Revenue Sharing of Natural Resources in Africa : Reflections from a Review of International Practices

Abstract

The African continent is one of the
 world richest regions in oil, gas and minerals. Proven
 reserves have expanded and prospects improved recently
 making the continent an important player on the world stage.
 The share of natural resources in GDP is increasing rapidly.
 Exports of minerals and hydrocarbons account for more than a
 quarter of total exports in half of the sub-Saharan
 economies and the share of natural resources revenue (NRR)
 on total government revenue is expected to become dominant
 for an increasing number of countries. Wealth of natural
 resources offers opportunities but it also brings in
 challenges. Natural resources have generally been linked to
 a series of negative outcomes like economic decline,
 corruption and autocratic rule (McNeish, 2010). Oil and
 minerals reserves are often point source natural
 resources, being usually very spatially concentrated. Their
 discovery becomes almost inevitably a potential source of
 conflict between the governments, the people of the
 producing areas and those of the rest of the country (Fearon
 and Laitin, 2003). In other words, intergovernmental sharing
 is a big issue that needs a solution when natural resources
 are discovered and exploited. Full centralization of NNR is
 the exception rather than the rule, as we will observe in
 the paper. It is practiced for oil and gas by both
 autocratic regimes (such as Saudi Arabia and other Middle
 East countries), and fully fledged democratic systems, such
 as Norway and the UK. Full centralization does not imply,
 however, the absence of compensating mechanisms, or of
 indirect transfers in favor of the governments of the
 producing areas. In the UK, for example, Scotland receives
 no share of oil taxes, but is compensated with a larger
 share of block grants to local governments (the Barnett
 formula ). Norway rewards the local governments closer to
 the producing areas with generous infrastructure projects,
 such as tunnels and bridges linking very sparsely populated
 areas and islands. Autocratic countries may also use
 repression to quench the request for a share of NRR from
 their producing areas.