The $1 billion valuation of the Agyapa royalties amounts to an undervaluation of Ghana’s resources by over 65%. This is captured in a statement released by IMANI on August 27, expressing their disapproval to the recent controversial deal. IMANI has called on government to come clear and disclose the full details of the deal.
“There is a case to be made for diversifying the country’s sovereign wealth strategy and acquiring some geo-economic influence, but that should not be pursued at the high cost of valuing 75% of all of Ghana’s future royalties at 30% of their true value. The $1 billion valuation of these massive resource entitlements is unconscionable and amounts to undervaluing Ghana’s resources by over 65%”.
IMANI
The Government of Ghana has given a number of reasons why it prefers to assign its rights to receive royalties from the country’s gold mines to an independently run Ghanaian entity (“ARG”) controlled by another, overseas registered, entity in the tax haven of Jersey, which it hopes to have admitted to the Main Market of the London Stock Exchange (LSE) via a standard listing.
Civil Society Organisations (CSOs) have publicly expressed their misgivings about the deal and in this statement, IMANI has joined several others calling for a review of the deal. IMANI indicated that the deal is flawed with so many issues that need to be clarified.
According to IMANI, the timeline of 4 months to IPO is problematic and they suggest that at least this should have been extended to April 2021. This will allow time for proper scrutiny into the deal because as it stands now, the deal is shrouded with so much hidden information. They believe it lacks the minimum transparency.
IMANI further indicated that the massive upfront costs of listing and sustaining a listing is equivalent to borrowing at over 10% per annum, far above Ghana’s current sovereign borrowing rate.
Their analyses also indicated that the high cost of valuing 75% of all of Ghana’s future royalties at 30% of their true value should never be repeated. They advised that future transactions with such amount should be done with less than 25% of royalties.
“Less than 25% of future royalties should go for that amount of money in any such transaction. Our position is backed by a review of several such “royalty streaming” transactions around the world.
“The claim that dividends shall prove a seamless substitute for royalties in the future is abjectly wrong in view of typical dividend yields in the context under evaluation and the fact that the transactions expressly exclude dividend protections granted the government by the SIGA law”.
Undervaluation of this valuable properties pose serious economic challenges especially at a time when government needs lots of revenue to undertake developmental programs. It is argued that instead of always taxing individuals and businesses, the government should resort to its extractive resources. If this is done, it will reduce the burden on the ordinary Ghanaian and put businesses at a better position to create employment for the teeming unemployed youths.
Recently, the Finance Minister indicated that the government requires GH¢100 billion to implement the Ghana Covd-19 Alleviation and Revitalization of Enterprises Support (CARES) program. This type of programs should be financed by revenues from extractive resources instead of taxes. Higher taxes are a disincentive to work and therefore leads to a general decline in productivity.
Taxation is the transfer of resources from one economic agent to another. Transferring resources from the private sector which is mostly seen as being more efficient to the public sector which is characterized by inefficiency is not very good for Ghana. Agyapa royalties should be seen as one major contributor of revenues to the state, and care should therefore be taking its management.
