MUNHUMUTAPA SCHOOL OF COMMERCE

DEPARTMENT OF ACCOUNTING AND INFORMATION SYSTEMS

GROUP MEMBERS

NAME SURNAME REG #

DAVISON KURAUONE M215685
PROSPER MAHANZU M240010
LAST NHARI M230022
TATENDA MUDUNGO M234501
SHARON CHATIKOBO M200843
NIMROD NIKISI M185708
MILTON DZINODYA M184724

MODULE : APPLIED TAX LAW AND PRACTICE

COUSRE CODE : MPAC516

LECTURER : MR G J GUTU

QUESTION : Many governments that discovered valuable minerals and oil

suffered from resource curse, challenges discuss this in relation to African
countries and how these challenges can be mitigated giving specific examples.
The term resource curse refers to the failure of much resource –rich countries to fully
benefit from their natural resources wealth and for governments in these countries to to
respond effectively to public welfare needs. Resources curse also encompasses the
significant social, economic and political challenges that are unique to countries rich in
natural resources. These countries tend to have higher rates of conflict and
authoritarianism, and lower rates of economic growth, compared to non resources
countries.
Causes of resources Curse
Economic and political scientist have pointed that mineral resources wealth are
distinct from other wealth because of it large upfront cost, long production timeline, site
specific nature (large rents) Price and production volatility, non renewable nature the
secrecy of the industry.
Challenges
 Conflicts
Natural resources can provoke and sustain internal conflicts as different groups
fight for control of the resources or use those natural resources to finance their
fighting. Good examples are DRC, Libya, Iraq and Angola who have where
they are experiencing internal rifts because of vast mineral resources in their
countries.
 Petro –aggression
The tendency of of oil rich countries to instigate or be targets of international
conflict, have been observed in some cases, such as Kuwait and Iraq, however
the researchers debate whether the data supports the conclusion that
resource-rich countries do this at a greater rate than non-resources countries.
 Inefficient spending and borrowing
The amount of governments collects in resources revenues can change
drastically from year to year because of changes in commodity price and
production. Studies have revealed that it is difficult to effectively spend
fluctuating and unpredictable revenues. Resources rich government often over
spend on government salaries, subsidies and under spend on health and
education. In addition government over borrow because they have improved
credit –worthiness when revenue are high. This was witnessed in Nigeria,
 Mexico and Venezuela. The private sector can also feel the impact, as it can
over-invest in boom times and then experience bankruptcy during busts.
 Democracy
Natural resource wealth such as oil and minerals has made it more likely for
governments to remain authoritarian. The explanation lies in taxation. Political
scientists find that government are more responsive to their citizens and are
more likely to transition to democracy when government spending is reliant to
citizen taxation. When countries collect large revenue and not depend on
levying taxes on citizens, and thus citizens feel less invested in national
budgets. Politicians and government are also less directly tied with the citizen
requests, furthermore, when resource revenues are secret, citizens do not have
clear sense of whether the resource revenue are spend well or not.
 Dutch disease
Large increase in natural resource revenue can hurt other sectors of the
economy; particularly exports based manufacturing, by causing inflation or
exchange rate appreciation and shifting labour and capital from non resource
sector to the resource sector. The detrimental effects of natural resource on
other sectors have been seen in Russia, Venezuela and Trinidad and Tobago.
 Social and environmental problems
The point source nature of extractive industries often creates challenges when
trying to balance the needs of the people and environments that surround the
mining area. Sharing and compensating for resources such as land, water and
minerals can create conflict between the extraction companies and the
communities. Generally, extraction projects attract large influxes of people,
even there is no additional employment. This can cause severe stress on
economic, social and cultural relations. Environmental issues include dust from
mining scarring of landscape, massive water use, contamination of hydric
sources and noise from operations.
 Corruption and Illicit Financial Flows: The resource curse often involves
corruption and illicit financial flows. In the Mbada diamond case, there were
allegations of corruption, with reports suggesting that a significant amount of
revenue generated from diamond sales did not reach the national treasury.
 Instead, it was allegedly siphoned off through opaque channels, depriving the
country of much-needed funds for development.

