WB Reports Tanzania Economic Growth was lower , warns Poverty reduction is Constant

According to the World Bank Group, Tanzania’s economy is estimated to have grown by 5.2 percent in 2018, a figure which is lower and in contrast to the government’s National Bureau of Statistics estimates of 7 percent but still more than the Sub-Saharan Africa average of 2.3 percent.

The Tanzania National Bureau of Statistics reports that real GDP growth was 7%, slightly higher than 6.8 percent in 2016, however, the Wold Bank reported, official demand side data including data related to consumption, investment and net trade suggest that growth softened in 2018. This is according to the WB’s latest Tanzania Economic Update report released in July, 2019 titled ‘’Tanzania Economic Update: Human Capital: The Real Wealth of Nations” 12th Edition
Using demand side data World Bank Staff estimate that real GDP growth from 2018 was 5.2 percent lower than the NBS estimate but still more than double the SSA average of 2.3%.

The softening of consumption growth was supported by Tanzania Revenue Authority (TRA) data showing lower consumption tax collection as well as tight controls on public consumption expenditures.
The report is quite critical of government’s investment and fiscal performance, whereby it stated that investment growth remains’ dampened as significant under execution of public development plans, lower levels of FDI inflows and improved but relatively low private sector credit growth.

The trade balance also deteriorated in 2018 with exports contracting by 3.9% in gross value and imports increasing by 7.8%
Mid fiscal year accounts for 2018/19 show a low deficit and significant shortfall in both spending and financing which together with high payment arears raise questions about budget credibility. Whereby, the deficit for the first half of the fiscal year was a low 0.7% of GPD against a budgeted 1.6%. The revenue shortfall relative to budget were even larger than spending shortfalls. Domestic revenues especially tax collections under performed by about 12% against mid-year targets and fiscal external financing under performed by more than 80%. As a result, the budget significantly was under executed for capital projects needed for growth and job creation.

Government arears to contractors and supplies to pension funds by utilities such as Tanzania National Electricity Supply Company (TANESCO) to their suppliers remain unsustainable high at an estimated 5.7% of GDP in mid-2018.
The WB also warned that although the level of public debt currently was sustainable, recent changes in its composition raised concerns about liquidity risks.

The external position was challenged by an expanding current account deficit and declining reserves. The exports had fallen partly due to lower cashew nut exports and imports increased because of capital goods imported to supply development projects. The current account deficit had to 5.2% of GDP for the 12 months ending January, 2019 up from 3.2 percent a year earlier.

Reforms to relieve the regulatory burdens on business was moving slowly. According to the WB government had introduced abruptly new laws affecting mining, public –private partnership and statistics that had raised private sector concerns about policy predictability.
High population growth was undermining the reduction of poverty. Despite efforts between 2007 and 2016 that had reduced the Country’s poverty rate from 34.4% to 26.8% the absolute number of poor people had remained at about 13 million due to high population growth.

Although the most recent poverty measures based on the Household Budget Survey of 2017/18 was still being processed, it seemed likely that the downward trend poverty rate continued but had become more gradual, the WB stated.
The WB report figures raise further controversy on the accuracy in generation of Tanzania’s statistical figures and throw a spanner into the ongoing debate among stakeholders on which statistics should be considered as credible for planning purposes.

The government maintains that its statistics are credible and should be quoted as official and in 2018 passed a law (The Statistics Act of 2018) to enforce this. The Act made it a criminal offence to invalidate, distort or discredit any official data or to collect and publish any statistics which contradicted statistics from the NBS.

However, this law faced criticism from different actors arguing that it gives undue monopoly to government in generating statistical figures and limits room for debate and criticism of official data which may have some errors or generation of alternative statistical data by independent private entities and organisations. Some amendments were made in June to relax on some of the stringent provisions but the Act still requires some kind approval from the NBS.
The report raises significant concerns and challenges on the state of the economy and progress of reforms to improve the business and investment environment.

The latest reported figures which contradicts some of government’s official statistics and economic progress perhaps should serve as a wakeup call to the government to reassess its figures and provide clarity.

Election Coordination Mechanisms: A comparative study of Tanzania, South Africa and Nigeria

Proper election coordination is a major factor in successful elections in a multiparty democracy. The findings and key message coming out of a short policy study and governance practice note by GEPC suggests that there is no universal approach to coordination between Electoral Management Bodies (EMBs) and Office of Registrar of Political Parties (ORPPs). Each country has developed some sort of coordination based on its existing political and legal dispensation.

This short policy study and governance practice note sought to undertake a comparative study of Tanzania and South Africa, Nigeria with a view of contributing towards electoral reforms and minimizing of electoral disputes.

However when ranked on the common standards and guidelines for electoral management and  regulation of political parties, Tanzania scores unfavorably on a number of major aspects; Finality of decisions of its EMB (the National Electoral Commission) and Office of Registrar of Political parties, whereby there decisions are final and cannot be challenged in court,

The appointment of Tanzania’s National Electoral Commission (NEC’s) commissioners is not subject to a parliamentary vetting process, NEC’s mandate is limited to Presidential elections and local elections organised and supervised by local government executives under the Minister responsible for local government. The EMB and Officer of Registrar of political parties’ report to the responsible Minister compared to its comparative Countries such as South Africa and Nigeria where these institutions are answerable to parliament.

Tanzania only ranks in equal measure with its comparative peers EMB and Office of the registrar of its political parties in the as Constitutional bodies and its organs headed by persons of high integrity at a level of a judge or retired judge.

The study therefore recommends that as Tanzania prepares for the next local and general elections, the country should practical measures to

  • Review of current election coordination mechanisms with view of minimizing overlaps and election disputes
  • Implement Court decisions current and previous in regards to election related matters such as independent candidates and role of local government executives in election management
  • Increase avenues for transparent and objective dispute resolution. These should be documented and formalised in law
  • Adopt and adapt best practices from the comparative countries on matters related to election management and coordination, including opportunities to legally challenge the finality of decisions by the election coordination mechanism

 

A table summary of salient features of EMB and ORPP structures, functioning and coordination and our ranking based on European Commission (EC) Common Standards & guidelines for Electoral Management and Political parties Regulations [1]

  1. No Issue Explanation Traffic Signal
    1 Constitutional protection of EMB and ORPP Strengthens independence, confidence and performance Green
    2 Presidential Appointment of EMB Commissioners and ORPP heads Bad practice, Creates mistrust and may encourage patrimony Red
    3 Existence of Nomination Panel or Committee  for EMB Commissioners and ORPP Strengthens political and public trust in the institutions Green
    4 EMB and ORPP Chaired by Judge or Justice of high court May strengthen political and public trust that the actions and decision of these institutions are just and fair, but fair outcome is not guaranteed Yellow
    5 Civil Society involvement in Nomination of EMB Commissioners and ORPP heads Widens participation, increases public trust and credibility of the institutions Green
    6 EMB and ORPP embed Roles within a single institution such as IEC in South Africa or INEC in Nigeria May encourage ambiguity, Best to separate but also depends on accountability structures and clarity of the roles Yellow
    7 EMB and ORPP heads accountable to Minister Bad practice, may encourage direct political interference and patrimony Red
    8 EMB and ORPP heads accountable to Public Service Commission May be subject to limitations of public service administrative codes of conduct and requirements Yellow
    9 EMB and ORPP accountable to Parliament Increases accountability and public  scrutiny Green
    10 EMB and ORPP direct participation in nominations and vetting of candidates Encourages the EMB and ORPP to ensure candidate standing for election meet the eligibility criterion and legal requirements Green
    11 EMB and ORPP direct engagement in development of Party and Membership list for political parties Bad practice, Infringes on right of Political parties to determine their candidates Red
    12 Restriction of EMB and ORPP electoral  organization and coordination mandates to Presidential and Parliamentary elections (Tanzania’s case) Bad practice , may encourage direct political influence, foments elections disputes Red
    13 EMB and ORPP enforcement of Separate Codes of conduct or ethics Good to separate political issues from electoral matters Green
    14 EMB and ORPP separate Management of Party subventions, Financing Largely dependent on accountability structures Yellow
    15 Existence of EMB and ORPP elaborate operational procedures and independent guiding  law Provides clarity in operational mandates Green
    16 Existence of other constitutional institutions to support EMB and ORPP in democracy-such as  in South Africa Strengthens independence, trust and performance Green
    17 Decisions of EMB and ORPP Final on electoral and political matters Bad practice, May defeat justice and Fairness Red
    18 Detailed regulations for EMB and ORPP dispute resolution Provides clarity in dispute resolution Green
    19 Existence of formalised PPLC  and other similar bodies  to work with EMB and ORPP Enhances collaboration and potential dispute resolution Green
    20 Existence of an Independent Electoral Court or Tribunal to adjudicate on matters relating to EMB and ORPP Strengthens performance And expedites justice Green

