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1. Assessing the Fiscal Regime in Ghana’s Lithium Agreement

Author:
Thomas Scurfield and Denis Gyeyir
Publication Date:
07-2024
Content Type:
Policy Brief
Institution:
Natural Resource Governance Institute
Abstract:
NRGI modeling indicates that the Ghanaian government has negotiated a government take for the country’s first lithium mine that is higher than Ghana’s legislated fiscal regime and the regimes of many other current and imminent lithium hard rock producers, such as Australia, the Democratic Republic of Congo and Zimbabwe. Modeling suggests an average effective tax rate (government revenues as a share of mine profits) of 58 percent (excluding paid state equity). Seventy percent of these government revenues depend on the profits that mine leaseholder Barari DV Ghana reports. To limit the risk of revenue shortfalls, the agreement should define the process for pricing the lithium, limit the deductibility of interest from taxable income, ensure state equity is non-dilutable and establish rules in the shareholders’ agreement about dividend payments. Given that modeling indicates an after-tax internal rate of return for investors in the Ewoyaa mine of around 102 percent (after debt financing), the government may be able to negotiate an even higher take in future deals for similarly profitable mines. A variable rate royalty could help achieve this higher take. To increase the prospects for a lithium refinery in Ghana—the government’s other key objective—the government should ensure Barari conducts a rigorous feasibility study, publish it and then hold a multistakeholder consultation to agree on subsequent actions.
Topic:
Tax Systems, Fiscal Policy, Lithium, Revenue Management, and Minerals
Political Geography:
Africa and Ghana

2. Optimizing the Role of the Extractive Industries in Domestic Revenue Mobilization: Analysis of Uganda's Mining, Oil, and Gas Revenue Generation and Management Laws

Author:
Dan Ngabirano and Onesmus Mugyenyi
Publication Date:
12-2023
Content Type:
Research Paper
Institution:
Advocates Coalition for Development and Environment (ACODE)
Abstract:
Dwindling aid and more recently the devastating effects of the COVID-19 global pandemic have rendered many African countries socially, politically, and economically vulnerable. Many are unable to effectively provide basic goods and services for their people, and their ability to pursue long-term development goals has been severely undermined. Given this situation, several African governments continue to fall behind in honouring their global commitments such as those made under the UN Sustainable Development Goals (SDGs) and the various regional and international human rights treaties that they are party to. To bridge the current funding gap, several African countries have turned to extensive borrowing with even more damaging consequences. In the face of this crisis, African countries have been urged to embrace and, in some instances, enhance their domestic revenue mobilization efforts as a more reliable and sustainable option. Uganda has heeded this call and in 2019, the country adopted a five-year Domestic Revenue Mobilization Strategy (DRMS). The key objective of this strategy is to improve revenue collection and lift the country’s tax-to-GDP ratio to between 16%-18%. More critically, DRMS recognizes the strategic role and potential contribution of oil, gas, and mineral revenues to national development. The DRMS underlines the need for the development of a strong extractive industries taxation fiscal regime. Given this reality, this study was conceived and set out to review and analyze the various laws, policies, and practices relevant to Uganda’s extractive industries fiscal regime, and to establish the extent to which these may enhance revenue generation, management, and equitable sharing of resource wealth. While focused on petroleum revenue generation, management and sharing in the Albertine region districts of Hoima, Buliisa and Kikuube, the study refers to experiences from gold mining in Mubende district. In this regard, the study established that gold mining in the district has for the most part been informal and unregulated. For this reason, both the central government and Mubende district local government have not been very successful in generating critical revenues from the largely artisanal and small-scale miners-dominated sector. Secondly, where revenue has been realized from gold mining in a few instances, it has been paid to the central government with less benefit to the district local government.
Topic:
Oil, Gas, Mining, Revenue Management, and Extractive Industries
Political Geography:
Uganda and Africa