 Economic Mismanagement: The resource curse can lead to economic

mismanagement, including over-reliance on a single resource and neglect of
other economic sectors. In Zimbabwe, the focus on diamond extraction and
exportation led to an overemphasis on the mining sector, resulting in limited
diversification of the economy. This narrow economic base makes the country
vulnerable to fluctuations in diamond prices and undermines long-term
sustainable development.

Mitigating the challenges posed by the resource curse requires proactive measures at
various levels. Here are some strategies that can be employed:

1. Economic Diversification: African countries should prioritize diversifying their

economies beyond the extractive sector. This involves investing in other industries
such as agriculture, manufacturing, and services. By promoting a more balanced
economy, countries can reduce their vulnerability to commodity price fluctuations and
create more job opportunities.

Example: Botswana has successfully diversified its economy by investing in sectors

such as diamond cutting and polishing, tourism, and financial services. This has helped
the country reduce its dependence on diamond exports and fostered economic growth.

2. Transparent Governance and Accountability: Ensuring transparent governance

and accountability is crucial in managing resource revenues effectively. Governments
should establish robust legal frameworks, institutional mechanisms, and regulatory
frameworks to promote transparency, combat corruption, and hold public officials
accountable.

Example: Ghana established the Public Interest and Accountability Committee (PIAC),
an independent statutory body responsible for monitoring and evaluating the
management of petroleum revenues. PIAC publishes regular reports to promote
transparency and public awareness.

3. Long-Term Planning and Sovereign Wealth Funds: African countries should

develop comprehensive long-term development plans that take into account the
exhaustibility of natural resources. Governments should create sovereign wealth funds
to save a portion of resource revenues for future generations and invest them in
sustainable development projects.

Example: Norway's Government Pension Fund Global is a well-known example of a

sovereign wealth fund that has successfully managed its oil wealth for the benefit of
future generations.

4. Investing in Human Capital and Infrastructure: To mitigate the resource curse,

African countries should invest in education, healthcare, and infrastructure
development. This will help build a skilled workforce, improve productivity, and create
a conducive environment for economic diversification.
Example: Rwanda has made significant investments in education and infrastructure,
which have contributed to its economic growth and reduced dependence on traditional
agricultural exports.

5. Regional and International Cooperation: Collaboration among African countries,

as well as engagement with regional and international partners, can facilitate
knowledge sharing, technology transfer, and capacity building in resource
management.
Example: The African Mining Vision, endorsed by the African Union, aims to promote
sustainable mining and resource governance by fostering cooperation among African
countries.

Mitigating the resource curse is a complex and long-term process that requires political
will, good governance, and effective policies. By adopting these strategies and learning
from successful examples, African countries can better manage their resource wealth
and promote sustainable development for their citizens.
Certainly! Here are some additional points to further explore the challenges posed by
the resource curse in African countries and potential mitigation strategies:

1. Local Content Development: Encouraging local participation and value addition in

the resource sector can help mitigate the resource curse. African governments can
implement policies that require companies to hire local workers, use local suppliers,
and promote technology transfer. This can create employment opportunities, develop
local industries, and enhance the overall economic impact of resource extraction.

Example: Angola has implemented local content laws in its oil sector, aiming to
increase the participation of Angolan citizens and businesses in the industry. This has
led to the development of local expertise and the growth of Angolan-owned companies
in the oil sector.

2. Environmental and Social Regulations: Extractive industries often have

significant environmental and social impacts. African countries can mitigate these
challenges by implementing robust regulations that ensure responsible resource
extraction, environmental protection, and social development. This includes measures
such as environmental impact assessments, community consultations, and
revenue-sharing mechanisms.

Example: Ghana has implemented regulations and guidelines to promote responsible

mining practices and minimize the environmental and social impact of mining activities.
It has also introduced community development agreements to ensure local communities
benefit from mining operations.