     Comparative thematic analysis of Tanzania, Kenya, South Africca and Nigeria’s EMB and ORPP institutional setup, functions and our ranking based on European Commission (EC) Common Standard & guidelines for Electoral Management & Political Parties Regulation Standards[2]

    Issue Country Analysis Traffic sign
     

     

    Legal Constitution

    		Tanzania EMB Constitutional body, ORPP enacted by law Green
    Kenya EMB  Constitutional Body, ORPP enacted by Green
    South Africa EMB and ORPP Constitutional bodies Green
    Nigeria EMB and ORPP Constitutional bodies Green
     

     

    Appointments

    		 Tanzania EMB and ORPP Commissioners and heads are presidential appointees, without nomination Red
    Kenya EMB and ORPP heads are presidential appointee , upon nomination Green
    South Africa EMB and ORPP Commissioners and heads are Presidential appointee, upon nomination Green
    Nigeria EMB and ORPP heads are Presidential appointees, upon nomination Green
     

     

    Leadership

    		 Tanzania EMB and ORPP headed by a Judge or Retired justice Green
    Kenya EMB and ORPP headed by  none Judges Red
    South Africa EMB and ORPP headed by a Judge Green
    Nigeria EMB and ORPP headed by a Judge Green
     

     

    Roles

    		 Tanzania EMB electoral mandated limited to Presidential and Parliamentary elections, Local elections organised by Minister Red
    Kenya EMB electoral mandate extended to organise all elections Green
    South Africa EMB mandated to organise all elections Green
    Nigeria EMB mandated to organise all elections Green
     

     

    Accountability

    		 Tanzania EMB reports to the Responsible Minister Red
    Kenya EMB reports to Parliament Green
    South Africa EMB reports to Parliament Green
    Nigeria EMB reports to parliament Green
     

    Jurisdiction

    		 Tanzania EMB organise elections partially in Zanzibar. Zanzibar President and House of Representative elections organised by Zanzibar Electoral Commission Yellow
    Kenya EMB has nationwide jurisdictive coverage Green
    South Africa EMB has nationwide jurisdictive coverage Green
    Nigeria EMB has nationwide jurisdictive coverage Green
     

    Dispute Resolution

    		 Tanzania EMB and ORPP decisions are final Red
    Kenya EMB and ORPP decisions challengeable in court Green
    South Africa EMB and ORPP decisions challengeable in court Green
    Nigeria EMB and ORPP decisions challengeable in court Green

    [1] We developed these common standards and traffic signals based on standard democratic and accountability principles, international conventions, international benchmarks and European Commission (EC) guidelines for Political Parties Regulation.

    [2] Ibid. The European Commission (EC) (Venice Commission) guidelines for Political Parties Regulation guideline provide an overview of issues regarding the development and adoption of legislation for political parties’ regulation in democracies.

    ** The full report of this study can also be downloaded from our reports and publications sections

 

One in four people in Africa pay bribes to access services, TI survey says

According to Transparency International (TI) survey report, more than 1 in 4 people in Africa who accessed public services, such as health care and education, paid a bribe in the previous year. This is equivalent to approximately 130 million people.

The tenth edition of Global Corruption Barometer (GCB) – Africa, released on African Anti-Corruption Day by Transparency International in partnership with Afrobarometer, reveals that more than half of all citizens surveyed in 35 African countries think corruption is getting worse in their country. Fifty-nine per cent of people think their government is doing badly at tackling corruption.

The largest and most detailed survey of citizens’ views on bribery and other forms of corruption in Africa, the survey asked 47,000 citizens in 35 countries about their perceptions of corruption and direct experiences of bribery.

The report also highlights that corruption disproportionately affects the most vulnerable, with the poorest paying bribes twice as often as the richest. Young people pay more bribes than those over 55 years old.

“Corruption is hindering Africa’s economic, political and social development. It is a major barrier to economic growth, good governance and basic freedoms, like freedom of speech or citizens’ right to hold governments to account,” said Patricia Moreira, Managing Director of Transparency International. “While governments have a long way to go in regaining citizens’ trust and reducing corruption, these things don’t exist in a vacuum. Foreign bribery and money laundering divert critical resources away from public services, and ordinary citizens suffer most.”

The police is considered the most corrupt institution, with 47 per cent of people believing that most or all police are corrupt. Many citizens also think government officials and parliamentarians are highly corrupt, at 39 per cent and 36 per cent respectively.

As in the previous edition of the GCB for Africa, the police consistently earn the highest bribery rate across the continent. This may be one of the reasons that two-thirds of those surveyed fear retaliation for reporting corruption. On a positive note, more than half of citizens believe that ordinary people can make a difference in the fight against corruption.

“To reduce the heavy burden of corruption on ordinary people, African states that have not done so should ratify and effectively implement the African Union Convention to Prevent and Combat Corruption,” said Paul Banoba, Regional Advisor for East Africa at Transparency International. “Africans believe they can make a difference. Governments must allow them the space to do so.”

Transparency International urges governments to put anti-corruption commitments into practice and to:

  • investigate, prosecute and sanction all reported cases of corruption in both the public and the private sector, with no exception;
  • develop minimum standards and guidelines for ethical procurement and build strong procurement practice throughout the continent with training, monitoring and research;
  • adopt open contracting practices, which make data and documentation clearer and easier to analyse and ensure transparency in hiring procedures;
  • create mechanisms to collect citizens’ complaints and strengthen whistleblower protection to ensure that citizens can report instances of corruption without fear of reprisal;
  • enable media and civil society to hold governments accountable;
  • support political party funding transparency;
  • allow cross border cooperation to combat corruption.

Authorities should also establish public registers that name the owners of shell companies and adopt and enforce laws that address stolen assets.

Additionally, business leaders and boards of companies, including multinational companies operating in Africa, should effectively and transparently implement the highest international anti-corruption and anti-money laundering standards.

The full report can be accessed via: https://www.transparency.org/gcb10/africa

 

 

A British tax haven, Jersey Island, is returning a Nigerian dictator’s $270 million to his country

As  Africans celebrate the Africa  Anti-Corruption day on 12th July 2019,  the good news for Nigeria in a longtime is that a famous British Overseas territory , Jersey Island, known for its secrecy jurisdiction, as a tax haven,  has announced to return billions of dollars stashed in its offshore banks by late Nigerian Leader, Sani Abacha as reported by Article below by Max de Haldevang, of Quartz online newsletter.

By Max de Haldevang, June 25, 2019

A trio of secretive British tax havens beloved of kleptocrats and money-launderers are facing unprecedented pressure to open their books.

Two influential backbench MPs, Labour’s Margaret Hodge and the Conservatives’ Andrew Mitchell, have been pushing an amendment that would force Jersey, Guernsey, and the Isle of Man to publish a public register revealing who actually owns the roughly 80,000 companies registered on them.

Anti-corruption activists allege that the three jurisdictions dotted around Britain’s coastline, known as the Crown Dependencies, are hotbeds for financial crime and tax evasion. They point to the family of Azerbaijan’s dictator Ilham Aliyev allegedly owning a $25 million house through an Isle of Man shell company, and the notorious wife of a jailed Azeri state banker holding a $28 million golf course through a Guernsey firm.

Last month, after a five-year court saga Jersey announced it was putting $268 million, which had been stashed in a Deutsche Bank account on the island by former Nigerian military dictator Sani Abacha, into an asset recovery fund that will eventually return the cash to Nigeria. The island’s solicitor general said the move showed “Jersey’s determination to deal with international financial crime more generally.”

