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Open letter to the President: The emptiness of the $2b Chinese Bauxite deal

My people are destroyed for lack of knowledge – Hosea 4:6 (KJV)

Where there is no vision, the people perish – Proverbs 29:18 (KJV)

The media reported on Thursday, August 9, 2018, that “Parliament has passed the master project support agreement for a $2b dollar facility for the construction of priority projects by Chinese firm SinoHydro Corporation”.

The Finance Minister, Ken Ofori Atta said SinoHydro Group Limited is expected to “provide US$2b of infrastructure including roads, bridges, interchanges, hospitals, housing, rural electrification, in exchange for Ghana’s refined bauxite.”

It is true that the country has a housing deficit of over 2 million housing units, roads accidents kill more people than any factor, our hospitals are inadequate and more rural folks still sleep in darkness including part of my holy village of Takpo. So, we definitely need the infrastructure.

However, the paltry $2b ostensibly for the construction of infrastructure is a lot worse than the Kelni GVG ($89.4m), the Ameri new deal ($1.2b), BOST contaminated oil (financial loss estimated at GHS14.25m) and the 111 ministers wasting the public purse (conservative estimates is that it cost GHC18.4m a year to pay just salaries of these ministers) all put together.

The four major questions arising from this deal are:

  1. How would the $2b infrastructure improve the living conditions of the people? There will not be enough housing for workers. Salaries will continue to be low against the rising cost of living while we give away one of our most valuable resource for a pittance. There will be no significant increase in jobs and the cedi will continue to fall.
  2. How is the bauxite going to be exploited by the Chinese i.e. what is in the agreement? The Chinese escalation of the galamsey can be directly attributed to the hunger of China for our gold with absolute disregard for the pollution of our water bodies and destruction of forests and farmlands. The rapid plunder of rosewood in the North and the wanton destruction of the savanna is another example. The Chinese are known to violate our laws and corrupt our systems using their financial influence and influencing our chiefs to violate our customs and tradition.
  3. Who is going to refine the bauxite for the Chinese? The Chinese will influence our politicians and affect our fight against corruption by bribing our ministers in order to stall the establishment of a refinery in Ghana, which will not be in the national interest. They have provided small arms and encourage violence in our communities.
  4. Who will take care of our farmers who will be deprived of their lands? Farmlands will be given to the Chinese so farming in our communities will be at risk. How will farmers feed themselves because the $2bn promise will not go to these farmers?

Ghana is endowed in rich natural resources but over years the management of these resources has not yielded the required development.

The sad reality is that as a barter trade Ghana is not getting cash facility; we are getting the cash equivalent in infrastructure.

In other words, a large chunk of the $2b facility will not leave China in order to have any major socio-economic benefit to Ghana. This is why:

  • All the contracts for the infrastructure will be given to Chinese firms.
  • All the construction equipment and machinery will come from China, providing businesses for Chinese manufacturers and jobs for Chinese workers, all in China
  • Most of the engineering and civil works would be done by Chinese engineers and workers, providing jobs for Chinese who will be paid directly in China with little left in Ghana for the sustenance of the Chinese workers.
  • The cement for civil works will come from China, providing businesses for Chinese companies and jobs for Chinese workers.
  • The tiles, doors, window frames and glass, fitting and fixtures for the hospitals and housing projects will come from China, providing businesses for Chinese companies and jobs for Chinese workers.
  • The steel for the construction of the bridges, interchanges, houses, hospitals, rural electrification will come from China, providing businesses for Chinese companies and jobs for Chinese workers.
  • Many more Chinese will migrate into Ghana under the guise of these projects.

The consequences of the deal will be the following:

  1. There will be no jobs for our people and no skills training and technology transfer.
  2. It will put the relationship with our traditional partners such as the United Kingdom, the United States of Americans, Germany, France and Russia at risk.
  3. It will have an impact on small businesses. The government has not made any provision to protect local industries from state-sponsored activities of these Chinese firms.
  4. Chinese taking over our retail trade. According to a Ghanaian preacher circulating on social media, Wassa Akropong is now called Wassa China because the Chinese are now roasting and selling plantain and sugarcane!

It is my educated guess that what will be left of the $2b in the Ghanaian economy would be about $400m. Out of the $400m, about $100m would end up as bribes in the pockets of politicians and public servants.

All these are happening because we lack an understanding of how things work. According to Bishop Tudor Bismark, a consortium took over the Zambian copper mines, almost for nothing, and are making huge profits while outside their doors there is poverty. He concluded that we (Africans) do not understand how things work. An Angolan technocrat said, “when we give projects to the Chinese when the project is complete all we have left is broken infrastructure and lots of Chinese”.

Caroline Poterio Martinez writing in the Borgen Magazine states that “Chinese investment in Africa seems to be motivated solely by the prospects of Chinese economic gains. They are looking for the opportunity to extract raw materials and sell manufactured products to the African market, a scenario that somewhat resembles Africa’s colonial past. In addition, many Chinese investments also involve the use of extensive Chinese labour, which creates problems for local unemployment”.

