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Natural resource
libeRia
july 2012
RepoRt on:
Many poor developing countries are rich in natural resources like oil, gold and other precious minerals. these resources are potentially a big source of income that could finance sustainable development and a higher living standard for the populations. But this is only possible if they get a fair payment for the natural resources, which are being extracted by multinational corporations. natural resource Watch examines and presents how much the developing countries are actually being paid for their valuable minerals.
lIBerIa - overvIeW
liberias main natural resources are iron ore, timber, diamonds and gold. Before the civil wars that rampaged liberia from 1989 to 2003, minerals contributed a significant share of the countrys GdP up to 25 per cent of the GdP and made up 65 per cent of total export revenue . after the civil war its share of GdP was only 0.9 per cent of GdP in 2010. diamonds and timber played a part in funding the civil war, while iron ore mining stopped during the war, and has only recently resumed with huge new investments and the first shipment of iron ore in September 2011. according to IMF projections1, the mineral sectors contribution to liberias GdP will increase rapidly to reach 23.9 percent by 2015 and therefore holds a significant potential for increased government revenues from mining. Furthermore, oil and gas fields have been discovered off the liberian coast, and will potentially become a major source of government revenue in the future.
libeRia
15.6 percent
from 1 percent
2011 estimated
|
Iron ore and oIl - readY For taKe oFF
For liberia, the future lies in iron ore and oil. However, tax revenues from thee resources are still small as oil is still not explored and iron ore has only recently entered into production phase. the government of liberia has since 2007 signed three massive iron ore mining contracts with international heavyweight companies totalling more than 5 billion uSd; one of them a 2.6 billion uSd contract with china union, the largest ever foreign investment in liberia. these large foreign investments contribute to liberias position as the country with the highest ratio of foreign direct investment to GdP3. these huge investments are triggered by the increased demand and prices on iron ore. the payoffs from these contracts have only recently started to materialise, but the fact that iron ore exports doubled from 2010 to 2011, solely due to arcelorMittals first shipment of iron ore4, is an indicator of the contribution to the liberian economy these contracts can provide in the near future. liberia is expected to soon discover off-shore commercial quantities of oil. With massive contracts on oil fields already in place, and with internal disagreements on how to manage and make use of future oil revenue, even before drillings have begun, it is essential that a solid legal system and government regulatory mechanisms materialises, if liberia wants to secure the best use of its future revenue from oil.
expoRt
total exports:
at a glance 2009-10
17.2 percent
Iron ore share of mineral exports:
8.1 percent
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tax revenue from mining is outlined in the revenue code, while fees and licenses for extraction of minerals are outlined in the mining law. contracts are made based on a model Mineral development agreement, based on legislation as stated in the revenue code and the mining law. the challenge is to put the relatively strong legal framework into practise. the liberian revenue code sets out a maximum tax rate for mining projects at 30 percent, and puts royalties on iron ore at 4.5 percent, 3 percent for gold and 5 percent for diamonds. For oil, royalty is set at 10 percent of gross production.
goveRnMent Revenue
at a glance
the governments share of revenue from the mining sector in percentages:
8.8 percent
2008-09: 2009-10:
2007-08:
GovernMent revenueS
40 M USD 35 M USD 30 M USD 25 M USD 20 M USD 15 M USD 10 M USD 5 M USD
coMpany shaRes of contRibutions to goveRnMent 2009-2010
others BHP Billiton arcelorMittal china union Mining corporation
already before export has started, the payments from china union, arcelorMittal and BHP Billiton (the three Big) make up a significant share of government revenue from the mining sector5. From 2009-2010 their share of payments counted 89 percent, and from 2008-2009 arcelorMittal and BHP Billiton contributed 80 percent of total payments from the mining sector .
these payments are even before the production has started. the challenge will be mobilise a fair revenue from the production and profits made from iron ore the coming years. the main share of government revenue from the mining sector consists of payments from the big three as lump sum administrative fees, and contributions to various country development funds. another source of income is the taxes collected from people employed by the mining companies. But this should be seen as an indirect source of income springing from the mining sector. It is not money being paid by the mining companies themselves, but rather an income generated from the tax paid by the people employed in the mining industry.
libeRias Main souRce of incoMe fRoM Mining (excluding the big thRee) 2004-2009
other 42 % Surface rental 27 %
royalties 31 %
200 USD
150 USD
100 USD
50 USD
ju n de 02 c ju 02 n de 03 c ju 03 n de 04 c ju 04 n de 05 c ju 05 n de 06 c ju 06 n de 07 c ju 07 n de 08 c ju 08 n de 09 c ju 09 n de 10 c ju 10 n de 11 c m 11 ay 12
percent of todays iron ore price should be expected to produce a significant profit and tax payments. However this is still not materialising and it is crucial to monitor if the mines will ever start paying corporate tax. While the corporate tax rate in legislation and in the Mineral development agreements is set at 30 percent, its share of total mineral revenue from 2009-2010 was 0.03 percent. one must assume that the three big miners with the new contracts are equally, if not more skilled at exploiting the international tax system to avoid corporate tax, and the government should therefore focus on mobilising revenues through the royalty tax, which is lifted from the production value. a solution could be to employ a royalty rate tied to the price of minerals, in order for the government to capture a fair share of future increases in prices of the minerals.
5 out of 32
Mining coMpanies paid coRpoRate tax 2008-10
tranSParencY
during the civil war minerals played into extensive corruption schemes, and export bans on diamonds and timber were only lifted in 2007 and 2006, respectively. When the first democratically elected government took office in 2006, it therefore faced a considerable task of making liberia more transparent. considering its point of departure, significant improvements have been made. In 2009, liberia was the second country in the world, and the first in africa to become eItI compliant, and all mining contracts are now made public in liberia, and are accessible from the leItI website. liberia however still ranks a low 91st on transparency Internationals corruption Index (11th in the Sub-Saharan region), with a score of 3.2. on a scale from 0-10, where 10 is the most transparent. In relation to the mining sector, the government has been criticised for its handling of the county Social development Fund, with allegations of corruption among county administrations and in the national administration. Prospective oil wealth has also had its impact on the perspective that government officials take on the redistribution of government revenue.
recoMMendatIonS
the goveRnMent of libeRia should:
establish a more progressive fiscal regime including a windfall tax on minerals. ensure efficient and transparent handling of social development funds, to ensure that future revenue from the mining sector benefits all liberians. ensure that legislation and regulatory framework is in place to secure a fair level of future government revenue from the oil sector as well as a fair distribution of these revenues.
inteRnationally, the us, eu, china and otheR host countRies to oil and Mining coMpanies should:
Support capacity building and training of liberian public officials to ensure that government implements legislation and regulations, and that contracts are effectively monitored. Implement country-by-country reporting for oil and mining companies that allows liberia to end capital flight from the countrys mining sector. this country-by-country reporting should include information on the oil and mining companies profits, tax payments and trading with subsidiaries on a project level.
endnoteS
1) IMF (2010): IMF country report no. 10/373. liberia article Iv consultation. 2) central Bank of liberia: www.cbl.org.lr 3) cIa World Factbook: https://www.cia.gov/library/publications/the-world-factbook/index.html 4) central Bank of liberia: www.cbl.org.lr 5) leItI: www.leiti.org.lr 6) leItI: www.leiti.org.lr
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