AFRICAN GOVERNANCE REPORT V NATURAL RESOURCE GOVERNANCE AND DOMESTIC REVENUE MOBILIZATION FOR STRUCTURAL TRANSFORMATION AFRICAN GOVERNANCE REPORT V 1 To order copies of African Governance Report V: Natural Resource Governance and Domestic Revenue Mobilization for Structural Transformation by the Economic Commission for Africa, please contact: Publications Economic Commission for Africa P.O. Box 3001 Addis Ababa, Ethiopia Tel: +251 11 544-9900 Fax: +251 11 551-4416 E-mail: [email protected] Web: www.uneca.org © 2018 Economic Commission for Africa Addis Ababa, Ethiopia All rights reserved First printing May 2018 Material in this publication may be freely quoted or reprinted. Acknowledgement is requested, together with a copy of the publication. Design by DBCD - Dilucidar Blossom Creative Design. Printed in Addis Ababa, Ethiopia by the ECA Printing and Publishing Unit. ISO 14001:2004 certified. 2 Contents Acronyms ................................................................................................................................................................ 7 Foreword ................................................................................................................................................................. 8 Acknowledgment ....................................................................................................................................... 9 Executive summary ............................................................................................................................. 10 1 A proposed analytical framework and actual development outcomes ......................................................................................... 17 1.1 Analytical Framework ............................................................................................................................................... 20 1.2 Development outcomes ............................................................................................................................................ 22 1.2.1 Concentration, control and diversity of natural resources .......................................................................... 23 1.2.2 Economic impacts ................................................................................................................................................ 23 1.2.3 Poverty and social development impacts ......................................................................................................... 31 1.2.4 Some political and institutional impacts of natural resource abundance in Africa .................................... 33 Conclusions ........................................................................................................................................................................ 35 2 Institutional and regulatory frameworks ........................................................ 36 2.1 Current frameworks struggle to promote good natural resource governance ............................................. 37 2.1.1 Institutional frameworks .................................................................................................................................... 37 2.1.2 Government ministries and agencies ............................................................................................................... 40 2.1.3 Artisanal and small-scale mining ....................................................................................................................... 45 2.2 Institutions for revenue collection, management and distribution .................................................................. 46 2.2.1 Stabilization funds and sovereign wealth funds .............................................................................................. 47 2.2.2 Subnational revenue allocation .......................................................................................................................... 47 2.2.3 Managing negative impacts of resource exploitation ..................................................................................... 48 2.2.4 Governance of land and forest resources ........................................................................................................ 48 2.3 Natural resource initiatives in governance ............................................................................................................ 50 2.3.1 Africa Forest Law Enforcement and Governance ........................................................................................... 50 2.3.2 The Kimberley Process Certification Scheme ................................................................................................. 50 2.3.3 The Dodd-Frank Act ............................................................................................................................................ 51 2.3.4 The Natural Resources Charter ......................................................................................................................... 52 2.3.5 The Extractive Industries Transparency Initiative........................................................................................... 52 2.3.6 The Africa Mining Vision ..................................................................................................................................... 53 Conclusions ........................................................................................................................................................................... 55 3 Renewing resource-based development planning .............................. 56 3.1 Development models since independence ............................................................................................................. 58 3.2 Development plans: Concept and application ....................................................................................................... 60 3.3 Resource-based development planning .................................................................................................................. 61 3.4 Modelling natural resource value chains ................................................................................................................ 61 3.5 Diversification, links and structural transformation ............................................................................................ 67 3.6 Why governance matters for long-term sustainability ....................................................................................... 73 Conclusions ........................................................................................................................................................................... 74 Annex Provisions for natural resources along the value chain in 21 countries’ national development plans .............................................................................................................................................. 75 4 Mobilizing domestic revenue ............................................................................................... 76 4.1 Two types of domestic revenue—public and private ........................................................................................... 77 4.2 Factors impeding domestic revenue mobilization ............................................................................................... 80 4.2.1 Volatility in natural resource markets .............................................................................................................. 80 4.2.2 A country’s knowledge of its natural resource endowments ........................................................................ 82 4.2.3 Terms of access for producers and benefit sharing ........................................................................................ 82 4.2.4 Illicit financial flows and corruption .................................................................................................................. 85 4.2.5 Dominance of the informal economy—in jobs and some commodities, but not taxes .............................. 86 4.2.6 Quality of public institutions and accountability mechanisms ...................................................................... 89 4.3 Unshackling domestic revenue mobilization ........................................................................................................ 90 4.3.1 Optimizing capture and stabilizing revenue .................................................................................................... 90 4.3.2 Supporting and mainstreaming the informal natural resource sector ........................................................ 90 4.3.3 Leveraging domestic revenue and innovative financing instruments .......................................................... 92 4.3.4 Moving to a more proactive state ..................................................................................................................... 94 Conclusions .......................................................................................................................................................................... 95 5 An overview of natural resource governance experiences in eight African countries .................................................................. 96 5.1 Characteristics of the eight ....................................................................................................................................... 97 5.1.1 Political governance