Thursday, March 26, 2009

A solution for Africa's natural resource curse?

A new report Breaking the Curse by the Open Society Institute of Southern AfricaThird World Network Africa, Tax Justice Network Africa, Action Aid International, and Christian Aid performed a study on mining taxation and transparency in seven African countries, including Ghana, Tanzania, Sierra Leone, Zambia, Malawi, South Africa, and the Democratic Republic of Congo (DRC). 

The central argument made by the report is that African governments have not been able to optimize the mining tax revenue due to them before the 2003 to 2008 price boom; neither have they been able to capture the anticipated windfalls during the price boom. This argument is grounded on two main reasons: (i) Mining companies operating in Africa are granted too many tax subsidies and concessions (ii) There is high incidence of tax avoidance by mining companies conditioned by such measures as secret mining contracts, corporate mergers and acquisitions, and various ‘creative’ accounting mechanisms. These two factors coupled with inadequate institutional capacity to ensure tax compliance contribute in a large measure to diminish the tax revenue due to African revenue from the mining industry. 

The report highlights how to improve the situation from a state-revenue side. This is only one part of the story though. More money into state coffers can help address development objectives, but certainly does not guarantee it. Maybe a follow-up report on how government efficiency and transparency is needed to responsibly invest these revenues in meeting development objectives? (see also AfriMap for existing initiatives in this regard).

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