Ghana provides an inescapable conclusion – nationalisation doesn’t work

Ghana nationalised its mining sector in the early 1960s with the objective of “maximising government revenue ... and employment generation”. Instead, the industry experienced a dramatic decline following nationalisation, with gold production falling from 915,317 ounces in 1960 to 282,299 ounces by 1984. The reasons given by the World Bank for the decline were a “lack of foreign exchange to maintain and rehabilitate the mines; lack of capital investment for mining skills; infrastructure deterioration, particularly shortages of rail capacity for manganese and bauxite; mining company financial problems due to the greatly over-valued currency and spiralling inflation; a declining grade of gold ore; the exhaustion of high grade manganese ore; the depletion of the more lucrative diamond mines in many areas; high absenteeism and low worker discipline; and pilfering, illegal panning and smuggling of gold and diamonds”.

In 1983, Ghana introduced its “Economic Recovery Plan” (ERP), which implemented radical mine privatisation. At the time of the launch of ERP, gold production had fallen to 285,291 ounces. A dramatic improvement followed in the gold mining sector and rapid growth in annual gold production. After a mere 12 years, the privatised mines increased output from about 300,000 tons to approximately 2.5 million tons, an increase of over 700 per cent. In contrast, when mining operations were held in the hands of government, output declined steadily over a period of 29 years, from about 750,000 tons to about 280,000 tons.

Ghana’s gold production increased to 2.9 million ounces in 2009. Since privatisation, the annual gold production in Ghana has increased more than 10 times over the last 27 years, and revenue reached $2.8 billion. As a country, Ghana has benefited from the improvement in its mining situation. According to the US Geological Survey, “The contribution of Ghana’s mining sector to the country’s gross domestic product increased from 1.3% in 1991 to an average of about 5% in recent years. Export earnings from minerals averaged 35%, and the sector was one of the largest contributors to Government revenues through the payment of mineral royalties, employee income taxes, and corporate taxes”. Growth in the mining sector also contributed substantially to a rise in per capita GDP (measured on a ppp basis in 2009 dollars), which increased from $449 in 1983 to $1571 in 2009.

Author: Jasson Urbach is an economist with the Free Market Foundation. The above is an excerpt from the chapter, Problems with State Ownership of Enterprises, which he wrote for the recently published FMF book, Nationalisation.

FMF Policy Bulletin/ 12 April 2011

Help FMF promote the rule of law, personal liberty, and economic freedom become an individual member / donor HERE ... become a corporate member / donor HERE