Contract negotiation and fiscal policies in Africa’s extractives sector

Submitted by benitan on Tue, 11/06/2018 - 08:25
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Nairobi, November 5, 2018– Natural resources, when managed well, are a major contributor to development. For many countries in Africa, the oil, gas and mining sectors are key economic areas. It is reported that the production of raw materials accounts for more than 20% of GDP in more than 20 developing countries. Natural resources thus offer great opportunities for economic development.1

 

In the context of harnessing African mineral resources for inclusive and sustainable development, as well as being in line with the African Mining Vision, the 25thAfrican Union General Assembly requested the NEPAD Agency to support the building of technical capacity of Member States to design, negotiate and implement tax policies and complex contracts negotiation in extractive industries.

 

The benefits that countries derive from their natural resource wealth are largely determined by complex commercial investment agreements between the host country and (foreign) investors. These agreements regulate the allocation of costs, risks, profits and benefits. They can last for decades and have significant fiscal, economic, environmental and social impacts. Well-conceived and negotiated contracts for foreign investment can generate revenues, boost development and protect the interests of the host country and foreign investors.

 

However, many African resource rich countries lack the capacity to successfully conduct complex contract negotiations as well as to properly enforce and monitor the concluded contracts. As a result, poorly negotiated and implemented contracts often fail to maximise the potential benefits and instead may lead to a loss of public revenues, corruption, resource and environmental degradation and depletion, safety hazards and protest by local communities.

 

NEPAD Agency therefore helps to provide support to African countries through capacity building and technical assistance in getting better deals, efficiency in revenue management and allocation and setting better fiscal regimes within the extractives sector.

 

The NEPAD regional dialogue and training on tax policies and contract negotiation in the extractives industries in Nairobi, Kenya, held on 5 – 8 November, offered an opportunity of stimulating dialogue between stakeholders in the extractives sector at regional level, as well as an opportunity to provide training for senior Government officials on contract negotiation and extractives fiscal policies at national level.

 

“Building capacity for African countries in complex commercial investment contracts must ensure that citizens, especially unemployed youths, benefit from the extractives sector,” Mrs Estherine Fotabong, NEPAD Agency’s Director of Programmes stated in her opening remarks. She went on to add that the previous three regional dialogues held on the continent show that coordination across different sectors and government ministries proves to be key.

 

The dialogue in Nairobi covered the following: Contract (re)negotiation and fiscal modelling; tax avoidance, and; the link between extractive industries and illicit financial flows. 

 

The training brought together 15 African countries to allow various stakeholders to identify demands from countries in mining contract negotiation and tax administration in the extractives sector.  

 

This regional dialogue was a NEPAD Agency initiative organised with the support of the CONNEX Support Unit, International Senior Lawyers Project and the Government of Kenya.