The performance of the mining sector in Ghana: A decomposition analysis of the relative contribution of price and output to revenue growth

Abstract

For the past decades, the strong performance of the mining industry has been largely attributed to the surging mineral prices. To assess this claim, this paper examines the performance of the mining sector in Ghana over the past 40 years. It basically, provides a historical context of the dynamics and forces driving the strong performance of the mining industry with specific focus on gold mining. Using revenue as the performance metric, we decompose the growth in gold mining revenue into three components: the pure price, pure output (production) and the correlation effects. The analysis shows that although surging gold prices have certainly played a role in driving the strong performance of the sector, even more important a factor is the strong correlation between price and output. Over 70% of the growth in mining revenue resulted from the strong and positive correlation between output and price growth. In addition, given the strong demand for gold at the international market, particularly, from China, the study identifies a combination of complementary forces such as policies, investment flows and improvement in technology as underlying and driving this strong correlation effect. On this basis, the paper recommends that the government should continue to implement policies that promote a good business environment, and attract and sustain investment flow into the mining sector.