# **a. Mining Reform**

10. In the last decade, Ghana has achieved impressive growth performance and is continuing on its path to poverty reduction. This economic development, however, has long coped with political instability, a mixed development paradigm, and policy reversal, notably from independence in March 1957 to the early 1980s. The state-led policies in the First Republic (1957–66) combined with an adverse falling in the price of cocoa resulted in the deterioration of internal and external balances and in Ghana’s economic situation. In the following years (1966–72), political turmoil and short-lived reforms preceded a period of economic chaos until the early 1980s—all contributing to an environment unfavorable to investment, entrepreneurship, and growth (World Bank 2007). With the goal of promoting national industries, the country protected domestic sectors, thereby failing to develop an integrated industrial base and create room for competitive supply industries. As a result, the industrial contribution to real GDP decreased in 1975–82, and by 1983, it was at its lowest level since independence. The protectionist policies strangled the export sector and investment in the mineral sector (Leith 1996; Oduro 1996).

11. An Economic Recovery Program (ERP) was implemented in 1983 by Rawlings’ Provisional National Defense Council (PNDC) government. This program included policies to improve industrial recovery through restructuring and better access to finance; increase opportunities to import inputs; and rehabilitate key industries. It also encouraged investment or expansion in industries consistent with Ghana’s comparative advantages (Hutchful 2002; Leith 1996). Several measures to revive the mining sector were adopted under the ERP. The program introduced significant changes in the sector’s regulatory framework, including the following: immediate improvements in access to critical inputs through export rehabilitation credits, the grant of foreign exchange retention accounts ranging from 20 percent to 45 percent to the mining companies, substantial recapitalization funding for the gold mines, reorganization of the marketing arrangements for diamonds, and legalization of small-scale gold and diamond mining (see Hutchful 2002; Leith 1996). The most important step, however, was the introduction of the Minerals and Mining Law in 1986, which established the Minerals Commission (MC) to regulate the sector and further liberalized the mining climate, extending significant new benefits to investors in the area.<sup>1</sup> This measure, coupled with the rise in the gold price, sparked substantial new interest in Ghana by international mining companies (Campbell 1998). More than 55 gold prospecting licenses were issued between 1986 and 1989, and three gold mining companies commenced production in the late 1990s.<sup>2</sup> As a result of improvements in the mining climate, Ghana was voted among the top 10 emerging markets for mining (the only African country to be ranked so highly) in a 1995 survey of international mining analysts ( _Business in Africa_ 1997).

12. Ghana’s development during the 1980s and 1990s and the country’s policy framework for the mining industry were strongly influenced by international trends and recommendations from the development community. Historically low mineral prices, high political and economic risks (expropriation of mining rights, disregard of arbitration clauses in contracts, and generally poor investment climate), ballooning external debt, and the pressing need to increase foreign earnings forced many resource-rich governments to reverse course to attract foreign direct investment. In most African countries, the sector policies shifted from 9