3. Enhanced Institutional Capacity: Strengthening the capacity of institutions

responsible for resource governance is crucial. This involves investing in training
programs, technical expertise, and data management systems to improve monitoring,
regulation, and revenue management.

Example: The Extractive Industries Transparency Initiative (EITI) is a global standard

that promotes transparency and accountability in the extractive sector. Several African
countries, including Nigeria, Ghana, and Liberia, have implemented EITI and made
progress in enhancing their institutional capacity for resource governance.

4. Citizen Engagement and Civil Society Participation: Governments should

actively involve citizens and civil society organizations in decision-making processes
related to resource management. This promotes transparency, accountability, and
public awareness, allowing citizens to actively participate in shaping resource
governance policies.

Example: In Uganda, civil society organizations have played a significant role in

advocating for transparency and public participation in the oil sector. Their efforts have
contributed to the establishment of legal frameworks that promote accountability and
citizen engagement.

5. Regional Integration and Value Chain Development: African countries can

benefit from regional integration efforts by promoting intra-African trade, value
addition, and industrial linkages. By developing regional value chains, countries can
maximize the economic benefits of their resources and foster regional cooperation.

Example: The Africa Continental Free Trade Area (AfCFTA) aims to boost
intra-African trade and promote regional value chains. By leveraging the potential of
the AfCFTA, African countries can diversify their markets and reduce their dependence
on external markets for resource exports.

It's important to note that each country's context and challenges are unique, and the
strategies employed should be tailored accordingly. The successful implementation of
these strategies requires sustained commitment, political stability, and strong
partnerships among governments, private sector actors, civil society, and international
organizations.

Certainly! Here are a few more examples of African countries that have implemented
local content laws in their resource sectors:
1. Nigeria: Nigeria has implemented local content laws in its oil and gas sector. The
Nigerian Oil and Gas Industry Content Development Act (NOGICD Act) was enacted
in 2010 to promote the participation of Nigerian companies and citizens in the industry.
The law requires oil and gas companies to give preference to Nigerian goods, services,
and personnel in their operations. It also established the Nigerian Content Development
and Monitoring Board (NCDMB) to oversee the implementation of the Act and ensure
compliance.

2. Angola: Angola has implemented local content regulations in its oil sector. The
country's Presidential Decree No. 270/14, known as the Local Content Law, was
introduced in 2014. It aims to increase Angolan participation in the oil industry by
requiring oil companies to prioritize the use of Angolan goods, services, and personnel.
The law also establishes local content targets and provides guidelines for capacity
development and technology transfer.

3. Ghana: Ghana has implemented local content regulations in its oil and gas sector.
The Petroleum (Local Content and Local Participation) Regulations were enacted in
2013 to promote the participation of Ghanaians and local businesses in the industry.
The regulations require oil and gas companies to give preference to Ghanaian goods,
services, and personnel. They also establish local content targets, provide guidelines for
capacity development, and require the submission of local content plans by companies.

4. Mozambique: Mozambique has introduced local content requirements in its

hydrocarbon sector. The country's Petroleum Law, enacted in 2014, includes provisions
for local content development. It aims to promote the participation of Mozambican
companies and citizens in the sector by requiring operators to give priority to local
goods, services, and personnel. The law also establishes local content targets, provides
guidelines for capacity development, and requires the submission of local content
plans.

It's important to note that the specific provisions and requirements of local content laws
may vary among countries. These examples highlight the efforts made by African
countries to enhance local participation and economic benefits in their resource sectors
by implementing local content regulations.
In the African countries mentioned earlier, there are penalties for non-compliance with
local content laws. The specific penalties may vary depending on the country and the
provisions outlined in the legislation. Here are some examples:

1. Nigeria: Non-compliance with the Nigerian Oil and Gas Industry Content
Development Act (NOGICD Act) can result in penalties imposed by the Nigerian
Content Development and Monitoring Board (NCDMB). The NCDMB has the
authority to enforce compliance, conduct audits, and impose sanctions on companies
that fail to meet the local content requirements. Penalties can include fines, suspension
of licenses, or the denial of opportunities to participate in future contracts.