The announcement was one of several actions taken by various actors seemingly in response to international scrutiny over the Crown Dependencies and other tax havens. The Abacha case dates back to US enforcement efforts under the Obama administration, but the Crown Dependencies only need look at Britain’s Caribbean tax havens—known as the Overseas Territories—to understand the threat posed by Hodge and Mitchell. Last year, the two former government ministers pushed through an amendment forcing the territories, which include the British Virgin Islands and Cayman Islands, to set up a public register by 2020.

Last week (June 19), all three Crown Dependencies promised of their own accord to set up corporate ownership registries. While transparency advocates say the islands aren’t moving as fast or comprehensively as they should, the move in itself is a win for Hodge and Mitchell. “This is [the Crown Dependencies] acting before Margaret Hodge attempted to do anything before Parliament,” says Ben Cowdock, a senior research officer at anti-corruption NGO Transparency International UK. “Rather than face some constant battle with the UK Parliament, they’ve decided to go of their own accord with this announcement.”

Banks have also stepped up their monitoring of accounts in the Crown Dependencies and other European tax havens. At the end of 2018, Lloyds Bank shuttered 8,000 accounts in Jersey, after their owners spent three years ignoring the bank’s questions about their identity, the Financial Times reported in June (paywall). HSBC, Barclays, and Royal Bank of Scotland have also tightened their questioning of customers on the island, according to the FT. Deutsche, which banked Abacha’s money, has warned (paywall) 1,000 of its customers that they may also lose their accounts.

 

How will the South African 2019 Proposed Financing Provisioning Regulations affect mining companies? *

As East African Countries grapple on how best to manage environmental payments for compensation and rehabilitation of decommissioned mining sites, the new legal regime in South Africa could be a development to watch as it provides some drastic measures that have sent shockwaves with in the mining fraternity as reported by Ensight Africa, Online tax bulletin.

By Edwin Berman, Ntsiki Adonis-Kgame and Zinzi Lawrence, Ensight Africa Online Tax Newsletter

In May 2019, the South African Proposed Regulations Pertaining to the Financial Provision for the Rehabilitation and Remediation of Environmental Damage caused by Reconnaissance, Prospecting, Exploration, Mining or Production Operations, 2019 (the “2019 Regulations”) were released for public comment. The 2019 Regulations are informed by industry consultation; however, they still fail to address some of the serious concerns raised by the mining industry and introduce new onerous provisions.

The first attempt at regulating financial provision for costs associated with the remediation and rehabilitation of impacts to the environment associated with mining activities, was through the Financial Provisioning Regulations, 2015 (the “2015 Regulations”). Following an outcry from the mining industry, the 2015 Regulations were amended on 26 October 2016. Since then, two iterations of the financial provision regulations (2017 and 2019) which sought to repeal the 2015 Regulations, have been published.

Some of the effects of the 2019 Regulations on mining companies are the following:

Applicants and holders

Applicants and holders of reconnaissance permits will be required to provide financial provision for rehabilitation. By definition, reconnaissance permits, as contemplated in the Mineral and Petroleum Resources Development Act, 2002, involve non-invasive work and therefore do not lead to environmental harm. Accordingly, there is no basis for requiring holders of reconnaissance permits to make financial provision.

Double provisioning

Regulation 7(3) provides that “funds set aside for financial provision must remain in place until a closure certificate is issued, unless a withdrawal as contemplated in regulation 11 is allowed”. Regulation 11 outlines the procedure for holders to follow when seeking to withdraw financial provision, and provides that the Minister of Minerals and Energy (“Minister”) must approve withdrawals with the concurrence of the Ministers of Human Settlements, Water and Sanitation and of Finance. The withdrawal of financial provision can only occur after the stringent requirements stipulated in regulation 11 are met and are only allowed for decommissioning and final closure and not for ongoing or concurrent rehabilitation.

Since the financial provision is not accessible to the holder for use during the life of the right, the holder has to effectively make double provision (the first being financial provision and the second being actual expenditure incurred for rehabilitation). The implications of regulation 7(3), read with regulation 11, is that there will be a rise in the cost of mining.

Auditing and specialist reviews

Regulation 12(2) prescribes that the determination, review and assessment of financial provision must be undertaken by a specialist. Regulation 13(1)(a) requires that the assessment undertaken by a specialist must be audited by an independent auditor, included in an environmental audit report and must be submitted for approval to the minister. This however places an extraordinarily administrative and cost burden on the industry, more so on junior mining companies.

Value-added tax

Another onerous provision introduced in the 2019 Regulations is the inclusion of value-added tax (“VAT”) in the financial provision calculation. Expanding money for rehabilitation is not a vatable supply as contemplated in the VAT Act, 1991. Inevitably, this will result in a further increased cost of mining in addition to the issues of duplicate funding/double provisioning and the burden of auditing discussed above.

Date of compliance

Holders of prospecting rights and mining rights or permits, who applied for the right or permit prior to 20 November 2015, will be required to comply with the new regulations no later than three months following the first financial year end of the holder post 19 February 2020. Given that the due date for submission of comments to the 2019 Regulations was 1 July 2019, the 2019 Regulations are most likely to be finalised later this year, giving holders insufficient time to comply with the 2019 Regulations. Current financial provision quantum calculations for holders would need to be revised in accordance with the new methodology and this would require existing holders to fund the increased financial provision. Practically, most mining companies will encounter difficulties with complying within the contemplated compliance date.

Penalties and offences

The 2019 Regulations have increased the number of offences tha are punishable, by a penalty of up to ZARR10-million, or up to 10 years imprisonment, or both a fine and imprisonment. The offences include inter alia, the failure to provide funds for annual rehabilitation from the operational budget and set aside funds for financial provision; the failure to provide funds using one of the agreed vehicles and failure to make reviews and decisions accessible to the public.

*This article first appeared in ENSAfrica ENsight Africa online tax bulletin

‘The Corruption Tree’, using innovative local ways to sensitize communities about corruption and local governance-Lessons from EU-KAS ‘Tungane Pamoja’ Project in Tanzania

 

This project demonstrated that community education about corruption should not be an expensive endeavour after all. While governments spend millions of shillings on experts to languish in lavish anti-corruption conferences and to present glossy papers about anti-corruption strategies,  this project’s approach showed  that a culture of corruption and impunity in local village governments can be fought by just having communities sitting under a tree to discuss about corruption in their communities and thereafter planting or adopting a tree to symbolise their eternal rejection of corruption and fleece of public resources by those entrusted to lead

United for Our Rights (also known in its Kiswahili name as Tungane pamoja kutetea haki) Project was anti-corruption and strengthening local governance program executed by the German political foundation, Konrad Adenauer Stiftung (KAS) in collaboration with the European Union (EU) in Tanzania and two local organisations Actions for Democracy and Local Governance and Civic Education Teachers Association (CETA). The project implementation started in February 2017 and completed in May, 2019.

The overall objective of this project was to contribute towards lowering corruptive behaviour of actors in Tanzania on the local level and to foster the cooperation between CSOs and local Authorities in advocating for transparency and accountable political systems.

The project was conceived on the basis of concern that corruption in Tanzania has been a nemesis affecting systems and the ordinary citizens and retarding national development[1].  The fight against corruption in Tanzania was at infant stage and has been largely state driven by government anti-corruption agencies such as the Prevention of Combating of Corruption Bureau (PCCB) and the police.

The population and civil society generally lack the understanding of the demand accountability from authorities with regards to use and allocation of public funds. Public sector corruption was reported to go beyond missing of tax payer funds as reported by the annual Controller and Auditor General (CAG) reports to weak institutions and corrupt civil servants fuelling corruption, inequality and exploitation of their citizens.

Local Authorities especially in rural areas were largely neglected by the central government in effective supervisory terms. The ineffective central government management facilitated corruption as those entrusted with management of public resources and well politically connected, espoused dominant power, by passed the established systems of governance and public administration, created parallel structures to siphon public resources. Bribery thrived, tendering processes were abused and public resources diverted towards private gain.

Local authorities showed lack of capacity, knowledge, resources and demonstrable measures to tackle corruption. Demonstrated commitment and resources were evidently lacking and where it existed, it was haphazard or truncated and ineffective.

CSOs had poor monitoring skills and mechanisms to track public revenues and expenditures, which exacerbated the situation. Systemic corrupt practices existed at different levels of government while CSOs and other non-state actors remained speechless, untrained and incapable of fulfilling their oversight watchdog roles

The project identified a specific objective of strengthening CSOs to lead meaningful dialogues with and between local communities and Local Government Authorities. The project targeted 25 CSOs in 7 regions, covering 40 districts and 85 local elected councilors and technocrats together with local communities in 1055 wards.

