By Rafiq Raji, Ph.D.
Following Zambia’s recent concessions on mining royalties, Uganda has also announced the scrapping of taxes on oil, gas and mining exploration activities. Bloomberg quotes Ugandan finance minister Matia Kasaija as saying the new measures are aimed at encouraging growth. Hitherto, the tax burden on mining companies in Uganda was as high as 39%, adding to costs. Such concessionary measures by African authorities are likely to become a trend this year as the commodities’ rout continues and global growth slows. Already, Shell and Total have announced plans to delay investment decisions on key offshore projects in Nigeria and Angola on costs and a desire to boost cash flows (Financial Times). A renegotiation of local content requirements has been mooted. The delay in the passage of the Petroleum Industry Bill (PIB) likely added to uncertainties in the Nigerian case. Lower revenue, weak exports demand and reduced investments have not been met with adequate spending cuts by African authorities, adding to probability of fiscal slippages in 2015. With political uncertainties, burgeoning security budgets and populist promises in a politically active year for numerous SSA countries, there is likely to be increased borrowings by authorities to make up for the revenue shortfalls. That said, African authorities should only make concessions that would seem reasonable even when commodity prices recover to avoid past mistakes.