Africa is richly endowed with natural resources. Mineral, oil and gas exploration and production constitute a key part of many African economies. The extractive industry is therefore the sector that engages in the extraction of minerals, oil, gas and other aggregates from the earth. The continent boasts significant reserves of bauxite, chromite, cobalt, industrial diamond, manganese, phosphate rock, platinum-group metals, soda ash, vermiculite and zirconium.
The extractive sector in Africa has the potential to generate a significant amount of much- needed tax revenues to finance the socio- economic development of resource rich countries on the continent. That said, the share of tax revenue from the sector remains below its potential. This is mainly attributable to weak fiscal regimes and public agencies governing the extractive sector; companies enjoying a wide range of unnecessary tax incentives; and an extensive use of unethical tax avoidance, transfer pricing and anonymous company ownership schemes by Multinational Corporations (MNCs).
According to the Panama Papers released in April 2016 at least 37 offshore companies, are connected to 44 of Africa’s 54 countries. The leaked files show these companies’ operations, which have gone on to be named in legal proceedings or criticised by national or international agencies. More than 1,400
companies in the files of the offshore law firm Mossack Fonseca have names that indicate mining or natural resource extraction interests – raising fresh concerns about how tax havens could have been used to exploit the natural wealth of the African continent. According to the African Union High
Level Panel on Illicit Financial Flows from Africa , the extractives sector is the biggest perpetrator of the theft of Africa’s financial resources through Illicit Financial Flows (IFFs). African countries lose an estimated US$50 billion revenue through IFFs each year .
To address these weaknesses, African governments have embraced several frameworks such as the Africa Mining Vision (AMV). The AMV is the continent’s overriding framework for mining sector governance. The AMV’s ultimate strategic goal is to use Africa’s mineral resources to promote broad-based socio-economic development of the continent. The principles espoused in the AMV are applicable in the oil and gas sectors as well. One of the pillars of the AMV is the Fiscal Regime and Revenue Management.
Key terms to know:
Africa Mining Vision (AMV)-The Africa Mining Vision was adopted by African Union Heads of State at the February 2009 AU summit following the October 2008 meeting of African Ministers responsible for Mineral Resources Development. It is Africa’s own response to tackling the paradox of great mineral wealth existing side-by-side with pervasive poverty. The AMV seeks to foster a “transparent, equitable and optimal exploitation of mineral resources to underpin broad-based sustainable growth and socio-economic development.” The AMV is thus an ambitious change-making process. The
pathways to the implementation of the AMV require an analysis of the change process that the AMV aims to unleash.
Country Mining Vision- This is an individual country’s blueprint based on the pillars of the AMV on how mining can contribute better to local development by making sure workers and communities see real benefits from large-scale industrial mining and that their environment is protected. Though they are country-specific, the CMVs’ design should be based on the Africa Mining Vision as the all-Africa template for making sure that these nations are able to reap a fair share of the benefits of mining, oil and gas to improve the quality of life of their populations by domesticating the AMV at the national level.
African Minerals Development Centre (AMDC)- The African Union (AU) Heads of State and Government established the African Minerals Development Centre (AMDC) to provide strategic technical and operational support for the Vision and its Action Plan. The mission of the Centre is to work with Member States and their national and regional organisations to promote the transformative role of mineral resources in the development
of the continent through increased economic and social linkages.
Extractive Industries Transparency Initiative (EITI)- this is a global standard to promote the open and accountable management of natural
resources. The standard requires information from the point of extraction, revenue to government and ultimately how it benefits citizens.
International Council for Minerals and Metals- Is an international organisation dedicated to improving the social and environmental performance
of the mining and metals industry.
Local Content- The value brought to the local, regional or national economy from an extraction project, this includes hiring local labour and procuring local goods and services from the host country.
Free Prior Informed Consent (FPIC)- This represents the highest standard possible for the involvement of communities in decision making about large extractive projects. This entitles the community to determine the outcome of decisions that affect them especially on the protection of their economic, social and cultural rights, the extractives activities to be undertaken, setting the terms and conditions of the economic, social and environmental impacts of all phases of the project and are given the opportunity to approve (or reject) projects prior to the commencement of operations.
Production Sharing Contract- This is an agreement between the government and a private oil company, whereby the company explores and produces the oil, while the government receives a proportion of the oil produced after costs have been paid.
Upstream- A component of the oil and gas industry that includes exploration, development, production and decommissioning/closing down.
Midstream- The component in the oil and gas industry that includes transportation and storage.
Downstream- The component in the oil and gas industry that includes manufacturing of the products through oil refining, gas processing and Petrochemical processes; this includes selling of the products to the market.