Over the two-year period over 800 Community dialogues were conducted in 800 wards reaching close to 500,000 people. The topics ranged from learning about the local government structure, its functions and corruption to the role of citizens in fighting corruption and building stronger local systems.  The citizens’ concerns ranged from lack of regular village meetings to scarcity of vital medicines and quality health services at the local level. Citizens expressed concerns over lack of accountability, transparency and local participation. Other concerns included interruption, influence peddling and corruption in livelihood systems such as local cashew nut auctions

In contrast to other project, ‘Tungane Pamoja’ adopted a unique approach in where by communities either adopted or planted a tree to symbolize their fight against corruption. In total over 2000 trees were planted. Thereafter communities would sit under the adopted tree or next to the planted tree to discuss about corruption in their village and how to deal with it. Corrupt officials were exposed and accountability demanded. Communities also identified priority areas such as education or health deficits which needed their support so as to develop their village.

Corruption was rife at the health centre. We chose to plant the tree in the health centres compound as a reminder to every citizen and staff that corruption was not welcome. Every day they will see it and no doubt change their behaviours.

 The project implementation and monitoring reports enumerated many results of successes but the following could be drawn for future learning.

First, onboarding of partnership with government and relevant government officials before the project starts is vital in successful implementation of accountability projects of this nature. So far, the onboarding the line Ministry for Regional administration and Local Government proved helpful in ensuring that the project was implemented seamlessly

Anti-corruption and accountability projects or interventions such as those implemented under United of our rights project seek to challenge and alter the existing power dynamics in favour of the ordinary citizens. This strategic shift in the axis of power can be uncomfortable in certain instances for corrupt local public officials who as duty bearers nourish on the weak local government accountability systems and ignorant citizens to divert public resources for private gain. In some instances, these corrupt officials will fight back and can frustrate citizens’ efforts. Citizens therefore need constant accompaniment and support to constantly push for accountability

The use of local structures, resources such as conducting meetings under trees and locally available spaces in local language can be helpful in transferring complex concepts such as accountability, corruption to ordinary citizens. The concept of planting and adopting a tree was revolutionary in a way as it helped the local citizens relate corruption with a common item that they see and use on a daily basis.

Communities are motivated and interested to discuss issues which affect their ordinary life situations and problems such as health and education. Linking these directly to corruption can be helpful in explaining the causal and effect relationship between lack of accountability, corruption, exploitation, inequality and poor social service delivery

The Governance and Economic Policy provided the technical support undertaking internal monitoring and results harvesting for this project. The results of this assessment showed and demonstrate that corruption in local governments and at village level can only be addressed when new innovative techniques and strategies directly targeting the ordinary citizens are used.

[1] KAS; Report on the proceedings of the project launch, 24th November, 2017, held at the KAS office, Makuti Hall

No fiddling with Civic Space-CSOs affirm at Paris EITI Meeting

We demand that an independent, external review be commissioned to analyse the EITI’s tools to assess civil society participation; and we demand that Myanmar receive “meaningful” rather than “satisfactory” progress during its validation

By Governance and economic analysis centre team, Paris

At the Extractive Industries Transparency Initiative (EITI) global conference which took place in Paris between 17th and 20th of June 2019, Civil Society Organizations (CSOs) warned governments accross the world and vowed that they will not accept anything less than an unequivocal guarantee that Civic space and participation in EITI governance processes will continue to be safe guarded and protected.

This followed what CSOs described as an encroachment on Civic space by selective interpretation and application of the EITI standard.

A collective statement issued by the global CSO extractive transparence movement coordinated by Publish What you Pay observed that Civic space is shrinking worldwide, including many EITI Countries. Civil society is carefully monitoring the situation and gravely concerned with what we see.

The EITI is a global standard for good governance for the oil, gas and mineral resources currently implemented in 52 Countries around the world.

In recent board decisions, the board has taken what CSO view as a double standard or non-balanced approach in interpreting the standard. We have seen some Countries punished for violating the CSO protocol while others are treated with ‘kid gloves’

The Standard requires that member states undergo regular validation on implementation of the EITI Standard after which implementing states are ranked as having achieved either satisfactory or made meaningful progress or suspended for failure to meet the standards. Under extreme conditions countries are delisted from the EITI. The status of the EITI in different implementing Countries can be viewed via:  https://eiti.org/

The Civil society protocol is one of the benchmarks required to be assessed during the EITI validation and implementing countries are required to demonstrate that the operational environment in the country is conducive for civil Society to freely operate and participate in the extractive sector governance.

To achieve accountable management of natural resource citizens must have access to relevant information about the sector is managed. EITI’s main historical purpose is to provide this transparency. Civil Society has been a driving force behind progress in the types of transparency and granularity of data provided by the EITI over the years, most recently with advocacy on contract transparency.

Transparency should be accompanied by meaningful participation. Participation is about the ability of people to have agency in natural resource governance decisions that directly affect them or their livelihoods.

How to interpret and enforce EITI requirements for civil society participation has been contentious and recurring over years. It has been debated in relation to a number of countries such as Equatorial Guinea, Ethiopia, Azerbaijan and Niger. In recent years both Azerbaijan and Niger have withdrawn from the EITI after facing suspension linked to Civic space concerns.

Several times have been made to clarify the interpretation and enforcement of civil society participation; notably with 2015 civil society protocol.

These documents make it clear that EITI is meant to assess the general political environment and that EITI requirements cover any civil society expressing views related to natural resources government (not just MSG-Members) along a spectrum of activities, expression, operation, association engagement and access to public decision making.

None the less, interpreting and enforcing EITI’s requirements regarding civic space remains contentious, more recently with the validation of Myanmar.

Against a backdrop of shrinking space globally, now is the time to review whether EITI’s mechanisms for assessing civic space are fit for purposes and serving the broader objective: Ensuring civil society’s ability to participate freely, independently and meaningfully in the national dialogue on natural resource governance.

According to data provided by the Civicus Monitor indicates that our of 50+ EITI implementing Countries 40 have seriously restricted Civic space, including 2 listed as closed. 13 repressed, 25 obstructed and a further 6 with narrowed Civic space and 5 as open.

Activist working on transparency in the extractive sector are among the most targeted globally. Attacks against activists working on transparency in the extractives include killings, torture and disappearances as well as criminalization of their activists. The business and human rights resource centre has identified attacks on human rights activists working on business related activities in approximately 36% of the 50+ EITI implementing Countries in the last three years.

Myanmar represents a test case for how the board assess requirement 1.3 and will be a bell weather for similar scenarios in Countries like the Dominican Republic. It is important to uphold EITI’s commitment to review the broader environment in which EITI operates and to assess whether the broader objective of Civil society protocol has been fulfilled, Ms Elisa Peter, Executive Director of Publish What You Pay Global CSO Coalition stated.

What Does this year’s budget have for you?  How Tanzania, Kenya and Uganda prepare and manage their budgets differently to minimise perpetual deficit

 

As East Africans continue to dissect and internalise what impacts this year’s national budgets will have on the economy and standards of ordinary citizens, the questions remain whether these budget targets can be achieved. But what are national budgets and how have these coveted statements and speeches resonated with citizens interests over time? The trend and results from previous budgets show mixed feelings and perhaps, it is time to reflect on how national budgets are made. 

By Moses Kulaba; Governance and economic analysis centre

What are national budgets?

A national budget is a statement of how government plans to raise and spend revenue or public money collected from various domestic and external sources. Domestically, the government largely raises revenues through taxation.

The legendary Economist and tax theorist Adam Smith stated that states as sovereign entities have the right to impose taxes and to spend these proceeds from taxation to meet the public financial needs of its citizens. 

The tradition of taxation is rooted in ancient empires which required that every able citizen makes a mandatory contribution to the state and in return the state provides protection and social services.

