Governance is a term commonly used to refer to how public institutions and private companies conduct their affairs and manage resources. It covers the process of decision-making as well as the processes by which decisions are implemented. ICMM believes that mining companies can enhance the mainstreaming of sustainable development by supporting national polices and government regulations that address the issues of corruption, human rights abuses, bribery, tax evasion and conflict. Mining companies can also contribute to institution building and the strengthening of existing institutions through government and community engagement processes.
When large mining operations begin in remote areas the relationship with local and regional governments are critical and complex. The government system often has significant capacity constraints. Due to their visibility, large mining companies can often be blamed for problems that result from a lack of government capacity.
In response, mining companies can sometimes stray too far into government territory, effectively substituting for the public sector. As well as raising questions of legitimacy, this creates problems following the departure of the company. In other cases, companies do not make enough effort to align with or support government activities, leaving problems to become worse.
At Newmont’s Ghana operations in the Brong-Ahafo region, the company has sought to strike the right balance, neither substituting for government nor ignoring local governance weaknesses. Instead the company has tried to work collaboratively with local communities and local government agencies in a mutually supportive way, through the establishment of an independent corporate foundation that significantly contributes to regional development.
The Newmont Ahafo Development Foundation (NADeF)
In 2006, before production began at Ahafo, Newmont set up the Ahafo Social Responsibility Forum (ASRF) in partnership with traditional authorities in the area, to represent the interests of surrounding communities and manage the mine’s overall social performance.
The ASRF’s 55 members include six from government (one regional minister, two district MPs, two district chief executives and two former district assembly members), 24 representatives of traditional authorities (including the chiefs from each of the ten surrounding communities), 20 elected community representatives, and two Newmont Ghana Gold Limited (NGGL) staff.
Building on the experience of the ASRF, in mid-2008, NADeF was set up to serve as the main social investment vehicle through which Newmont’s community development initiatives are managed.
NADeF is an unusual foundation – it is an autonomous, community-owned body with a highly participatory governance structure and independent, community-based decision-making and implementation. Newmont ensures that the funding distribution is fair. The foundation is governed by an independent board.
NADeF’s governance structures consist of various different bodies and include the ASRF, a Board of Trustees, a group of sustainable development committees (SDCs) that liaise between communities and NADeF’s secretariat, and a project review committee.
Expenditures are determined by the community through Sustainable Development Committees (SDCs) in each community, which fosters transparency and legitimacy in the process.
The company contributes $1 per ounce of gold sold plus 1% of net pre-tax profit from the Ahafo mine. A percentage of the annual contribution is also deposited into an endowment fund to finance post-closure social programmes.
On the government side, the assemblies of the two districts where the mine has a presence are involved in NADeF to ensure its investments are aligned with the districts’ medium-term development plans and offer support where needed – for instance, a commitment to supply teaching staff when an SDC proposes to build a school.
NADeF’s six-stage process for selecting and implementing projects begins with the SDCs consulting the community and traditional authorities to identify prospective projects. Next, proposals are sent to the district assembly for review. For infrastructure projects, the assembly is obliged to assist the SDC with a plan, design, and costs, which the SDC then approves; non-infrastructure projects (such as livelihoods initiatives) do not require the approval of the district assembly unless they are a partner to the project.
In the third stage of the approval process, NADeF’s Project Committee – which has district assembly representation – carries out a technical review of the proposals, following which they are reviewed by the Board of Trustees (stage 4).
Selected projects are then handed over to the Tender Committee, also with district assemblies represented, which leads the process of hiring contractors and organizations to carry out the work (stage 5). District assemblies support the final stage, i.e. implementation, particularly in the case of infrastructure projects.
The government’s involvement across NADeF’s project cycle offers a number of benefits. First, it means that the local government is aware of the work that NADeF is funding and is in a better position to provide support to these activities once the Ahafo mine closes.
Second, sustainability can be built into the way that projects are funded through an appropriate split of responsibilities between NADeF and the government. NADeF can fund bulky, short-term investments (like paying for a school building) while the government can fund smaller, recurring items of spending (like teachers’ salaries).
Third, it reduces the risk of repetition and waste and increases the likelihood that any synergies between NADeF and the government will be harnessed, and the two will complement each other’s’ activities.
The way that Newmont has proactively aligned its social investments with government priorities represents an unusually sophisticated private sector response to the governance challenges of operating in a remote area. NADeF has been recognised by the European Union as the best social impact investment vehicle in Africa.