Leveraging on the extractive sector for improved domestic resources mobilisation in Africa
AFRODAD is a pan-African civil society organization established in 1996 with a vision to contribute to a prosperous Africa based on an equitable and sustainable development. Over the years, AFRODAD has re-positioned itself as a key player in influencing policy-making processes by national governments and institutions at regional and global levels. The overall goal is to push African governments and other development stakeholders to institute and implement policies and practices that guarantee sustainable development outcomes and poverty alleviation. Further information about the organisation can be accessed here
About the Summer School
AFRODAD has on a yearly basis since 2015 successfully organised summer school events. These events bring together parliamentarians, civil society actors, faith leaders and the media, with the overall aim to contribute to the development and implementation of transparent, accountable and efficient mechanisms for the mobilization and utilization of both domestic and external financial resources in Africa. This year’s Summer School will be held from the 30th of November to the 4th of December 2020 in Kariba, Zimbabwe under the theme ‘Leveraging on the extractive sector for improved domestic resources mobilisation in Africa’.
Domestic resource mobilisation is crucial in tackling poverty, improving economic growth and weaning African countries from dependence on aid and donations. Taxation is one of the most important means in which developing countries can mobilize domestic resources for investment in sustainable development. Most African countries collect less than 15 percent of GDP in tax revenue which is not enough to meet basic needs of citizens and businesses. Substantial gaps in raising tax revenues persist in most African countries, where public revenues are still largely insufficient to meet the SDGs. Several taxation challenges have been noted chief among them being poor revenue administration, poor tax policies, narrow tax base, weak capacity and outdated tax systems. Most African tax systems are archaic and are failing to keep up with latest developments such as tapping into potential revenue sources such as digital economies. The world we live in is dynamic where there are developments and changes. African countries have adopted a tortoise approach to update their tax legislations and regulations. This gives taxpayers especially MNCs the chance to plan on how to continuously avoid and evade taxes. Furthermore, tax incentives and tax holidays generously awarded to mining companies have negatively impacted on the quality and quantity of tax collections. Given that countries are losing a lot of tax revenues from the extractive sector through illicit financial flows (IFFs), there is need to reform mining tax laws. The mining sector is key in terms of domestic resources mobilisation in that resources are finite therefore countries should put in place measures and strategies to derive maximum benefits through revenue collections from the sector. The current Covid-19 pandemic has negatively affected domestic resources mobilisation as tax revenues from the extractives sector dwindled. This therefore calls for the need to reform mining fiscal regimes.
Despite huge endowments in mineral resources, Africa is failing to adequately benefit from the extraction of its resources. There are a number of factors that are leading Africa to grapple with benefiting from mineral resources endowment and extraction. The models of resources trade that are used by some African countries prevent them from deriving maximum benefit from this sector. For example, Africa exports its minerals in raw form with minimal value addition and beneficiation. What this means is that Africa will get few financial resources as exports because unprocessed goods fetch very little on the international market. As if this is not enough, Africa is a huge consumer of finished products as it imports from other continents. Importing finished products entails a huge import bill. Furthermore, with the growing concern of Africa’s industrialisation, there is need for African countries to adjust their systems in terms of value addition and beneficiation. This is also stipulated in aspiration one of the Agenda 2063 which highlights the importance of the beneficiation of Africa’s natural resources as well as the Africa Mining Vision which advocates for resource-based industrialization.
The extractives sector plays a catalytic role in economic development through down-stream linkages into mineral beneficiation and manufacturing; up-stream linkages into mining capital goods, consumables and services industries and side-stream linkages into infrastructure (power, logistics; communications, water) and skills and technology development (HRD and R&D). Given all this, its governance becomes paramount. For countries to effectively benefit from the extractives sector, there is need for a proper value chain analysis to identify stages and specific point where governments and citizens can derive benefits. In terms of domestic resources mobilisation, this means identifying and plugging areas where there are revenue leakages. For citizens it means provision of labour, contributing to supply chain since the extractives sector requires a lot of consumables. A constellation of factors militates against deriving maximum benefits. The major factors include, weak negotiation of mining agreements, weak legislation, weak institutions, secrecy around contract negotiation, poor geological data and absence of mechanism to tap from mining windfalls. In terms of governance this implies that countries should enact and implement mining laws that ensures maximum benefits are derived from the extractives sector. It also entails government’s capacity to manage resources for adequate contribution to financing development.