Taxes in ancient Egypt, Greece and Rome were charged to finance war but the idea of sales taxes, income taxes, property taxes, inheritance taxes, estate taxes, gift taxes are said to be a modern invention. The concepts of taxation that evolved and developed were transported to other empires and cultures where tax ideas took root. This pattern continues through today as nations are influenced by tax practices from other Countries

There is no art which one government sooner learns than that of draining money from the pockets of people-Adam Smith

In commonwealth traditions, proposed government collections and expenditures are articulated in a national budget statement and speech always presented before the state parliament or legislature on the budget day. In Tanzania, this is presented on every second Thursday of June of every year.

What are the key priority areas for this year’s national budgets?

The budgets from the three East African states appears to have been informed by the regional consensus on theme of promoting industrialisation. Driven to achieve this objectives governments have reshuffled its priorities towards agenda with Tanzania and Uganda pushing this through the five-year development plans while Kenya pushes its big four agenda.

Country

2018/19

2019/20

Tanzania
  1. Industrialisation
  2. Agriculture
  3. Social Services
  4. Infrastructure
  1. Industrialisation
  2. Infrastructure development and power generation
  3. Aviation sector

Kenya
  1. Infrastructure
  2. Education
  3. Information, Communication and Technology
  4. Poverty reduction and social protection
  5. Security for investment, growth & employment
  1. Education
  2. Energy, infrastructure, information, communication and Technology
  3. Public Administration
  4. Governance, justice, law and order
  5. National Security

Uganda
  1. Commercialisation of agriculture
  2. Industrialisation and productivity enhancement
  3. Financing private sector investment
  4. Minerals development
  1. Works and Infrastructure investment
  2. Debt repayment
  3. Security
  4. Education
  5. Mineral development

Who are the winners and losers?

Across the East African region, the major beneficiaries were the manufactures. The major beneficiaries in Tanzania are horticulturalists, manufacturers of packing materials and baby diapers. VAT has been exempted on imported refrigeration boxes used for horticultural farming while all imported horticultural products will be charged 35% instead of 25%.  Zanzibaris have a reason to celebrate as supply of electricity services from mainland Tanzania to Zanzibar will be zero rated. The tourist sector has also won big with reductions in taxes on some specific packages such as game hunting. While airline operators will have a sigh of relief airline tickets, flyers, staff uniforms and aircraft lubricants are VAT exempted.

Motorists and women will obviously take a brunt of the budget as the tax man has increased taxes on driving licence fees from Tsh 40,000 to Tsh 70,000 and registration card fees for all forms of motor cycles from Tsh 10,000 to Tsh20,000. The tax man has targeted women imposing 10% duty on locally produced synthetic hair whereas imported artificial hair will be charged at 25%. VAT on sanitary pads has been abolished.

In Kenya the manufactures are winners with a withholding VAT rate reduced from 6% to 2% and introduction of a refund formula which expedites VAT refunds and ensures a full refund of input tax credit rating to zero rated.  Agriculturalists have reason to celebrate with Ksh 1.0bln diversification and revitalisation of Miraa and Ksh 3.0bln for setting up the Coffee Cherry Revolving Fund, aimed at implementing prioritised reforms in the coffee subsector.  Digital employees have a reason to celebrate as they will enjoy an exempted tax on income earned under the Ajira Program. The measure is aimed at enabling over 1million youth to be engaged as a digital freelance worker. The health sector has some reasons for joy as an additional to Ksh47.8ln is allocated to expand access to Universal Health Coverage from 4 pilot counties to other counties.

Meanwhile drunkards and gamblers will continue to leak their wounds as they ache out an additional 10% in taxes is slapped on betting and 15% on tobacco and alcoholic drinks. Boda Boda and Tuk-Tuk riders will face an uphill task with amendments to the Insurance (Motor Vehicle third party risks certificate of insurance) rules to require all passenger carrying riders to have an insurance cover for passengers and pedestrians.

In Uganda, the works and infrastructure continue to enjoy a good share of the budget with Ush6.4trillion of the budget allocated to it.  The industrialists are perhaps the biggest winners with generous tax exemptions allocated for industrial parks expanded to 10 years for letting, leasing or expanding existing developers with capital of at least USD50Mln and operators with at least USD10 Mln capital.  There has been an introduction of income tax exemption on interest paid on infrastructure bonds such as listed bonds and securities. Removal of withdrawing on agriculture supplies and listing and other similar goods. Exemptions on aircraft insurance services, supply of services.  A beneficial owner and citizen have also been redefined to be in line with the East African Community Court ruling in the case of BAT Vs URA.   The importers of fresh or chilled or cooked potatoes, honey, granite, marble and ceramics are net losers with increased customs duties.

Amidst of all these changes in estimates, significant to note is that new creatives sources of tax revenues were presented.

Governments have perpetually faced narrow taxes bases with potentially same traditional sources facing the tax man. In recent years the government have developed affinity to indirect taxes, despite their regressive nature and inequitably targeting of the poor

What have been the trends?

Country

2017/18

2018/19

2019/20

Kenya

Ksh 2.3bln

Ksh 2.5bln

Ksh3 trln

Tanzania

Tsh 31.7trln

Tsh32.4trln

Tsh 33.11trln

Uganda

Ush 29 trln

Ush 32.7 trln

Ush 40.487trln

The trend shows that budgets estimates have been increasing over the years with this year’s budgets touted as the highest since independence. However, the actual budget out turns have fallen short of projections. Kenya, which is the biggest economy in the region has missed targets for the past seven years

In 2018/19 Tanzania recorded a shortfall in budget outturn only achieving 88% of its targeted revenue collection. This was attributed to a number of factors

  • Decline in domestic revenue
  • Tighter global conditions
  • Decline and delayed disbursement in government

The trends from previous budgets show that the government has been largely a net borrower and net spender. Governments rely heavily on domestic and external borrowing to fill its budget deficits. Very little is saved.

Generally, Government debt as a percent of GDP is used by investors to measure a country ability to make future payments on its debt, thus affecting the country borrowing costs and government bond yields.

Over the years the governments debt to GDP ratios have spiralled reaching record highs.  According to government statistics in Tanzania the debt to GDP ratio hit 34.2 % by end of 2017. The Bank of Tanzania reported that the external debt stock comprising of public and private sector debt amounted to USD 21,529mln at end of March 2019. Uganda’s debt to equity ratio was 41.2%.  Kenya’s debt to GDP ration was at a record 57.5% in 2017 and around 55 % in 2018.

Governments have constantly argued that their debt obligations are manageable and the current borrowing appetite is aimed at achieving a favourable debt mix of short term and long-term loans. The down side of appetite is that as government piles new debts, the maturity period of old debts is too short and puts a lot of pressure on government revenues to pay. In Uganda for example 11% of this year’s budget will be spent on debt repayment.

The debt burden is worsened by the near stagnant revenue growth, the Ugandan Planning Minister acknowledged in 2018. “Our tax base is not growing at the same rate,” he added, putting the tax to Gross Domestic Product (GDP) ratio at 14.3 per cent.

The government spends most of its money on recurrent expenditures such as salaries and its development budget on mega infrastructure such as roads, power generation and aviation have not been quick in generating commensurate revenues, leaving governments with perpetual financing gaps every budget year.

The question then which emerges is why increase budgets when the revenue targets for the previous years have not been met?

Do governments need to adopt a saving culture-amidst all.

As meeting domestic revenue targets becomes doggy and external aid and borrowing stringent, how can governments manage their budgets to ensure that some of the revenues collected are saved and used to cushion future deficits. The governments have options that can be considered.

Adopting a cost cutting

Cutting of nugatory public expenditures spent on running public administration can save governments massive recurrent expenditures on salaries and allowances. While Kenya has adopted a heavy devolution structure costing government billions of shillings to run Uganda has the largest cabinet in the East African region. The Ugandan government has rapidly created economically unviable local government districts, who rely heavily on central government subsidies to survive.

Adopting revenue saving culture

The government can adopt a revenue saving culture. Revenue management is largely a tax policy concern which hinges on economics that revenues from various sources should be spent in a sustainable manner to avoid long-term shortfalls and economic instabilities that might affect the overall economic tax base.

These views are reflected in Hugh Dalton’s ‘principles of maximum social advantage (Marginal Social Sacrifice theory) and  Arthur Pigou’s ‘principle of maximum social welfare benefits’ (Marginal Social Benefit)  theories of taxation and public expenditure which suggest that taxation (government revenue) and government expenditure as two key tools of public finance have to be balanced to achieve maximum social benefits. Neither excess is good for the society.

