Government Revenues from the Extractive Sector in Sub-Saharan Africa –
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Government Revenues from the Extractive Sector in Sub-Saharan Africa – A Potential for Funding the United Nations Millennium Development Goals? Report M. Stürmer and P. Buchholz Hannover, June 2009 Federal Institute for Geosciences and Natural Resources Contents Acknowledgments ......................................................................................................................... 5 Figures and Tables........................................................................................................................ 6 Acronyms and Abbreviations......................................................................................................... 9 Abstract ......................................................................................................................................... 9 1. Introduction.......................................................................................................................... 12 2. Generating government revenues from the extractive sector.............................................. 16 2.1 What defines the geological potential of a country?.......................................................... 16 2.2 Get the production going: Investment conditions and infrastructure ................................. 18 2.3 Mineral taxation ................................................................................................................. 19 2.4 World market prices .......................................................................................................... 21 3. Methodology and baseline scenarios .................................................................................. 22 3.1 Methodology and data....................................................................................................... 23 3.2 Baseline scenarios ............................................................................................................ 27 4. Namibia ............................................................................................................................... 29 4.1 Overview ........................................................................................................................... 29 4.2 Geological potential........................................................................................................... 29 4.3 Namibia’s extractive sector and future projects................................................................. 31 4.4 Mining taxation and current government revenues from the extractive sector.................. 34 4.5 Scenarios for potential government revenues................................................................... 35 4.6 Financial gap in achieving the Millennium Development Goals ........................................ 37 4.7 Summary ........................................................................................................................... 38 5. Ghana.................................................................................................................................. 39 5.1 Overview ........................................................................................................................... 39 5.2 Geological potential........................................................................................................... 39 5.3 Ghana’s extractive sector and future production............................................................... 41 5.4 Mining taxation and current government revenues from the extractive sector.................. 43 5.5 Scenarios for potential government revenues................................................................... 45 5.6 Financial gap in achieving the Millennium Development Goals ........................................ 47 5.7 Summary ........................................................................................................................... 47 6. Mozambique........................................................................................................................ 49 6.1 Overview ........................................................................................................................... 49 6.2 Geological potential........................................................................................................... 49 6.3 Mozambique’s extractive sector and future projects ......................................................... 52 3 6.4 Mining taxation and current government revenues from the extractive sector.................. 54 6.5 Scenarios for potential government revenues................................................................... 56 6.6 Financial gap in achieving the Millennium Development Goals ........................................ 57 6.7 Summary ........................................................................................................................... 58 7. Zambia................................................................................................................................. 60 7.1 Overview ........................................................................................................................... 60 7.2 Geological potential........................................................................................................... 60 7.3 Zambia’s extractive sector and future production.............................................................. 62 7.4 Mining taxation and current government revenues from the extractive sector.................. 65 7.5 Scenarios for future government revenues ....................................................................... 67 7.6 Financial gap for achieving the Millennium Development Goals....................................... 69 7.7 Summary ........................................................................................................................... 70 8. Policy options ...................................................................................................................... 71 9. Summary and conclusions .................................................................................................. 73 Bibliography................................................................................................................................. 76 Appendix 1 – Mineral commodity prices, transportation costs .................................................... 87 Appendix 2 – Basic data for Namibia .......................................................................................... 91 Appendix 3 – Basic data for Ghana............................................................................................. 95 Appendix 4 – Basic data for Mozambique................................................................................... 99 Appendix 5 – Basic data for Zambia ......................................................................................... 103 4 Acknowledgments This report has benefited greatly from many people who have helped with queries, provided data, and shared their knowledge and experience with us. We are very grateful to Rainer Ellmies, Dr. Roland Bäumle, Dr. Harald Elsner, Dr. Wolfgang Hirdes for their thoughtful comments on the case studies. We would like to thank Britta Pfeiffer, Gisa Roesen, Dr. Gudrun Franken, Anna Stetter, and Dr. Ulrich Ranke who have supported the report through thoughtful comments, data, and by making possible visits to the World Bank, the International Monetary Fund (IMF), the United Nations Development Programme (UNDP) and to Columbia University through the technical cooperation project “Policy Advice Mineral and Energy Resources”. Furthermore, we are very grateful to Craig Andrews, Clive Armstrong, and Dr. Michael Hofmann at the World Bank, to Peter Allum, Jan Mikkelsen, Dr. Thomas Helbling, Diego Mesa Puyo, Dr. Klaus Stein, Christoph Denk, and Charles McPherson at the International Monetary Fund , Gonzalo Pizarro, Shantanu Mukherjee, Casper Sonesson, John Karlsrud, Giske Charlotte at the United Nations Development Programme, and Prof. Macartan Humphreys at Columbia University, for their thoughtful comments on preliminary results and policy options. Special thanks go to Wolfgang Neumann, Dr. Klaus Brinkmann, Dr. Dieter Huy, Bernard Wehenpohl, Dr. Sandro Schmidt, Hans Georg Babies, and Dr. Jürgen Vasters for their great support on collecting data and their outstanding comments. We are very grateful to Doris Homberg for providing data and proof-reading, and to Elke Westphale for providing country information, proof reading and excellent copy editing. Finally, we would like to thank Dr. Markus Wagner, who initiated this study, and Prof. Dr. Dr. Friedrich-Wilhelm Wellmer who both provided thoughtful advice and shared their experience with us. 5 Figures and Tables Figures Figure 1: Export revenues from the extractive sector in Sub-Saharan Africa (38 countries) (blue) and world mineral (yellow) and energy commodity prices (red). (1997- 2006; in real 2000 US-$ prices) (Sources: World Bank, 2008; WTO, 2008) ...............................12 Figure 2: The flow of resources to reserves over time. (Source: BGR)....................................... 18 Figure 3: Market imbalances and price cycles in the international copper market from 1960 to 2007. (Arithmetic mean of average monthly LME refined copper prices in 2007 US-$) (Sources: BGR database; International Copper Study Group) ......................................... 22 Figure 4: Scenarios for potential government