In order for African countries to derive the expected benefits from the extractive sector, there is need for improved mineral resources governance and mineral rents and mining revenue management. However, many African extractive sectors continue to succumb to a number of governance challenges. These include lack of the capacity to audit, monitor, regulate and develope the resources sector linkages into the domestic economy. Furthermore, the mining legal framework in most countries is characterised by archaic laws which are colonial in nature and promote resources plundering. Some of the key weaknesses of these laws include weak promotion of transparency and accountability, public participation and inequitable distribution of mineral wealth. Lack of capacity to negotiate has also led African governments to reap sub optimal benefits from mining contracts. These negotiations are extremely asymmetrical, where the mining companies are highly resourced and skilled. African governments are also failing to collect geological data on a regular basis. This has negatively implied on the mineral prospectivity of most countries and also led to reduced private sector exploration and mining development investment. These challenges have reduced the chances of benefiting from the minerals sector through paltry revenue collections. In order to sustain budgets countries are compelled to contract loans which come with conditions that may exacerbate inequality.
The Covid-19 pandemic has exposed the shambolic tax systems in Africa further putting pressure on revenue collections despite them trying to counterbalance with providing for health care. In response to the Covid-19 pandemic, countries have fallen desperately on debts from multilateral, bilateral and commercial loans. Most countries have put in place tax relief measures so as to ease the burden caused by decline in business activities. Given the continued impact of COVID-19, it is time for African countries to look into the future of domestic resource mobilisation and reconsider tax reforms in the wake of COVID-19. It is important that African countries re-evaluate and improve their fiscal regimes which govern the mining industry which tend to be complex and difficult for governments to administer. With governments looking forward to rebuild public finances post COVID-19, ensuring that mining contributes its fair share will be crucial in Africa. Additionally, the ever- changing technology mean that there should be policies crafted which tally with this. Technologies threaten to disrupt economic benefits from the mining industry. As such governments should refocus on prospects of reforming to make up for revenue shortfalls.
Undeniably, the Covid-19 has negatively impacted on domestic resources mobilisation efforts as the global economy shrunk. To increase fiscal space, African countries have been fallen back on loan contraction aggravating Africa's public debt of US$1,330 billion in 2019. This represents 57% of the continent's Gross Domestic Product (GDP). The majority of African debt servicing takes away 25% of their revenues and countries spend more on debt payments than on health. Currently governments are struggling to mobilise resources to fight the pandemic in the midst of debt servicing obligations. African countries are spending a mere average of 0.8% of their GDP on economic interventions and stimulus measures. The protracted Covid-19 pandemic has further affected key macroeconomic variables and global value chains which have significant implications for debt sustainability outlook across the globe.
Global campaigning has already led to the International Monetary Fund (IMF) and G20 suspension of debt service for a number of African countries. The funds freed up are likely to be used by governments for healthcare, and immediate measures to support economies. However, the debt amounts being cancelled are not enough relative to the debt burdens countries hold. Debt crisis risks are being postponed rather than fundamentally tackled, through a suspension of payments not cancellation. In this context the COVID-19 crisis will trigger large-scale balance-of-payments crises. The African Union (AU) and its regional economic blocks such as SADC, are in a weak negotiating position with the creditors to get debt cancellation or at least two-year debt servicing moratoriums as demanded by global civil society.
Against this, the need to devise ways and means that African governments need to manage COVID-19 new loan contraction and debt relief negotiations is compelling. There is need for discussions around the impact of COVID-19 on country levels of indebtedness, economic and finance stimulus responses and public finance accountability to ensure debt sustainability in the African region. AFRODAD seeks to re-awaken advocacy on debt and influence policy makers at continental and regional levels on prudent debt management and demand fair debt relief from creditors including the IMF, G20, bilateral creditors and the World Bank.