Sustainable economic growth can therefore be achieved when government balances its short term and long-term public revenue and expenditure needs.  The government does not need to exclusively spend on infrastructure or welfare benefits but it also needs to save and spend on strategic investment to safe guard its future revenue sources.

This saving culture should be embedded in a country’s budget policy and revenue expenditure management system and fiscal regimes governing expenditures of its revenue.

Investing in foreign government financial instruments

The governments can take the Japanese and Chinese approach of investing in foreign government financial instruments.  Globally, the Japanese and Chinese are among the highest investors in the United States government securities. Controversial as it may look, but by investing its wealth in secure foreign government bonds, the government can ensure that the dividends realised are ploughed back into the Country to support its economy.

This type of foreign investment has made it possible for the Japanese able to finance their domestic debt which is almost above 233% of GDP.  The other difference between Japan and other countries is that its debt is held by its Citizens.

Many other countries, including Greece, owe mostly to foreign creditors. However, most of Japan’s debt (including government bond liabilities) are held by its own citizen, so the risk of defaulting is much lower. Japan is still well-off because it can adjust interest rates at low levels so that repayment values stay low relative to the overall debt level.-Forbes

Introducing effective currency management

The governments can adopt the Egyptian model of devaluing its currency to ensure that the country exports more and attracts more foreign currency into the country than it spends in payment and servicing external debt. The attracted foreign income is invested into production to boost economic growth.  As an economy grows to higher level, it becomes able to generate enough revenues to pay off or reduce its debt burden.

Helpful Further Readings and references

  1. Afosa, K. (1985), ‘Financial Administration of Ancient Ashanti Empire’, The Accounting Historians Journal, Vol. 12(2), pp. 109–115.Google Scholar
  2. Blakey R. G. and Blakey, G. S. (1940), The Federal Income Tax, New York, Longman Green and Company.Google Scholar
  3. Crum, R. P. (1982), ‘Value-Added Taxation: The Roots Run Deep into Colonial and Early America’, The Accounting Historians Journal, Vol. 9(2), pp. 25–41.Google Scholar
  4. Garbutt, D. (1984), ‘The Significance of Ancient Mesopotamia in Accounting History’, The Accounting Historians Journal, Vol. 11(11), pp. 83–101.Google Scholar
  5. Jose, M.L. and Moore, C.K. (1998), ‘The Development of Taxation in the Bible: Improvements in Counting, Measurement and Computation in the Ancient Middle East’, The Accounting Historians Journal, Vol. 25(2), pp. 63–80.Google Scholar
  6. Kozub, R.M. (1983), ‘Antecedents of the Income Tax in Colonial America’, The Accounting Historians Journal, Vol. 10(2), pp. 99–116.Google Scholar
  7. Mann, H. (1984), ‘ Thus Spake The Rabbis-The First Income Tax?’, The Accounting Historians Journal, Vol. 11(1), pp. 125–133.Google Scholar
  8. Paul, R.E. (1954), Taxation in the United States, Boston: Little Brown and Company.Google Scholar
  9. Samson, W.D. (1985),The Nineteenth Century Income Tax in the SouthThe Accounting Historians Journal, Vol. 12(1), pp. 37–52.Google Scholar
  10. Samson, W.D. (1996), ‘The Evolution of the U.S. Income Tax: The History of Progressivity and Influences from Other Countries,’ in A. Richardson (Ed), Disorder and Harmony: 20th Century Perspective on Accounting History, The Seventh World Congress of Accounting Historians (CGA Canada Research Foundation Research Monograph No. 23), pp. 205–227.Google Scholar
  11. Seligman, E.R.A. (1909), Progressive Taxation, New York: MacMillan Company, 2nd edition.Google Scholar
  12. Seligman, E. R.A. (1911), The Income Tax, New York: MacMillan Company.Google Scholar
  13. Seligman, E.R.A. (1931), Essays In Taxation, New York: MacMillan Company.Google Scholar
  14. Shultz, W.J. (1926), The Taxation of Inheritance, Boston: Houghton Mifflin Company.Google Scholar
  15. Smith, A. (1976), An Inquiry into the Nature and Causes of the Wealth of Nations, Oxford: Clarendon Press.Google Scholar
  16. Solas, C. and Otar, I. (1994), ‘The Accounting System Practiced in the Near East During the Period 1220–1350 Based on the Book Risale-I Felekiyye’, The Accounting Historians Journal, Vol. 21(1), pp. 117–135.Google Scholar
  17. Wells, S.C. and Flesher, T. K. (1994), ‘Lessons for Policymakers from the History of Consumption Taxes’, The Accounting Historians Journal, Vol. 21(1), pp. 103–126.Google Scholar
  18. Yeakel, J.A. (1983), ‘The Accountant-Historians of the Incas’, The Accounting Historians Journal, Vol. 10(2), pp. 39–51.Google Scholar
How to manage transboundary petroleum resources as Somalia and Kenya talk conflict off East African Coastline

 

The war of words and negative diplomacy between Kenya and Somalia over the disputed potentially oil and gas rich territory in the Indian Ocean has rekindled the importance of understanding how to manage transboundary petroleum resources. Petroleum does not know political borders. The vagaries of geology have dictated that sometime petroleum resources occur in trans boundary areas. How nation states collectively manage these resources can determine whether they effectively harness the benefits from these resources without going to conflict.

By Moses Kulaba, Governance and economic analysis centre

Management of petroleum resources or revenues from ‘trans boundary or ‘disputed’ areas has always been an issue of controversy in most petroleum resource rich countries.  It is a source of disputes and a challenge to investors, planners and policy makers when parties or Countries fail to agree amicably on the ownership of these resources and revenue sharing mechanisms for resources from these areas.  Trans-boundary resources are also called ‘common’ or shared resources.

In Tanzania and the wider East Africa region management of resources in ‘potentially contestable areas’ and ‘trans boundary’ areas are becoming a major challenge as some of the petroleum resources are found closer or along the boundary areas. It will be even more challenging in the nearby future as the gas and oil starts flowing.  If not addressed it will be a big hindrance to investment and development of the petroleum sector. In East Africa, currently there is no concrete and pragmatic approach to addressing this challenge.

The East African dimension

In a broader East African context, seismic studies have indicated that petroleum resources may be largely found along Trans international boundary areas. This has created disputes and raised challenges for proper resource management and revenue sharing arrangements. For example the discovery of petroleum deposits in the Albertine basin generated trans boundary tensions between Uganda and the DRC along the Lake Albert. There are disputes over petroleum in Unity state along the South Sudan and Sudan border. There are disputes between Kenya and South Sudan along the Nadapal area (Block 11 A & B) and Kenya and Somalia along the Wajir border area (block 1, 2 &3) and Indian Ocean Coastline continental shelf.

In 2014, Somalia filed a before the International Court of Justice, accusing Kenya of encroaching on its potentially rich petroleum rich maritime territory off its continental shelf. Both countries have claimed ownership of an approximately 100,000 square miles in the Indian ocean waters suspected of having vast oil and gas deposits.

The conflict largely arises from a dispute in regards to how the international border between Somalia and Kenya should drawn and internationally recognized. In the case before the ICJ, Somalia wants the maritime boundary to run diagonal, as an extension of the land boundary, while Kenya wants it to run parallel to the latitude, east wards, south of Kyunga. Both countries have relied on the straight-line principle in the International Law of the sea. Somalia wants the boundary to run south east wards and has vowed not surrender what it considers, its territorial integrity.

Figure 3: East African Exploration Map 2010-Source: Vanoil Ltd Energy-Kenya

In recent months there has been an escalation the war of words and negative diplomatic relations. Kenya in April barred Somali Officials from entering into Kenya and further banned unaccompanied luggage from Somalia and required that all aircrafts flying into Kenya from Somalia should temporary land in the Northern town of Wajir for a mandatory security check before flying into Nairobi.

The recent diplomatic row represents a significant development between the two neighbors which could escalate into a full-blown out conflict. It further reflects the common resource quagmire that neighboring petroleum rich nation states often find themselves and further shows that latent conflicts emanating from transboundary petroleum resources exist in East Africa.

It is therefore important that viable solutions are reached even without addressing the international law (Law of the sea) challenges facing Kenya and Somalia and the international political concerns or interests in East Africa yet significant challenges and ways of resolving this problem do exist.

