World Bank: Africa captures only 40% of natural resource revenue

Africa is home to a wealth of natural resources that have the potential to drive economic growth and development across the continent. However, efficient and transparent management of these resources is crucial to ensure that they benefit the people of Africa. CNBC Africa recently spoke with James Cust, the World Bank Senior Economist for Eastern and Southern Africa, about the launch of the latest regional report titled 'Africa’s Resource Future'. The report delves into how African countries can optimize their resource utilization for a sustainable future, especially in light of the increasing demand for minerals essential for the green transition. One of the key issues highlighted in the report is the challenge of uncertainty faced by mining CEOs when making investment decisions. This uncertainty often stems from frequent changes in tax rates and terms in some countries, which can deter much-needed investments. The report suggests that countries can increase tax revenue without scaring away investors by investing in tax administration to ensure that all due taxes are collected. Additionally, there is an opportunity to reduce the number of tax incentives offered to attract investors, fostering a more stable investment environment. Cust emphasized the importance of balancing the need to reduce political risks in African countries with the necessity of minimizing tax incentives. While it is essential to mitigate perceived risks, offering excessive incentives may not always be the most significant factor influencing investment decisions. With the rising demand for Africa's metals and minerals, governments can leverage this opportunity to negotiate a higher taxation rate and enhance revenue collection. Transparency in tax administration was underscored as a critical component in aligning incentives between companies and governments to ensure accurate tax collection. Cust recommended countries to participate in initiatives such as the Extractive Industries Transparency Initiative and improve tax auditing practices to effectively tax mining activities. Moreover, he highlighted the importance of enhancing the capacity of tax authorities to monitor and tax multinational corporations operating within their borders. In addition to tax collection, the report emphasizes the prudent management of resource revenues by governments. Cust noted that investing in human capital through education and infrastructure development is crucial for ensuring sustainable growth beyond reliance on natural resources. The report suggests that governments should consider creating sovereign wealth funds to transparently manage resource revenues, while also maintaining a balanced budget and sustainable debt management. A regional approach to resource management was proposed as a strategy to maximize the value of Africa's metals and minerals. By collaborating at a regional and continental level, African countries can enhance their capacity to add value to resources before export, leading to greater economic benefits. While regional cooperation presents challenges due to national interests and competitiveness, recent positive developments, such as the signing of memorandums of understanding between countries like the DRC, Zambia, and the United States for cooperative mineral value addition, indicate a growing willingness to work together. The African continent stands at a pivotal moment where strategic resource management can fuel economic growth and enhance the well-being of its people. With the World Bank's insightful recommendations and the commitment of African governments to adopt transparent and efficient resource management practices, Africa's resource future holds immense promise for sustainable development and prosperity.