Africa Needs Fair Deal from its Vast Mineral Riches, Reports AfDB

16/05/2012
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Mining is such a key sector in the African economy that more than half its countries export some major mineral commodity, and for 13 of those countries, mineral exports account for at least half of export revenues.

Yet this enormous wealth is not translating into as much revenue to government exchequers as it should, and as a result is hampering the development of African countries, argues a report from the African Development Bank (AfDB)

The issue is of direct concerns to development finance institutions (DFIs), including the AfDB.

The reason, says the report entitled ‘Fairer Mining Concessions in Africa: How Can this be Achieved?’ is that many DFIs provide funding for mining operations.

They do this on the expectation that the projects are development-oriented.  The fairness of the concession signed between the private investors and the governments – principally based on the distribution of resource rents – is one of the criteria used in making the funding decision.

The main reasons given in the report, from the AfDB’s Chief Economist department, are that governments are providing overly generous concessions to foreign mining companies, and have often failed to ensure transparency and accountability in the management of resource rents.

As a result, the report notes, the development impact of the mining sector in Africa has been limited, even though these resource-rich countries have achieved high GDP growth rates, especially over the past decade.

The report suggests two necessary conditions to make mining concessions fairer all round.
The first concerns the compliance of mining concessions with the mining codes and mining laws of the relevant countries.  

The second condition is to specify a minimum proportion of net revenues that the government should receive, given the value of the resources extracted and the project cost.

The authors argue that the second condition might be satisfied if the effective tax rate of mining operation is at least as high as the country’s corporate tax rate.

The report includes a review and analysis of mining deals across Africa, and gives data from 23 countries.

Authors : Ousman Gajigo, Emelly Mutambatsere and Guirane Ndiaye