Specific problem

  • There is lack of clarity for policy makers, planners and tax administrators on how to share the revenues from these areas
  • Uncertainty and wavering Investor confidence to fully commit their investment and as a consequence petroleum resources in potentially disputed or Trans boundary areas have remained unexplored. For example, licensed blocks operated by Shell in Tanzania’s waters closer to Zanzibar have remained   unexplored for a long time
  • On a wider East African level there are missed opportunities for joint investment promotion.
  • There is a ‘Race to the bottom’ as East African Countries under cut each other with lucrative fiscal terms in competition to attract petroleum investors into their own territories, without looking at East Africa as a whole
  • There are ongoing and underlying territorial disputes which could erupt into full blown out conflicts, risking the current and future investments into the petroleum sector

Currently, a lot has been written about these possible challenges but very limited pragmatic steps have been taken to address these challenges. There has been some significant discussion about the issue but there have been no pragmatic viable options provided which can be acceptable to the protagonists in the conflict.

If some pragmatic solutions are found for Kenya and Somalia, similar suggestions could also be used to inform approaches taken by other East African governments within the wider East African framework to address similar other potential disputes along their border frontiers.

Some international approach to similar challenges

The answer to nature’s conundrum where petroleum resources migrates within or across a country’s border has always been unitization.  Unitisation is one of the legal devices which seek to remove the destructive competitive elements stimulated by the rule of capture (as advanced in the United States legal tradition under which the title to petroleum belongs to the owner who physically extracts it from a well on his land, even if petroleum has migrated underground from neighboring lands). With unitisation petroleum deposits are exploited as a whole, expenditure is reduced and recovery is maximized.  Unitisation is accomplished through a unitization agreement. A unitization agreement is an amicable solution between parties as individuals, group of individuals or states holding exploitation rights in common petroleum reservoirs by which the reservoirs will be exploited in an integrated manner.  The reservoir is treated as one whole and the costs and revenues shared between the parties according to an agreed formula defined by parameters such as geological technical factors, investment or operational costs and volumes of the reservoir. An international unitization agreement (Unit operating Agreement) can be signed between relevant international companies from both states subject to the bilateral treaty outlining the rights and obligations of each company and issues like selection of operator or determination of tract of participants.

International law remedy and Joint Development Areas

The International law remedy to offshore ‘trans international boundary’ petroleum resources is provided within the ambits of the United Nations Law of the Sea Convention of 1982 (UNCLOS) which obliges states which have not been able to agree on boundaries of their continental shelves and exclusive zones to make efforts to enter into provisional arrangements  of a practical nature to develop the petroleum deposit  located in the overlapping geographical area under dispute whilst not foregoing their sovereignty rights to the deposits  in place  in its territory or continental shelf.

This international law remedy is the backbone on which the idea of Joint Development Areas or Zones is built. Joint development is an arrangement between two states to develop and share in agreed proportions the petroleum found within a geographical area whose proportions the petroleum found in a geographical area whose sovereignty is disputed; and the geographical area is an overlapping area under dispute with undefined boundaries to which the two states are entitled under International law. The JDA is established by a treaty, agreement or any recognisable legal document stating the rights and obligations of each party. The JDA’s can be divided into separate contract areas where deposits can cross the internal boundaries of those contracts and those that cross the JDA’s into third party states.  Both approaches are geared towards securing mutual cooperation and maximizing benefits from the petroleum resources. The treaties or agreements incorporate procedures to minimize disputes and resolve disputes. The following country experiences can be benchmarked:

Possible country experiences for benchmarking

Norway’s experience with United Kingdom

Norway is a good example of the significant economic benefits that can be achieved through strong cooperation and bilateral relationship. Norway has entered various treaties as examples of successful border unitization and management of resources straddling across a vast maritime area between Norway and United Kingdom. On March 10, 1965 Norway and the United Kingdom signed a bilateral delimitation treaty and this agreement constituted the first detailed provisions for action to be taken in the case of a petroleum deposit straddling cross border. This treaty was a voluntary agreement of a maritime border and acceptable cost and revenue sharing formula based on the volume of resources. This treaty provided a basis for three more cross border unitization agreements covering the Frigg, Stratfjord and Murchison Field signed in 1976, 1979 and 1979 respectively.

Norway is also a unique good example of managing Trans boundary petroleum resources by three neighboring states. This experience was demonstrated in the joint management of the Markham Field reserves. In 1965 the United Kingdom and the Netherlands signed a bilateral agreement to establish the boundaries of the Dutch continental shelf, when a petroleum reserve of approximately 700 cubic feet was discovered the licence was awarded to a Dutch company-Ultramar Exploration (Netherlands BV). The discovery was named Markham Field and jointly managed under the Markham agreement signed between the United Kingdom and Norway for unitization of petroleum resources straddling across the maritime borders. The United Kingdom’s health and safety authorities and their Dutch counterparts, the Straatstoezicht op de mijen, had unlimited access to all facilities and information related to the management of the resources. The UK and the Netherlands governments imposed taxes and shared profits as per their fiscal regimes and applicable double taxation conventions The Markham agreement provided a framework for successful development of the field and a possible template for any future unitization between three states

Norway has also taken a pragmatic framework agreement approach in resolving managing Trans boundary petroleum fields without involving distinct intergovernmental treaties. This approach was taken in 2005 by Norway and the United Kingdom in managing the Enoch & Balne Oil fields Norway’s focus has been on securing economic benefits for both states, with provisions made for possible development of resources with infrastructure located on the one side of the boundary. More examples of such approaches include the development of the Boa field which is mostly in Norway and the Playfair fields which are almost entirely in the United Kingdom. Since 2005 Norway has signed more treaties with Russia in the Barents Sea and thus excelled as a champion in managing off shore Trans boundary resources in contentious territories.

East Timor (Timor Leste) and Australia’s experience

In Asia-Timor Leste and Australia are good examples of joint management of Trans boundary petroleum resources. In 2002 East Timor and Australia signed the Timor Sea treaty between the two governments. This treaty enabled the joint development of petroleum resources in the maritime area located between East Timor and Australia. This area also known as the ‘Timor Gap’ had been controversially disputed and subjected to an earlier Timor Gap Treaty in 1989 between East Timor, Australia and Indonesia.

The Timor Sea treaty established a Joint Development Administration (JDA) and provides that Australia and East Timor shall jointly manage, facilitate, exploration, development and exploitation of the resources within the JDA for the benefit of the people of the two countries. The treaty has also provided an acceptable revenue formula whereby 90% of the revenues from the JDA would go to East Timor and 10% would belong to Australia.

The treaty resolved the long political impasse related to the management of the Sunrise and Troubadour petroleum reserves, also collectively referred to as the ‘Greater Sunrise’ which spanned across the Eastern boundaries of the new Joint Petroleum Development Authority (JPDA). The Sunrise and Troubadour deposits were unitized and an acceptable revenue sharing formula agreed. A joint management committee was established to oversee its implementation. To date the approach is a successful model of joint petroleum resource administration in Asia. Similar approaches have been taken by Qatar and United Arab Emirates, Saudi Arabi and Bahrain.

Nigeria and Sao Tome et Principe’s Experience

In cases where countries have longstanding territorial disputes, they can reach out for third parties or independent arbitration panels or international courts of justice to resolve or advice on the best alternative to manage the petroleum resources located in these areas. This approach is referred to as the third-party approach.

This was the approach taken by Nigeria and Sao Tome et Principe in Africa, to create a border upstream cooperation and Joint Development Zones (JDZ) through Unitisation of two major fields (Ikanga and Zafiro) between Nigeria and Equatoria Guinea. On this backdrop, the government of Sao Tome et Principe claimed an archipelago status under Article 46 of the United Nations Conventions of the Law of the Sea (UNCLOS) as based on the 200 miles Exclusive Economic Zone (EEZ) determined by a median line in the North East and the North West as the median line between Sao Tome and Nigeria. The Nigerian government based its claim on the Exclusive Economic Zones Act (CAP 116) and claimed an EZZ which overlapped with Sao Tome et Principe’s zone. The two countries agreed to resolve their differences by creating a Joint Development Zone in the area of overlap to enable exploitation and licensing to proceed. Both countries have since mutual benefited economically.