3. Resource-Backed Loans in Ghana: Risks, Opportunities and Lessons

Author:
Denis Gyeyir
Publication Date:
06-2022
Content Type:
Policy Brief
Institution:
Natural Resource Governance Institute
Abstract:
Developing countries have trouble financing development mainly due to limited access to capital markets, high cost of borrowing, slow growth, or a mix of these. Countries with natural resource endowments have attempted in the last few decades to leverage these endowments to surmount those challenges. Many of their development efforts focus on closing huge infrastructure gaps. Ghana is a producer of cocoa, minerals, oil and gas—assets that have increasingly featured in the government’s infrastructure financing plans. Ghana’s infrastructure financing totaled USD 23 billion between 2007 and 2020, and annual infrastructure investment will need to reach $9.3 billion by 2030 (13.9 percent of 2019 GDP). Official development funding and private sector financing have been inadequate to meet these infrastructure needs. As a result, the Ghana Infrastructure Plan identifies Chinese infrastructural funding as a source to fill the gap. Ghana’s infrastructure financing has in part relied on leveraging its natural resources. Through resource-backed loans (RBLs), governments (directly or through state-owned companies) borrow funds and repay the loans in physical natural resources or with money from resource-related future income streams. Ghana has entered into three such RBL deals, totaling more than $5 billion, in the last two decades; all three involve Chinese state-owned enterprises as lenders.
Topic:
Natural Resources, Infrastructure, Resource-Backed Loans, and Revenue Management
Political Geography:
Africa and Ghana

4. NRGI Impact: Guinean Communities Benefit from Mining Revenues and Civil Society Capacity Building

Author:
Natural Resource Governance Institute
Publication Date:
10-2022
Content Type:
Policy Brief
Institution:
Natural Resource Governance Institute
Abstract:
Like many resource-rich low-income countries, Guinea faces challenges in leveraging its natural resource wealth for sustainable development. Despite being the world’s second largest bauxite producer and rich in iron ore, gold and diamonds, Guinea has so far delivered only limited benefits from mining to its citizens, more than half of whom live in poverty. Guinea introduced sector-wide reforms following democratization in 2010 and is successfully implementing the Extractive Industries Transparency Initiative (EITI). However, social unrest, political instability, and the impacts of the Ebola crisis and coronavirus pandemic have slowed the country’s progress toward ensuring that mining income helps improve citizens’ quality of life.
Topic:
Civil Society, Natural Resources, Mining, Revenue Management, and Revenue Sharing
Political Geography:
Africa and Guinea

5. Measuring Extractives Dependency: Why it Matters and New Approaches

Author:
William Davis
Publication Date:
12-2022
Content Type:
Policy Brief
Institution:
Natural Resource Governance Institute
Abstract:
When countries depend too heavily on extractive industries (extraction of nonrenewable natural resources) it can pose problems for their economies. These include: The volatility of natural resource commodity prices, which can cause shocks that are difficult for the country to manage The exhaustibility of natural resources and the challenges of replacing them as a source of income when they run out The political economy of governments relying on natural resources, which seems to make governments less effective (e.g., if they rely on resource wealth to fund themselves rather than developing other sectors of the economy) To address resource dependency, we need to be able to measure it. With this in mind, NRGI has produced a new dataset that builds on existing literature to provide a broad range of indicators of dependency on the extractive industries. This dataset is primarily for internal use by NRGI colleagues, but is also freely available to interested researchers. The aim of this dataset is to support a more multidimensional approach to understanding resource dependency, its causes and consequences. The related briefing explains the rationale behind the dataset and its various indicators, and some includes some initial insights based on analysis of the data.
Topic:
Natural Resources, Tax Systems, Data, Revenue Management, and Dependency
Political Geography:
Global Focus