The Kpong Water Expansion project built by the Chinese with a Chinese facility of $273m in 2014 is already undergoing major reconstruction due to the poor quality of work done. Our governments tend to be negligent and not make adequate provisions in contracts to guarantee that these projects will be sustainable in the long term.

The more important questions we need to ask are:

  1. What is the total length of roads to be constructed under the $2b facility?
  2. How many interchanges will be built under this barter trade?
  3. How many hospitals of what standard will emanate from this?
  4. How many housing units are we going to get and who supplies the component parts of the housing unit? All will be imported from China is my best guess.
  5. How many rural communities would benefit from the electrifications?
  6. How many Ghanaians will be employed in the construction of the $2b infrastructure?
  7. What happens to the construction employees at the end of the construction period?
  8. How far can $2 billion go in the provision of these infrastructures?

How much is our bauxite worth? The current arrangement, which is effectively a barter trade, assumes that the bauxite is worth $2b or the quantity that the agreement allows them to take is worth that much. But is it?

According to a document produced by the Ministry of Energy in 2010 on Integrated Aluminium-based Industrial development, a full-blown aluminium industry will bring in a total of $9.68b annual turnover within four years of operation.

The primary components of the industry are:

  1. The bauxite refinery (there is a land available for this project made available since the days of Osagyefo Dr. Kwame Nkrumah) which some politicians wanted to share among themselves.
  2. Aluminium smelter (this is currently provided by VALCO, who is producing under-capacity due to inadequate electricity to power the entire smelter)
  3. Sustainable electricity
  4. The railway line to convey the raw bauxite to the refinery in Tema
  5. Salt mining and extraction

The estimated number of jobs to be created within four years of implementation is 2.88 million and 4.6 million by the time all the components are fully functional.

If we use the current income tax rate of 25% and assuming an average monthly salary of GHC1000, then 2.88 million workers would yield an annual income tax of GHC8.64 billion, the equivalent of US$1.8b (US$1=GHC4.80). These figures do not account for the employment generated in the secondary components of the industry.

In other words, one year’s worth of direct income taxes from this single investment would provide nearly the total barter trade facility the Chinese are giving us in exchange for the bauxite. If we add the spending tax (talk tax, VAT, NHIL, GETFund levy, luxury cars levy, fuel tax, banking service tax, electricity tax and water tax) to it, the annual tax income would far exceed the $2b Chinese facility. And this is just tax income from employment in this industry alone.

This is a clear case of inadequate expert/broader stakeholder consultations to derive the best possible outcomes from the bauxite deal and consequently begging for silver from a throne of gold.

The secondary components of the aluminium industry are the industries that will spin off and would largely be third-party enterprises such as:

  1. Electric cables and wires manufacturing
  2. Alloy wheels manufacturing
  3. Aircraft body parts manufacturing
  4. Roofing sheets
  5. Pots and pans
  6. Aluminium foils, packing, etc.

Bauxite is Ghana’s single most important resource – a resource whose integrated industry is estimated to solve Ghana’s current unemployment situation by providing jobs for over 5 million people.

If I were the President of Ghana this is what I would do:

  • Give the Bauxite free to the Chinese; and
  • In return ask the Chinese to do the following:
  1. Build the refinery (estimated at $1.5b) on the land provided in Tema by Dr. Kwame Nkrumah for that purpose. The refined bauxite would then feed VALCO directly.
  2. Build a railway linking the bauxite extraction site to the refinery in Tema.
  3. Provide a power plant with the capacity to power both the refinery and VALCO to full capacity.
  4. Give the power plant to the government to put on the national grid in return for power from the hydro plant at Akosombo. This will make the price of aluminium produced in Ghana competitive on the international market.
  5. Follow a strict implementation regime to achieve the triple bottom line operational sustainability i.e. economic, social and environmental balance
  6. Support Ghanaian citizens to establish and own industries in the secondary components of the industry.

The effect of the proposed arrangement is that Ghana will get infrastructure that will provide life-long sustainable jobs for citizens, who will, in turn, provide sustainable income to the government through income tax and spending tax.

The proposed arrangement will also ensure that the bauxite will not be taken out in its raw form but as a value-added commodity. This will help the country take advantage of AGOA to export the ingots to the United States.

The industry will also spin off other manufacturing activities that would create additional jobs. The overall effects are:

  1. A conservative estimates of 4.6 million jobs in the aluminium industry alone;
  2. Over 2 million jobs in spin-off industries
  3. Annual industry turnover of about $9.67b after the third year of operations
  4. An annual foreign exchange earnings of $6.77b after the third year of operations
  5. Ghanaians taking ownership of the economy

It is my conviction that as a country the implementation of the Integrated Aluminium Industry should be done without partisan influence but for the benefit of all Ghanaian. This is the future of the youth; the future of the country and this is what the youth should be demanding from politicians, not handouts.

Source: Dr. Camynta Baezie

The writer is an Infrastructure Consultant and a Lecturer at KNUST.

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