In a bid to increase domestic financing, blended finance has emerged to play a greater role. The importance of blended finance emanates from the fact that it contributes to development objectives by increasing capital leverage, enhancing impact and managing risk of projects under implementation. Capital leverage extends the reach of limited development finance and philanthropic funds as they are used strategically to facilitate larger volumes of private capital that are channelled to investments with high development impact. Blended finance also enhances the impact of projects due to the fact that skill sets, knowledge and resources of public and private investors increase the scope, range, and effectiveness of development-related investments.
The world is confronted with a human crisis of inestimable proportions. The outbreak of the Covid-19 pandemic has resulted in a health emergency, leading to a multi-layered economic and financial crisis, all rooted in patterns of financialisation and hyper-globalization that amplified structural disparities and ossified a global division of labour focused on the extraction of wealth and resources from the Global South. The pandemic exposes the depth of the inequalities within and between countries and the consequences of decades of austerity policies and de-regulation, undermining public systems and progress towards universal social protection. These policies have been incentivised, and even reinforced by the ‘private finance-first’ approach to development finance promoted by many donor governments and multilateral financial institutions. It is therefore imperative to inform African civil society on how to generate momentum for change, and what meaningful change looks like, in the area of ‘private finance-first’ approach to development, and specifically on PPPs. Given the negative impacts of privately financed and run infrastructure and social services, and the urgent need to ensure the provision of high-quality public services for all, the post Covid-19 era requires bold and innovative strategies to deliver on the change we want to see in financing and delivery of health services.
Conference aims and objectives
Broadly, the summer school aims to enhance the knowledge of participants on how improved mineral resources governance is key in enhancing domestic resources mobilisation in Africa. The specific objectives of the training will thus be:
- To sensitise and capacitate participants on current tax challenges and the implications of Covid-19 on domestic resources mobilisation in Africa and devise ways to improve and maximise revenue collections from the extractive sector.
- To expand participant’s knowledge on improving mineral resources governance with view to derive maximum benefits from the extractives sector and reduce inequality.
- To understand mining value chains and identify stages and specific points where governments and citizens can derive maximum benefits.
- To capacitate participants on responsible borrowing based on AFRODAD’s Borrowing Charter and effective use of Covid-19 loans.
- To understand the implications of blended finance and privatisation in the Covid-19 era.
Methodology / Structure
Adult learning approaches and participatory methods of learning will be used. The Summer School will include interactive sessions, group discussions and work, parliamentary sessions as well as guest presentations by lead experts:
- General concepts (theory and practice);
- Comparative analysis of current situations (nationally, regionally and globally);
- Case studies;
- Policy labs to analyse cases and develop practical analytical skills;
- Policy discussions/group work and conclusions;
- Follow ups with individual participants and organisation.
The 2020 Summer School will be a week-long event which will combine both physical meetings and virtual participation for those outside of Zimbabwe.
- Domestic resources mobilisation in Africa: Current tax challenges and policy proposals to improve revenue mobilisation.
- The current state of Mineral Resources governance – Opportunities and Challenges.
- Minerals and metal value chains analysis – challenges and opportunities for capturing more value from mineral resources.
- The tax, debt, IFFs and inequality nexus.
- AFRODAD Borrowing Charter- From principles to practice
- Responsible Borrowing and effective use of COVID-19 Finance in Africa: the need for transparency and maintaining debt sustainability.
- Privatisation in the Covid-19 era - Opportunities and Challenges for Health Sector Fiscal Space
- The Changing Development Finance Landscape – From Aid towards Blended Finance: Implications and Opportunities for Sustainable Development in the Covid-Era
- Theological reflections on IFFs, tax, and inequality.
- Improved participants’ knowledge in relation to DRM, natural resource governance and effective tax systems.
- Power holder that have the capacity to make policy decisions on an informed position.
- Civic society organisations that are knowledgeable on domestic and external sources of financing for development (Debt, IFFs, Official Development Assistance, Public Private Partnerships) and are able to cascade the knowledge to their grassroot constituencies.
- Civic Society organisations lobbying their national governments and advocating for improved mineral resources governance, prudent debt management and effective aid use.
- Recommendations on new and/ improved strategic approaches to issues that arise.
- PowerPoint presentation.
- A video recording of the presentations.
- A workshop report which includes discussions on the ideas and information shared during the week-long trainings.
Date and Place
30 November - 04 December 2020; Caribbea Bay, Kariba.