Using Non-Renewable Resource Revenues for Sustainable Local Development
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United Nations Issue 6 October 2008 Using non-renewable resource revenues for sustainable local development This brief discusses the performance and impacts on the ground of activities financed by revenues from natural resources in selected countries of Africa and Latin America. It identifies problem trends and provides some ideas on how to progress towards a more efficient and equitable use of such revenues for sustainable development. The past several years have witnessed a sus- the importance of such resources in many tained increase in oil, gas and mineral prices. developing countries and their non-renewable For many countries that produce and export character, it is crucial to improve the under- such products, this upward trend in prices has standing of how such revenues are used at the generated substantial windfall revenues. Given local level and to what extent they contribute to sustainable development. This Brief Box 1 aims to shed light on these issues. Some International initiatives regarding Much of the research related to extractive transparency in natural resources activities industries has put a heavy emphasis on macro-economic impacts. But develop- While interest in the sound use of natural resource ment impacts of the use of oil and mineral revenues is longstanding, recent years have witnessed revenues at the local level remain largely a renewed interest by the international community. unknown. There are a number of reasons Various international multi-stakeholder initiatives have been launched since 2002, targeting more trans- for this. First, initiatives aimed at trans- parency by both companies and governments. These parency improvements promoted by inter- include: the creation of the Kimberley Process Certifi- national instruments such as the Extrac- cation Scheme, which imposes stringent requirements tive Industries Transparency Initiative on trade in so-called “conflict diamonds”; the Publish (EITI, see Box 1) are not prescriptive about What You Pay (PWYP) Campaign, an international cam- the use of revenues within signatory coun- paign led by a coalition of NGOs calling for the manda- A publication tries. Second, information is generally tory disclosure of tax, fee and royalty payments made of the Policy lacking about all the intermediate steps by companies to governments for the extraction of Integration and minerals; and the Extractive Industries Transparency between revenue flows to the government Analysis Branch Initiative (EITI). EITI supports improved governance in of the Division resource-rich countries through the verification and for Sustainable full publication of company payments and govern- This brief was written by David Le Blanc and Mónica Kjöllerström from the United Nations. ment revenues from oil, gas, and mining. The Initia- Development The brief makes ample use of material dis- tive works to build multi-stakeholder partnerships in cussed during the Expert Group Meeting on Department of developing countries in order to increase the account- “The use of non-renewable resource revenues ability of governments. Some twenty countries have for sustainable local development: Challenges Economic and and opportunities for developing countries” either committed to, or are now actively implement- Social Affairs organized by the Division for Sustainable ing EITI—in Africa, Asia, Europe, and South America. Development at the United Nations Head- quarters on September 21, 2007. budget and execution of projects on the ground. to trace back uses of specific revenues. In other Lastly, evaluations of the development impact of cases, the totality or a portion of the revenues such projects are not systematically undertaken. from oil or minerals is set aside in a special fund, such as in Norway or in Botswana. Still in many The use of natural resource revenues for countries, the law clearly spells out how a por- sustainable development at the local level: tion of the revenues from the exploitation of problem trends from a micro-level perspective natural resources should be allocated between Legal frameworks and institutional settings rel- sub-national levels. There is generally a distinc- evant to the allocation and use of the revenues tion made between the localities where produc- from oil and mineral resources differ markedly tion takes place and other localities, the former across countries. In some countries, revenues receiving higher transfers in order to take into collected through royalties and different taxes account the environmental and social conse- may be directly transferred to the State budget quences of the mining activities (see Box 2). and become indistinguishable from other rev- enue sources, in which case it is not possible In spite of these differences, a number of trends can be identified from the evaluation of the use of Box 2 Redistribution of income from oil and minerals to the local level: some examples Chad (oil) — Before the start of the is called “Canon Minero”. In the first chos de vigencia” (annual payments to exploitation of oil from the Doba field semester of 2007, transfers from the the government by mining and min- with the support of the World Bank, Canon Minero accounted for 84% of eral prospecting concerns) and royalty Chad established a legal framework for all transfers to sub-regional govern- charges imposed on mineral compa- the management of oil revenues (Law ments (municipalities, provinces, and nies on the basis of gross sales, estab- 001 of 1999 and subsequent amend- regions). The distribution between lished in 2004 and allocated with a ments and decrees). The law earmarked regions, provinces and districts is structure similar to that of the “Canon”. money for priority sectors and created defined in Law Nº 2756 (2001), and its Mali (gold mining) — Gold mining a joint government-civil society super- subsequent amendments. The latest currently represents more than 60% visory body (Collège de Contrôle et de amendment (Law Nº 28322, of 2004) of Mali’s exports, and has recently Surveillance des Ressources Pétrolières) establishes that, on the basis of popu- replaced cotton as Mali’s major export to ensure the transparent management lation and unsatisfied basic needs: sector. A Mining Code, composed of six of the country’s oil wealth. (i) 10% be allocated to the municipalities where the natural resource is being different laws and regulations, governs Five per cent of the revenues was to go extracted; the taxes and fees levied on mining to the oil-producing region, compris- (ii) 25% be divided among the local govern- companies. The distribution of mining ing four départements. The revenues ment authorities of the province where taxes to regional and municipal lev- should have been managed by the the natural resource is being extracted; els is governed by a separate law, No decentralized institutions envisioned (iii) 40% be divided among the local gov- 00-044 of 2000. According to this law: in the 1996 constitution. However, ernment authorities of the region (i) municipalities where production takes where the natural resource is being those institutions have not been put in place are to receive 60% of the local extracted; and place. Instead, a Provisional Commit- tax (patente) paid by mining firms, and tee for the Management of the reve- (iv) 25% go to the regional government, 80% of the fees and taxes collected for nues has been put in place, comprising of which 20% is for universities in the artisanal mining permits; region. representatives of the main Ministries (ii) cercles (the level of government above involved, as well as representatives Finally, it establishes that districts host- municipalities) are to receive 25% of from the local level. ing extractive activities should allocate the patente and 15% of the fees and 30% of Canon funds to investments that taxes collected for artisanal mining Peru (minerals) — The share of rev- permits; promote sustainable local development. enues from mineral resource-derived (iii) regions are to receive 15% of the pat- income tax allocated directly to local Other transfers benefiting sub-regional ente and 5% of the fees and taxes col- and regional governments in Peru governments in Peru include “dere- lected for artisanal mining permits. 2 Sustainable Development Innovation Briefs October 2008 Figure 1 oil and minerals revenues for local Oil revenue budget allocation to priority sectors in Chad, 2004-2007 development. Inconsistency between national 120,000 Operating expenses development plans and actual Ministry of Petroleum 100,000 investments is a general con- New technologies cern. Sometimes, investment Environment and Water 80,000 Social action plans for local development do Animal husbandry not exist. In Peru, planning institu- 60,000 Higher Education tions able to elaborate such plans Urban development were dismantled and have not been 40,000 Mines and Energy Million CFAF current Agriculture replaced. In other contexts, devel- 20,000 Health opment plans may be too general. Primary education In Nigeria, for instance, the Niger 0 Public works and transport 2004 2005 2006 2007 Delta Development Plan establishes adequate development goals, but Source: Maoundonodji (2007), on the basis of data published by the Collège de Contrôle et de Surveillance des is not an action plan, as it does not Ressources Pétrolières du Tchad. contain concrete targets or time- lines. This results in some of the are favoured by communities, but the projects investments undertaken being either not useful or financed so far are relatively large