Open contracting key to driving mining revenue

KARIBA- African governments’ failure to negotiate favorable mining contracts is the major factor behind their manipulation by Multi-National Corporations, who heavily invest in aggressive tax planning resulting in Illicit Financial Flows (IFFs), Tafadzwa Chikumbu from Transparency International Zimbabwe (TIZ) has said.

Chikumbu made the remarks on the sidelines of the ongoing 6th annual Summer School organized by African Forum and Network on Debt and Development (AFRODAD).

Chikumbu said these capacity deficiencies are compounding revenue losses, perpetuation of exploitative relationships that include extension of indefinite repayment periods for mining companies.

“That matrix is a function of fiscal regime and also our capacity to negotiate contracts. It’s primarily important to improve our capacity as governments both in terms of negotiation of the contracts, in terms of how much we benefit.

“If you look at the level of environmental damage and proceeds that accrue to countries from mining there is a mismatch. Mining companies are given concessions when, for example the issue of amortization period for the mining sector, in other sectors losses are only carried over for a maximum period of six years.

“In the mining sector companies are allowed to carry over losses indefinitely, they can say that are making losses indefinitely and still continue to extract causing environment damage. This speaks to our lack of capacity to negotiate progressive contracts,” he said.

Africa Forum on Debt and Development (AFRODAD) executive director, Jason Braganza says there are several key interventions which can enhance capacity of African nations to get the best deals for their natural resources.

Braganza said there is need to contextualize and tailor-make contracts to suit sovereign needs of the State, model treaties to stimulate upstream and downstream linkages in jurisdictions of natural resource extraction.

He said focus should be on providing linkages to productive sectors of economies, protect sovereign decision making of the State, leverage on commodity prices to get full value from mineral resource endowments.

“The state must always be paramount in all negotiations. We need to invest in the technical capacity across the board from the Attorney General’s office, legal departments in line ministries, geologists these are key enablers to enhance information access to negotiators.

“We need to diversify from the treasury trend, where the foreign affairs or a finance team negotiates without technical persons, we need geologists and environmental experts, or otherwise a broad technical team for the negotiation including trade experts, lawyers and environmentalists,” said Braganza.

He added, “We should strengthen governance systems from exploration to marketing of the minerals, improve tax regimes, so that mining creates decent jobs, provide linkages and ensure that communities benefit from mining activities.”

Mukasiri Sibanda, policy advisor for the Tax Justice Network Africa (TJNA), said there was need to embrace competitive bidding in transparent and accountable manners, with proper contract negotiation and monitoring clauses.

He said this need to get full value from minerals also calls for substantial investment in exploration capacities of African nations, implementation of regional and national legal frameworks as well as progressive tax regimes.

“Mineral resources governance in Africa is complicated because of the technical issues surrounding the natural resource governance sector, there is need to domesticate regional guides like the African Mining Vision.

“It is encouraging that the 2021 Budget statement has admitted on the need to domesticate the AMV, which seeks to leverage on mineral resources for broad-based sustainable economic development.

“We have an intergenerational equity responsibility we have to account for future generations,” he said.

Sibanda said effective management of our extractives and natural resources in both exploitation as well as revenue generation are key for real transformation of economies in the continent as enshrined in the AMV and Agenda 2063.

In Sub Sahara Africa there are rising inequalities as nations fail to leverage on natural resources with key debt indicators showing rising debts to GDP ratio average 57% in SSA, while citizens’ living standards deteriorate.

Revenue from natural resources are diverted to service debt resulting in reduced social spending compromising the quality of human capital, in a debt scenario in African countries which show limited transparency in contracting of debt.

Consequently, the existence of harmful tax treaties and tax havens allow for profits to be shifted out of Africa to these destinations and deny the continent tax revenue collection fiscal consolidations, financing social expenditure