Extractive Industries, Public Revenues and Distributional Equity

Peter VeitWorld Resources Institute

Sharing Experiences: Monitoring the Impact of Community Development Programs Linked to Extractive Industry

Washington, DC5 December 2006

Public Revenues in the Local Arena

•Little meaningful fiscal decentralization in Africa

•Weak tax base in the rural regions; limited local govt capacity to collect revenues

•Central govt investments in rural regions thru line/sectoral ministries

•Many local govts dependent on central govt transfers to fund budgets

468 - 1707.21707.2 - 2216.12216.1 - 2639.22639.2 - 4040.84040.8 - 13777.3

727.9 - 2496.92496.9 - 3785.83785.8 - 4606.44606.4 - 5494.45494.4 - 13522.3

0.191 - 0.5660.566 - 0.6960.696 - 0.7660.766 - 0.8330.833 - 0.946

Distribution of Public Revenues

• Inter-governmental transfers are powerful instruments for meeting national/public interests

• Ideally, structuring transfer systems that meet multiple goals, but, in reality, meeting one goal may contradict another

• Hierarchy of goals? More appropriate to focus on inter-relations, entry points and sequencing

Common National Goals/Public Interests

• National Development – Extractive resources are commonly national/public goods. How should revenues be allocated to promote national development?

• Poverty Reduction/Equity – Transfers that target the poor and promote inter-jurisdictional equity

• Security/Resolve Conflicts – Favor extraction site to offset extraction costs and perhaps recognize entitlements

What Do We Know?

Goal 1. National Development• Once in central govt coffers, EI revenues are difficult to follow• Transfers often constitute a small percentage of national budget • Allocation criteria tend to focus on population, area,

infrastructure and recurring costs

Goal 2. Poverty Reduction/Social Equity• Allocation criteria rarely include a poverty indicator or the

indicator does not effectively target the poor• Few “equalization” grants or they are significantly under-funded

Goal 3. Security/Resolve Conflicts• Allocation criteria rarely recognize revenue sources/EI locales• Few derivations to extraction sites

Policy and Monitoring Tool

Poverty Rate vs. Total Transfers

Average Incomes vs. Local Govt Transfers

Self-Identity Poverty vs. Total Transfers

Poverty Rate vs. Total Transfers

Number of Poor vs. Equalization Grant

Running Scenarios

Developing Principles of Fairness

• Natural attributes – amount of resource/level of production within a region

• Prior or existing use of the resource

• Social and economic needs of the population

• Alternative resources and comparative costs to serve those needs

• Avoidance of damage to affected regions

THANK YOUFor more information:

http://www.wri.org/equity

http://funnelthemoney.org