes that allow public scrutiny and parliamentary oversight
4) Long-term fiscal frameworks that don’t treat resource revenues as a temporary windfall
Ghana appears to be lacking in all four areas. And that’s not a problem you solve by approving a bad agreement. You solve it by stepping back, building the institutions, and then negotiating from a position of strength.
THE TRANSFER PRICING TRAP
Here’s something that should worry Ghana’s policymakers even more than the low royalty rate: lithium is sold in multiple forms – spodumene concentrate, lithium carbonate, lithium hydroxide – each with different prices and different opportunities for manipulation.
This creates what economists call a transfer pricing problem. Imagine the scenario: a company mines lithium in Ghana and sells it to a related entity in another country at a below-market price. The profit is realized elsewhere, where it faces lower taxes. Ghana’s government collects its 7% royalty on the artificially low price and never sees the real value.
This isn’t hypothetical. It’s how the game is played. And the way you prevent it is through rigorous transfer pricing rules, independent price verification, and the kind of technical expertise that Ghana doesn’t currently appear to have.
The Intergovernmental Forum on Mining has emphasized that governments need to use independent price reporting agencies to establish benchmarks and prevent this kind of manipulation. Ghana’s agreement doesn’t appear to include any such safeguards. That’s not just a missed opportunity; it’s a vulnerability that could cost the country far more than the difference between a 7% and 10% royalty rate.
THE VALUE ADDITION QUESTION
There’s another dimension to this that Franklin Cudjoe rightly emphasizes: the value of lithium increases dramatically through processing. Raw ore, spodumene concentrate, lithium carbonate, lithium hydroxide – each step up the value chain represents a significant increase in price and value added.
If Ghana allows the investor to simply extract raw materials and export them, the country captures only a small fraction of the total value. If Ghana requires or incentivizes local processing, it captures more value, creates more jobs, and builds industrial capacity that might support future development.
This is where the analysis of resource extraction gets interesting, because it’s not just about maximizing the take from a single project. It’s about building the kind of industrial ecosystem that can support broader economic development.
Now, I’m skeptical of the idea that you can simply mandate value addition and expect it to work. There are real costs to processing, real technical challenges, real risks. But you can certainly create incentives. You can require that a certain percentage of production be processed locally. You can offer tax breaks for processing facilities. You can make it clear that future concessions will go to companies willing to invest in domestic processing.
Ghana hasn’t done any of this. The agreement, as currently proposed, treats lithium as a commodity to be extracted and exported, with the government taking a small cut. That’s the colonial model of resource extraction, and it’s been around for centuries. It’s also a model that has consistently failed to deliver broad-based development benefits.
THE REVENUE IMPLICATIONS
The financial stakes of this negotiation are substantial. Let me illustrate with a straightforward calculation based on reasonable production assumptions: Table 3 attached.
By accepting a 7% royalty instead of the 10% that the investor previously accepted, Ghana forgoes $1.8 million in annual government revenue on a 50,000-tonne operation. Over a 20-year mining license—a typical duration for such agreements—this represents $36 million in lost government revenue. That’s not chump change. That’s money that could fund schools, hospitals, roads, and other essential infrastructure.
And that’s just the direct royalty impact. It doesn’t account for the lost opportunity to capture higher rents through value addition, nor does it account for the precedent it sets for future mining negotiations.
THE RECOMMENDED PATH FORWARD
If Ghana is serious about capturing fair value from its lithium resources, the royalty structure needs to be completely reconsidered. The current proposal doesn’t reflect economic reality. Here’s what a defensible structure would look like: Table 4 attached.
This structure would:
• Provide investment certainty at lower prices (5% when prices are $500-700)
• Capture windfall gains during booms (18% when prices exceed $2,000)
• Align with international precedent (Chile, Bolivia)
• Generate sustainable long-term revenue
• Maintain the investor’s profitability even at the higher rates
The investor’s own behavior proves this is economically viable. If it was willing to accept 10% at $800/tonne, it will certainly accept 12% at $1,000-1,500/tonne, and higher rates at higher prices.
THE BIGGER PICTURE: WHY THIS MATTERS
You might think I’m being too harsh. After all, 7% is better than nothing. The project will still generate some government revenue. Some jobs will be created. The economy will benefit.
All true. But it misses the point.
The fundamental question in resource economics is this: how do you ensure that the extraction of finite natural resources contributes to long-term, sustainable development rather than just enriching a few multinational corporations and a handful of local elites?
The answer involves several things: capturing a fair share of the rents, investing those rents wisely, building institutional capacity, and ensuring transparency and accountability. Ghana’s proposed agreement fails on most of these dimensions.
The 7% royalty rate is too low given current market conditions and the investor’s demonstrated capacity to pay. The absence of independent analysis means the government is negotiating blind. The lack of transfer pricing safeguards creates opportunities for profit shifting. The absence of value-addition requirements means Ghana is exporting raw materials rather than building an industrial base.
These aren’t minor quibbles. They’re fundamental flaws that could cost Ghana hundreds of millions of dollars over the life of the mining concession.
WHAT SHOULD GHANA DO?
The path forward is clear, though it requires political will.
First, don’t approve this agreement. Not yet. Not without substantial revisions.
Second, commission an independent feasibility study. Hire international consultants – not affiliated with the investor – to conduct a thorough geological, economic, and environmental assessment. This will take time, but it’s essential. You can’t negotiate effectively when you’re working with the other side’s data.
Third, revise the royalty structure. Use a price-indexed sliding scale, similar to the one outlined above. Start with a 10% base rate – the investor already accepted this – and increase it as prices rise. This isn’t punitive; it’s just capturing a fair share of windfall gains.
Fourth, implement transfer pricing safeguards. Adopt the OECD transfer pricing guidelines. Require the use of independent price reporting agencies. Build the technical capacity to audit and monitor compliance.
Fifth, require or incentivize value addition. Make it clear that future concessions will favor companies willing to invest in domestic processing. This isn’t about being anti-business; it’s about ensuring that resource extraction contributes to broader economic development.
Sixth, commit to transparency. Publish the final agreement. Establish independent audit procedures. Create parliamentary oversight. This builds public confidence and reduces the risk of corruption.
Will the investor accept these terms? Probably not all of them. But here’s the thing: the investor has already demonstrated that it will accept a 10% royalty. The investor has already shown that the project is economically viable. So the question isn’t whether the company will walk away. The question is whether Ghana has the political will to negotiate for terms that are actually in the national interest.
A FINAL THOUGHT
Resource extraction is one of the most consequential areas of economic policy for developing countries. Get it right, and you can fund education, infrastructure, and social services for generations. Get it wrong, and you end up with a resource curse – where the extraction of natural resources actually makes the country worse off, not better.
Ghana has an opportunity to get this right. The country has significant lithium reserves at a time when global demand for lithium is surging. The investor has already shown its hand. The market conditions are favorable. The political leadership has indicated a commitment to transparency and data-driven decision-making.
But none of that matters if Ghana accepts a deal that leaves money on the table and fails to build the institutional capacity for long-term resource management.
The current proposal doesn’t meet that standard. It’s time to go back to the drawing board.
~ Hene Aku Kwapong is a CDD Ghana Fellow and Chief Restructuring Officer of Park Street Private Equity in London. He is a board member of Ecobank Ghana and former Head of Management for RBS Markets EMEA Credit business, where he oversaw credit risk management across European, Middle Eastern, and African markets. His expertise spans financial risk management, capital markets, and commodities deal structuring. This analysis draws on research from the Intergovernmental Forum on Mining, recent academic work on mining taxation in Latin America, and comparative studies of lithium royalty regimes across major producing countries.
