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Running the numbers - African Natural Resources Center - Analytical Report
Extractive industries (mining, oil and gas) have been some of the leading drivers of economic growth in Africa over the past decade. Yet, there is a perception that the continent has failed to turn its natural resources endowment into positive development outcomes. This may – at least in part – be caused by comparatively low technical capacity and information asymmetry when assessing the value of resources, designing fiscal regimes, negotiating with extractive companies and monitoring revenue from extractive projects. Extractive companies, sponsors and investors use financial models intensively to assess the financial feasibility of projects under a range of technical, operational, market and regulatory scenarios. A financial model is a linked system of variables wherein a user can change a range of inputs to see the impact it has on outputs. Increasingly, African governments are adopting these models to assist in fulfilling their roles as trustees of extractive resources on behalf of citizens. The models can help simulate the consequences of different fiscal terms on extractive activities; inform government’s negotiating position for resource contracts, leases and production sharing agreements; and inform ex-post assessment of revenue streams.