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A strong fiscal regime can address natural resource revenue volatility

By Betty Amamukirori

The discovery of oil, minerals and gas in countries such as Uganda and Tanzania comes with enormous benefits in terms of revenue which if not well managed can lead to what is termed as a "resource curse".

Findings by the International Monetary Fund (IMF) reveal that inspite of the benefits that come with these resources, endowed countries tend to grow more slowly and to have inferior development out comes than those without. Due to the volatile nature of international prices, dependence on revenue from natural resources tends to cause fiscal volatility and macroeconomic instability.

To avert this, a country rich in natural resources needs to have a strong fiscal regime that details how the government will gain money from the extraction of its resources and how the expenditure of this money will be handled.

Speaking at the Natural oil, gas and mineral mining training workshop for journalists at White Sands Hotel in Dara-es-salam, Thomas Scurfield, one of the facilitators from the Natural Resource Governance Institute (NRGI), said that to avert this resource curse, a country needs to have a strong fiscal regime on the governance and exploration of its natural resource.

He said that most companies have taken advantage of the loopholes in the fiscal regime to elude paying government what is due to it inform of taxes, royalties and bonuses.

 A fiscal regime is a set of laws, regulations and agreements which govern the economical benefits derived from natural resource exploration and production. It regulates transactions between the political entity and the legal entities involved.

Scurfield explained that a good fiscal regime must be able to clearly state how government can get money from a mining project, what is the timing of the revenue, how does government revenue change when profitability changes and who carries the risk.

He also noted that governments in the natural resource rich countries should taken note of both the written and unwritten rules and tilt them in its favour. For instance it could study the demand and supply chain of its product, and the risks and rewards involved.

On the written rules, it could look at the various contracts and agreements at its disposal to negotiate a better deal that can earn it a huge return from its extractive sector.

NRGI organised the 12 day training workshop for journalists from Ghana, Tanzania and Uganda, with the aim of equipping them with knowledge that can guide them on the extractive sector reporting.

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