6. The Impact of Carbon Taxation and Revenue Redistribution on Poverty and Inequality

Author:
Daniele Malerba, Xiangjie Chen, Kuishang Feng, Klaus Hubacek, and Yannick Oswald
Publication Date:
01-2022
Content Type:
Policy Brief
Institution:
German Institute of Development and Sustainability (IDOS)
Abstract:
The global policy debate on just transitions is concerned with how to achieve a socially just and acceptable transition toward a climate-neutral and climate-resilient global economy. At the core of this debate is the assumption that efforts to combat environmental threats will not succeed unless combined with measures to reduce poverty and inequality. Our research explores the potential of carbon fiscal reforms, combining a carbon tax of levels deemed appropriate to achieve climate targets and the transfer of the revenues raised to vulnerable households. The current energy and cost-of-living crisis shows the importance of protecting the poorest and most vulnerable households from price increases. It also shows the difficulty of achieving short- and long-term policy priorities. Despite the current spikes in energy prices, carbon fiscal reforms can achieve both social and environmental goals through simultaneously decreasing emissions and reducing poverty and inequality. They should act as an effective enabler of just transitions. Carbon fiscal reform can avoid some environmental impacts by incentivising reductions in emissions. Carbon pricing has been increasingly advocated and is now at the centre of policy debates, including the UNFCCC Conference of the Parties (COP) and the recent German presidency of the world’s leading industrial nations (G7). But carbon fiscal reforms can also be used to raise revenue from carbon pricing instruments to offset the negative effects of higher prices on poorer households as well as further reaching distributional targets and poverty alleviation. Climate targets are negotiated every year, including at COP, hence it is critical to re-evaluate and improve estimates of the distributional impacts of climate policies such as carbon pricing. Public acceptability of climate policies is key to their implementation, but it depends to a large extent on the perceived fairness of such policies. Recycling revenues from carbon taxes directly back to vulnerable households is likely to gain the approval of a large number of people, especially in low-income countries where the high proportion of the population involved in the informal economy means that lowering income tax does not benefit the poorest and most vulnerable sections of society. But the targeting of these direct transfers needs careful consideration. Here, we assess the impact on poverty and inequality of a global carbon tax and national redistribution of revenues to vulnerable households. We look at different options for such redistribution, including a lump sum payment, the use of current social assistance programmes, and an expansion of social assistance following COVID-19. We find that a carbon tax of US$50/tCO2 without revenue redistribution could increase global extreme poverty, but the redistribution of revenue from such a carbon tax could substantially reduce poverty by between 16% and 27% (110 to 190 million people), and reduce inequality (the average Gini coefficient would decline by between 4% and 8%), depending on the scenario. This shows that the way in which revenue from a carbon tax is redistributed greatly affects its impact, underlining the importance of policy design and targeting mechanisms. The recycling of revenues should also take into account the specific political economy of a country and consider international transfers. These findings provide policy makers with a strong basis for informing discussions, starting off with those at COP27, in which ambitious climate targets and just transition should both remain central goals in the context of the ongoing international energy crisis.
Topic:
Climate Change, Poverty, Inequality, Economy, Carbon Tax, Carbon Emissions, and Revenue Management
Political Geography:
Global Focus

7. Tax Disobedience in Côte d’Ivoire

Author:
Joseph Kone
Publication Date:
06-2021
Content Type:
Policy Brief
Institution:
Afrobarometer
Abstract:
Since the end of its civil war in 2011 and the installation of President Alassane Dramane Ouattara, Côte d’Ivoire has seen one of the highest rates of economic growth in Africa, sometimes referred to as a new “Ivoirian miracle” (Dionne & Bamba, 2017). As the economy has grown and the state has rebuilt capacity, tax revenues have increased steadily, growing by 37% between 2013 and 2017. In many African states, «import and export taxes constitute the backbone of tax regimes. Revenues are supplemented by indirect taxes, in the form of excise and sales taxes» (D’Arcy, 2011). In the case of Côte d’Ivoire, the government relies heavily on taxes on the export of cocoa and other agricultural products, in addition to taxes on industrial and commercial profits, income, telecommunications, petroleum products, imports, as well as a value-added tax (Ministère du Budget et du Portefeuille de l’Etat, 2020). Even in states with high levels of coercive capacity, citizens’ willingness to pay taxes is a significant determinant of revenues collected. This willingness becomes even more important in contexts of relatively low state capacity, such as has existed in post-conflict Côte d’Ivoire. In fact, a substantial – and growing – proportion of Ivoirians question the state’s right to collect taxes, a fact that could present a significant challenge to the government’s ability to collect revenues in order to rebuild essential state services and avoid excessive debt. This paper focuses on a particular form of tax non-compliance: tax disobedience, or individuals’ refusal to pay taxes and fees as a form of protest. Specifically, it examines several individual-level factors that might be associated with tax disobedience, including lack of a cash income, assessments of public services and elected representatives, accessibility of information, and effective connections with the Ivoirian nation. Our analyses of data from the Afrobarometer Round 7 survey (2017) suggest that some of the conventional wisdom on tax compliance is not supported in the case of tax disobedience in Côte d’Ivoire. While we find, as expected, that individuals who think state performance is improving in delivering key services are less likely to express a willingness to engage in tax disobedience, we find no such link with lived poverty; poorer Ivoirians are no more or less likely than their wealthier counterparts to endorse tax disobedience. Surprisingly, assessments of elected representatives and of corruption in the tax system are not significantly associated with tax disobedience, either. Perceived access to government information and identification with the Ivoirian nation do show associations with tax disobedience, but these links run counter to our expectations: Citizens who think they could access information held by public bodies are significantly more likely to say they engaged or would engage in tax disobedience, as are people who identify more closely with the nation than with their ethnic group. These analyses suggest the need for more research on a crucial question facing African states: Who pays taxes, and who doesn’t?
Topic:
Civil Society, Tax Systems, Revenue Management, and Tax Evasion
Political Geography:
Africa and Côte d'Ivoire