2. Angola: The Local Content Law in Angola provides for penalties for
non-compliance. The law establishes a system of incentives and sanctions to ensure
compliance with local content requirements. The specific penalties can include fines,
contract termination, exclusion from future contracts, or other administrative measures.

3. Ghana: Non-compliance with the Petroleum (Local Content and Local Participation)
Regulations in Ghana can result in penalties imposed by the Petroleum Commission,
the regulatory body responsible for overseeing compliance. The penalties can include
fines, suspension or revocation of licenses, or the denial of opportunities to participate
in future contracts.

4. Mozambique: The Petroleum Law in Mozambique includes provisions for penalties

for non-compliance with local content requirements. The specific penalties may be
determined by the regulatory authorities responsible for enforcing compliance. These
penalties can include fines, suspension or termination of licenses, or other
administrative measures.

It's important to note that the enforcement of local content laws and the imposition of
penalties depend on effective regulatory mechanisms and the commitment of the
relevant authorities. The severity of penalties and their enforcement can vary, and it is
essential for countries to ensure transparency, consistency, and fairness in applying and
enforcing these regulations.
Zimbabwe is a country that has experienced some of the challenges associated with the
resource curse. The country is known for its significant mineral resources, including
platinum, gold, diamonds, and other minerals. However, the management of these
resources has been fraught with difficulties, which have had adverse effects on the
country's economy and development.

One of the key challenges in Zimbabwe is governance and transparency in the resource
sector. There have been concerns about corruption, lack of accountability, and
mismanagement of resource revenues. These issues have undermined the effective
utilization of mineral wealth for the benefit of the population and have contributed to
economic instability.

Another challenge is the over-reliance on the extraction and export of natural resources,
particularly in the mining sector. This has led to a concentration of economic activity in
this sector, resulting in limited diversification of the economy. Fluctuating commodity
prices and external market conditions can significantly impact Zimbabwe's revenue and
economic stability due to its heavy reliance on mineral exports.

Additionally, Zimbabwe has faced challenges related to the social and environmental
impacts of resource extraction. There have been cases of environmental degradation,
displacement of communities, and conflicts over resource ownership and benefits.
These issues have strained social cohesion and hindered sustainable development.

4. Social and Environmental Impacts: The resource curse can exacerbate social and
environmental challenges. In the case of the Mbada diamond operations, there were
reports of environmental degradation, displacement of communities, and human rights
abuses associated with diamond mining activities. These negative social and
environmental impacts can further exacerbate tensions and inequalities within society.

5. Governance and Rule of Law: The resource curse is often linked to weak
governance and the erosion of the rule of law. In the Mbada diamond case, there were
concerns about the lack of effective regulation, weak institutional capacity, and limited
accountability mechanisms. These factors undermine the government's ability to
manage the resource sector responsibly and ensure that the benefits of diamond wealth
are shared equitably.

Addressing the challenges posed by the resource curse requires comprehensive efforts
to improve governance, enhance transparency, and promote sustainable development.
It involves strengthening institutions, promoting accountability, diversifying the
economy, and ensuring that the social and environmental impacts of resource
extraction are properly managed.
References
 Natural Resource Charter (2nd edition, 2014), available at:
http://www.resourcegovernance.org/sites/default/files/NRCJ1193_natural_res
ource_charter_19.6.14.pdf.
 Bauer, Andrew, and Juan Carlos Quiroz , Resource Governance in the
Handbook of Global Energy Policy (ed. Andreas Goldthau, Wiley-Blackwell,
2013).
 Humphreys, M., et al, Introduction in “Escaping the Resource Curse”
(Columbia University Press, 2007).
 Ross, Michael, The Oil Curse (Princeton UP, 2012).

 Van der Ploeg, Rick, Natural Resources: Curse or Blessing?, CESifo Working
Paper 3125, available at: https://ideas.repec.org/p/ces/ceswps/_3125.html.