Programme 1: Budget and Fiscal Policy – CABRI Annual Report 2015/16

For many African countries, the discovery of mineral resources has brought the hope of prosperity and the means to end decades of poverty and underdevelopment. In theory, public and private investment in the extractives sector is expected to provide large returns and benefits in the form of higher tax revenue, increased employment, improved infrastructure and trade, greater growth and wealth creation. However, despite Africa’s natural resource riches, the realisation of a stronger and more predictable revenue flow for economic development has been limited.

In 2015/16, CABRI initiated a new work stream on revenue management in the extractives sector, with the aim of strengthening budget and sector officials’ capacity to improve the transparency, forecasting and management of revenue from the extractives sector. In addition to managing revenue in the context of volatility and falling commodity prices, resource-rich countries need to put in place systems to assist them in ascertaining the exact extent of their resources, how long they will last and how this information helps them with development planning.

As a starting point, CABRI participated in a workshop organised by AFRITAC South on Strengthening Fiscal Frameworks and PFM for Managing Natural Resources Wealth. This provided us with an opportunity not only to form synergies with our technical partners but also to gain a clearer sense of the challenges that government officials face in managing their extractives sector.

CABRI commissioned two research papers. The first examines the linkages between the extractives sector and the rest of the economy, emphasising that successfully linking natural resource exploitation to the broader economy can enable a low-income economy to use natural resources to attain higher and sustained growth, catching up with middle-income peers and creating a more industrialised, diversified economy. The second examines the challenges and better ways of managing extractives revenue, particularly in the context of revenue volatility. The paper also covers issues such as fiscal rules, fiscal regimes, sovereign wealth funds and medium-term budgeting.

Both papers were designed to support and inform facilitated discussions at a CABRI policy dialogue on revenue management between ministries of finance and sector ministries. A training course is planned on financial modelling of revenues in the extractives sector, which will provide officials with the tools necessary to undertake rigorous financial analysis and improve the scrutiny of contractual terms offered by multinational companies.