8. Opportunities and Challenges for Senegal in Oil and Gas Production: Lessons Learned from Other New Producers

Author:
William Davis and David Mihalyi
Publication Date:
05-2021
Content Type:
Policy Brief
Institution:
Natural Resource Governance Institute
Abstract:
Senegal, with significant reserves of natural gas, appears to be on the verge of becoming a significant hydrocarbon producer. This resource wealth presents the country with opportunities, but also risks. NRGI's new paper reviews the recent experience of other “new producers”, mainly in Africa, and attempts to draw lessons for Senegal on how to make the most of its hydrocarbon resources, taking into account both the changing context due to the coronavirus pandemic and the ongoing transition to renewable energy. Countries face a number of challenges in managing revenues from natural resources. This brief focuses on some of the challenges affecting countries as they prepare for production from oil and gas finds. First, international experience has shown that a number of countries have succumbed to the “presource curse, where overoptimism regarding the future benefits from the sector undermines government policies and ultimately leads to disappointing outcomes. As such, it is important to manage public expectations around what the finds will mean for the economy, and resist pressure to embark on unsustainable borrowing, public spending or investment plans based on overly-optimistic forecasts of the revenues that will flow from these resources. There are also challenges around putting in place an appropriate governance framework to prevent revenues from being lost to tax avoidance/evasion and mismanagement. In the context of the coronavirus pandemic, these challenges are particularly difficult, as countries grapple with fears of losing out on investment, and weigh whether to use resource wealth to finance temporary spending needs to stabilize the economy.
Topic:
Oil, Natural Resources, Gas, Renewable Energy, COVID-19, and Revenue Management
Political Geography:
Senegal and Africa

9. NRGI Impact: Demystifying Ghana’s Agyapa Royalties Deal

Author:
Natural Resource Governance Institute
Publication Date:
06-2021
Content Type:
Policy Brief
Institution:
Natural Resource Governance Institute
Abstract:
As the coronavirus pandemic struck Ghana in March 2020, its government introduced sweeping social and health measures, but with a hefty price tag: the IMF subsequently projected the government deficit to reach 9.5 percent of GDP. Ghana’s gold wealth was seen as a possible solution. The government proposed creation of a new company, Agyapa Royalties Ltd. The Agyapa plan involves assigning most gold mining royalties from Ghana’s industrial gold production to an offshore company and selling 49 percent of the shares for approximately $500 million. When information on the Agyapa IPO surfaced in social media in early August 2020, NRGI convened discussions with a group of key Ghanaian civil society organizations (CSOs). This group coalesced into a 25-member “Alliance of CSOs Working on Extractives, Anticorruption and Good Governance.” Analysis by NRGI and the CSOs exposed important governance vulnerabilities in the deal, including risk of undervaluation; loss of control over gold sector governance; loss of ability to repay existing loans; limited consultation and questions on transparency and accountability provisions; and corruption risks. NRGI helped the alliance to broaden its advocacy agenda beyond just seeking transparency around the deal terms and politically exposed persons involved. NRGI suggested solutions to ensure an adequate valuation of Ghana’s gold and to protect the sovereign rights of the government to adjust fiscal terms and control decisions made by Agyapa Royalties. The alliance held several press conferences which led Ghana’s top media to actively report on the deal. NRGI connected with key international media outlets, with the Financial Times and the Economist citing NRGI analysts and Ghanaian members of the alliance. Following two months of coordinated pressure from civil society, a special prosecutor’s report outlined potential corruption risks and infringement of procurement legislation, validating some of the risks raised by civil society. The future of the deal is still pending, but civil society successfully placed the issue at the top of the national agenda.
Topic:
Civil Society, Media, Journalism, COVID-19, and Revenue Management
Political Geography:
Africa and Ghana

10. Surplus or Shortage? The Challenge of Setting a Domestic Supply Obligation for Tanzania’s Offshore Gas BRIEFING20 JULY 2021

Author:
David Manley and Thomas Scurfield
Publication Date:
07-2021
Content Type:
Policy Brief
Institution:
Natural Resource Governance Institute
Abstract:
One of the priorities of Tanzania’s new president is negotiating a way forward for the country’s long-planned offshore gas project. A key issue in this negotiation is the amount of gas that the government will take in the form of a domestic supply obligation (DSO). To increase the country’s energy supply, it wants a larger DSO than the currently agreed amount of around 8.5 percent of reserves. This report analyzes the implications of a larger DSO for meeting Tanzania’s energy needs, for the offshore project and the government revenues it can generate. It builds on previous NRGI analyses by the authors.
Topic:
Energy Policy, Natural Resources, Gas, Regulation, Legislation, Tax Systems, Commodities, and Revenue Management
Political Geography:
Africa and Tanzania