Relevancy of these Countries’ experience to Tanzania and East Africa’s trans boundary petroleum resources management

As a result of these experiences, unitisation is now a major compulsory feature in petroleum legislations of these countries. The United Kingdom Petroleum Act 1998 and the 1988 Petroleum (Production) (Seaward Areas) Regulations, the Nigerian Petroleum Act of 1969 and the 1969 Petroleum (Drilling and Production) laws impose a compulsory unitization. All licence holders or contractors have an obligatory requirement to agree on a unitization. They are obliged to cooperate if and when reservoirs straddling within or beyond national borders must be developed and it is within the national interests to secure efficient maximum recovery of petroleum. Resources and revenues are managed in agreed manner without losing national or international ownership and sovereignty.

Although the Nigeria and Sao Tome’s case was an arrangement between sovereign states, this approach is relevant to Tanzania, given the similarities of the issues involved. Zanzibar is an archipelago with a specific claim to territorial waters along its coastline. Mainland Tanzania’s 200 miles EEZ overlaps Zanzibar’s territory. Nigeria and Sao Tome’s approach could towards resolving Tanzania’s petroleum resources management challenge with Zanzibar.

These benchmarked examples indicate that geological constrains, territorial disputes, political and economic differences, constitutional limitations and international boundaries should never be a limiting factor to development of petroleum resources located or straddling from one territory to another. Tanzania and the wider East African region can draw alternative solutions to the current challenges facing management of trans boundary petroleum resources:

Possible alternative or supplementing solutions

  1. In Tanzania, within the current constitutional framework there could be a ‘Partial delegation’ of legal powers to Zanzibar to enter into agreements with oil companies (state and non-state actors) subject to the Union Constitution and the Union government’s Petroleum and fiscal management legislations
  2. Delimitation of temporary boundaries for oil and gas management purposes and earmarking specific petroleum blocks which could be legally assigned to Zanzibar’s control for revenue purposes
  1. Establish Joint Development Area (JDA) or Joint Development Zone (JDZ) arrangements modeled successful arrangements like Norway and United Kingdom, Timor Leste and Australia. Agree on unitization arrangements for licensed blocks straddling outside the JDA and develop a revenue sharing formula for managing resources from JDA and Trans boundary areas. Establish a joint petroleum revenue management committee for trans international boundary areas
  1. Develop East African guidelines for unitization and Joint Development Area Management and revenue sharing for Trans boundary petroleum resources.
  1. Either off the above approaches could be adapted in resolving the dispute between Kenya and Somalia

Benefits from these options

If resolved this could lead to peaceful co-existence and increased joint attraction of foreign investment into the areas

Increase investor confidence in East Africa and open up new avenues for investment and value creation in its Petroleum sector.

Unfreeze the current blocks which are closer to Zanzibar for licensing, exploration and development. These blocks have remained unlicensed for many years, despite expression of interests from petroleum companies to develop them

Provide avenues for possible cross border petroleum resources development and sharing of petroleum energy resources at low costs and thus reduce the acute shortages of electricity and over reliance on hydroelectricity for power generation in the region.

References

  • Beyene, Zewdineh and Wadley, Ian L.G. Common goods and the common good: Transboundary natural resources, principled cooperation, and the Nile Basin Initiative. Berkerley, UC Berkeley: Center for African studies 2004.(Breslauer Symposium on Natural Resources Issues in Africa😉 at pg4
  • Cameron P.D: Cross Border Unitisation in the North Sea (Vol. 5 OGEL 2007)
  • Denis V.Rodin: Offshore transboundary petroleum deposits: Cooperation as a customary obligation; Small Masters of Laws thesis in the Laws of the Sea; University of Tromso, Faculty of Law, Fall 2011
  • Perry A: Oil and Gas deposits at international boundaries-New ways for governments and oil and gas companies to handle an increasingly urgent problem (Vol. 5 OGEL 2007);  M.O Igiehon, Present International law on delimitation of the Continental shelf (Sweet & Maxwell 2006
  • Rod Chooramum; Notes to the Field: An English law perspective on the oil and Gas Market, August , 2014
  • Sustainable Development or Resource Cursed: Managing Timor Leste’s Petroleum Revenue, Chapter 4
  • URT: The National Natural Gas Policy, 2013
  • Zanzibar Oil, Gas win cools political heat; The East African Newspaper; http://www.lawteacher.net/free-law-essays/australian-law/joint-petroleum-developmet-area.php
  • http://www.theeastafrican.co.ke/news/Zanzibar-oil-gas-win-cools-political-heat/-/2558/2877248/-/view/printversion/-/1485oatz/-/index.html. Also read: Oil and gas: How EA Can become a key global player; http://www.theeastafrican.co.ke/oil-and-gas…
  • http://www.forbes.com/sites/christopherhelman/2014/01/08/the-10-biggest-oil-and-gas-discoveries-of-2013/ accessed on 19th May 2015 at 7:45 pm
Tanzania Gold Exports increasing, amidst standoff with mining companies

 

Pundits suggested that the faceoff with mining companies over tax payments and drastic changes in the mining legislations and practices indicated that Tanzania’s mining sector was on a cliff edge with some analysists suggesting that perhaps it was headed for the unknown. With the latest reports, it is evident that the government is wining some dividends.

Figure 1: The Permanent Secretary for the Ministry of Minerals Prof. Msanjila opens a Mineral trading Centre in Chunya, Southern Tanzania

According to the Bank of Tanzania (BoT) monthly economic review report indicates that value of Gold exports which accounted for more than half of nontraditional exports in March of 2019 grew by 9.8% to USD 1,684.6million.

The report adds that the value of Gold and diamond produced by large scale miners was USD325.9Mln in quarter ending March 2019, compared to USD324 mln recorded in the corresponding quarter in 2018. Production of gold increased by 7.8% to 10,063.4 kilograms quarter -on-quarter, while that of diamond rose by 18.2%

Foreign receipts from services which accounts for 47.8% of exports of goods and services increased to USD4,085.3million in the year ending march 2019 from USD 3,823.6Mln in the corresponding period in 2018. This was largely driven by travel and transport receipts.

The value of goods and services exported in the year ending March, 2019 increased to USD 8,544.5 Mln from USD 8,488.2Mln in the corresponding year period of 2018 owing to an increase in nontraditional goods, exports which accounts for 78.0% of goods exports and 40.7% of total exports.

The central bank reported that gold exports in 2018 was worth USD 1,549 bln compared to USD1,541 bln recorded in 2017.

These central bank reports show an increase despite the standoff between the government of Tanzania and mining companies such as Accacia-Barrick Gold Company for non-tax payment. This led to a government seizure and ban on export of Acacia’s gold concentrates forcing the company into financial and operational turbulence. Accacia has since scaled back and closed some of its mining operations in Tanzania.

The government move left mining companies and stakeholders guessing what would befall the sector. Since the standoff, many major mining investment decisions in the country’s lucrative mining, oil and gas sectors have stagnated.

Companies complained that the new laws passed in 2017 were onerous, costly and bad business which included hiking of taxes on Mineral exports and mandatory requirement for a higher government stake in all mineral operations.

Recently, the government established mining trading centers where gold miners can sell their gold to the government. In early 2019, the Prime Minister gave the Ministry of Minerals six months to establish government controlled mineral trading centres in all major mineral producing areas of Tanzania.

The first mineral trading center was inaugurated by the Prime Minister in the North Western town of Geita in March, 2019, close to the biggest Gold mine owned by South Africa’s Anglo Gold Ashanti. Since then similar mineral trading centers have been opened in Chunya, Tabora and Kyerwa.

The government said these efforts were aimed at accelerating efforts to curb illegal exports of gold and other processing minerals. The trading centers will give small scale miners direct access to a formal regulated market where by they can go directly and trade their gold. They currently struggle to access formal gold dealers who mostly based in the capital, Dar es Salaam and major towns, the government affirmed.

According to Reuters, Tanzania is Africa’s 4th biggest gold producer after South Africa, Ghana and Mali and gold exports are key sources of foreign exchange.

Small scale mines produce around 20 tons of gold per year in Tanzania but an estimated 90% of the output is illegally exported according to a parliamentary committee report.

These reports suggest that perhaps the recent government moves have reduced on smuggling gold to the neighboring Countries and this perhaps explains the increased sale.