Africa should eye tax hikes on resource firms-study

* Contract reviews unlikely to scare off investors-study

* Chinese presence is chance to improve returns

* African countries should widen tax base

By Mark John

DAKAR, May 24 (BestGrowthStock) – African states should consider
renegotiating unfavourable contracts with multinationals to
ensure they get a fair return on their natural resources, a
joint OECD/African Development Bank study urged on Monday.

The growing presence of companies from China and other
emerging countries on the continent also gives governments the
chance to reap higher rewards from mineral, energy and other
resources by putting them to competitive bidding, it said.

“Where multinational firms fail to abide by minimal
corporate governance standards in terms of tax contributions,
governments should consider renegotiating concessions,” the
report to the Bank’s annual meeting argued.

“African states are entitled to receive a fair deal for the
exploitation of their natural resources,” it concluded.

The proposal was one of several made in a joint paper by the
bank and the Paris-based Organisation for Economic Co-operation
and Development aimed at gradually weaning the continent off
foreign aid by boosting tax and other domestic revenues.

The lack of transparency surrounding many resource contracts
in Africa and the fact that many of its governments have little
experience in negotiating production agreements and tax regimes
mean their terms vary wildly.

The report said some African governments were often hesitant
to revisit unfavourable contracts and tax arrangements for fear
of scaring off investors, but said that was unlikely to happen.

“Multinational enterprises may threaten to leave but they
are unlikely to actually abandon the exploitation of mines
because of a reasonable rise in taxes or royalties,” it said.

TARGET THE RICH

To the alarm of some potential investors, several
mineral-rich countries have already made it clear they want to
see more revenues from their resource sectors.

Following a sector-wide review of contracts in its lucrative
mining sector, Democratic Republic of Congo has demanded changes
to U.S.-listed Freeport-McMoRan’s (FCX.N: ) agreement for its
Tenke Fungurume copper and cobalt mine.

Guinea’s current government argues Russian aluminium company
UC RUSAL (0486.HK: ) underpaid for its Friguia alumina refinery in
2006 and is seeking $860 million in what it says are unpaid
taxes, a claim RUSAL disputes.

Ghana, Africa’s second largest gold producer, has said it
wants to double mining royalties, and Sierra Leone hiked
royalties in the mining sector late in 2009.

For new contracts, the report called on African governments
to take advantage of the growing demand for their resources by
emerging economies to get the best deal possible.

“Increased interest in Africa’s minerals from Chinese
corporations and other new partners is an opportunity for
governments to reap the fiscal rewards of competitive bidding.
African states must use this opportunity to generate higher
public resources,” it said.

While urging governments to improve taxation of their
extractive industries, the report called on them to widen and
diversify the typically narrow tax bases across the continent.

While Equatorial Guinea was able in 2008 to collect $4,865
per capita in tax — largely in oil proceeds — others such as
Burundi, Congo, Ethiopia and Guinea-Bissau have an annual tax
take per head as low as $11, it calculated.

Options included targeting wealthier Africans with specific
levies such as urban property taxes, road tolls or luxury good
taxes, it argued, acknowledging many such moves would likely be
opposed by influential elites.

Stock Market Today

(Editing by Richard Valdmanis)

Africa should eye tax hikes on resource firms-study