5th Regional Dialogue on Contract Negotiations & Fiscal Regimes in Extractives Industries, Lusaka
Updated: May 18, 2020
By Jason R Braganza
24 September 2019
“Africa is a net exporter to the world”. This was the underlying theme during the 5th Regional Dialogue on Contract and Fiscal Regime negotiation in the Extractives Industries held between 17th and 20th September 2019. The 5th dialogue builds on the previous four that have been held since 2015 in Senegal, South Africa, Cameroon, and Kenya where the International Senior Lawyers Project (ISLP) partnered with the Africa Union Development Agency – NEPAD (AUDA-NEPAD) and the Common Market for Eastern and Southern Africa (COMESA) to bring together member states to strengthen their negotiation positions with investors.
The extractives sector in Africa is viewed by many as an integral component in delivering a successful and industrialized Africa as espoused in the Africa Union’s (AU) vision 2063. The transformative role the sector can play is wholly dependent on the ability of governments to negotiate better deals for the best developmental outcomes from the extractives sector. The 5th regional dialogue brought together a combination of Civil Society Organisations (CSOs), member states, regional bodies, and technocrats to discuss how best to complement and strengthen government positions during negotiations with investors; reviewing and revising laws, regulations, and policies; and increase participation of all stakeholders in the decisions on exploiting the extractives sector for sustainable development of the continent.
The extractive industries offer the potential to generate significant financial benefits and help countries fuel their economic growth and development through direct and indirect job creation, business opportunities, technologies, and knowledge transfer and income generation. Taking into account these opportunities lead ultimately to a better life for the citizens of those countries by a sustained poverty reduction and inclusive growth. Also, the coming into force of the African Continental Free Trade Area (AfCFTA) presents the continent to further develop its mining sector value chains. The AfCFTA is a significant step for the development of regional import and export markets for both raw and finished products from the mining sector and will significantly boost backward and forward sector industries. It is in this context the 2019 Dialogue looked to discuss the opportunities the AfCFTA presents for the mining sector in Africa.
In her opening remarks, Mrs. Estherine Lisinge-Fotabong – Director of Program Innovation and Planning, AUDA-NEPAD said: “To reach an agreement that is stable over time, the investor-state relationship must be perceived to be fair by the foreign investor and the host government, as well as local communities, broader civil society and the business community. A key to achieving the perception of fair negotiations is incorporating transparency into the process from the onset. While transparency is crucial, the fact remains that the definition of the fiscal and taxation are a key to concluding a win-win contract.”
When it comes to negotiating complex mining contracts, governments can often feel that the playing field is tilted in one direction, favoring investors. The 2013 Africa Progress Panel Report revealed that poorly negotiated contracts are partly responsible for countries not benefiting from their mineral wealth. The Report compared the selling price for five mining assets in the Democratic Republic of Congo with an independent assessment of their value and found the difference to be over $1 billion. Beyond contract negotiation, the 2015 High-Level Panel Report identified the extractives sector as being particularly vulnerable to illicit financial flows (IFFs) costing African countries millions of dollars in lost tax revenues. It is no wonder the urgency in sealing the loopholes in fiscal regimes and contracts to curtail the fiscal leakages to ensure revenues retained within the African continent.
During the meeting in Lusaka, ISLP Volunteer, Dr Zach Pouga said: “Africa has been tremendously blessed with an abundance of natural resources, however, lacks the expertise to exploit and manage these natural resources … if you are elected and entrusted to make laws to protect the interests of your people, then you need to make sure the laws benefit the citizens … listen and walk with your technocrats to maximize the benefits to the citizens”
As a precursor to the regional dialogue, AUDA-NEPAD, COMESA, and ISLP had the opportunity to hear from Zambian civil society organisations working in the extractives sector. This meeting was used as an opportunity to present CSO perspectives in relation to ensuring that the exploitation of the sector is done within the confines of the law and with the best interests of citizens in mind. Further, the CSOs called on the Regional Dialogue to “increase the capacity of civil society, MPs, negotiators to ensure stronger negotiations; and to use the revision of laws to hold governments to account as well as support efforts to ensure that citizens benefit from the sector.”
Echoing the point made by the CSOs, the 5th Dialogue worked with member states to understand how investors plan and strategize to ensure they maximize their return on investment (profit) and minimize as far as possible their liabilities (regulations and taxes). The Member states were taken through sessions that looked at tax avoidance strategies used by multinational companies, as well as how illicit financial flows are generated in the extractives sector and how they move out of Africa to tax havens. As part of strengthening the information and research capabilities of the negotiating teams, the regional dialogue emphasized the importance of rejecting certain contract provisions such as stabilization clauses and fiscal incentives. These were argued to be inconsequential to investment negotiations. Such elements discussed during the dialogue gave member states an in-depth insight into the mind-set of investors whose primary goal is maximizing return on investment and taking all that is on offer in the form of incentives.
COMESA Director Investment and Agriculture Investment & Private Sector Development, Mr Thierry Mutumbo Kalonji said: “Every contract has clauses that can be amended and that allows for amendments. These provisions allow for reviewing and renegotiations. We need human resources to renegotiate for amendments to these contracts. Government needs to invest in building skills and capacity of negotiators, it is time to build our human capacity.”
Achieving the continental’s ambitious vision 2063 needs the recognition of the role played by the extractives section in delivering towards Africa’s transformative agenda and generating domestic revenue mobilization. It is important therefore for member states to work towards reviewing existing contracts and treaties with partner countries as well as multinational companies, but also develop a strategy to renegotiate better and stronger terms that guarantee them increased benefits. Furthermore, this process needs to be accompanied by a systematic revision of laws, regulations, and policies that safeguard against fiscal leakages in the form of IFFs and profit shifting. ISLP’s Program Director for Tax, Mr Jason Rosario
Braganza said: “ISLP is ready and committed to working with member states as they embark on the process of strengthening their negotiating capacity as well as revising and improving their legal, policy, and regulatory frameworks to ensure maximum benefit is accrued to their citizens. Africa does play an important role in the global production value chain through its large deposits of mineral resources.”
By Jason R Braganza, Program Director – Tax, ISLP. For more information about the Dialogue and ISLP’s work on Tax write to firstname.lastname@example.org