sharing in governance of extractive industries

Running the Numbers: ADB and OpenOil launch a report on government modeling capacity

Geneva, 19 October 2017 - The African Development Bank (AfDB) and OpenOil, a Berlin-based financial analysis firm, have jointly produced a new report on how African governments use financial models to manage oil & gas and mining projects. The report was launched at the 13th Annual General Meeting of the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF) in Geneva.

Over 150 experts and representatives from international development institutions, governments, civil society and extractives companies attended the launch, including World Bank, United Nations Environment Programme (UNEP), United Nations Development Programme (UNDP), United Nations Conference on Trade and Development (UNCTAD), Organisation for Economic Co-operation and Development (OECD) as well as mining companies and miners’ associations such as Newmont Mining Corporation, AngloGold Ashanti, Anglo American and International Council on Mining and Metals (ICMM).

The joint report was presented by Pietro Toigo of the African Natural Resources Center of AfDB and Olumide Abimbola from OpenOil. “This report is the first of its kind in Africa and we hope that it will stir debate within the continent’s mining sector and contribute to countries getting more out of their mining projects,” they told the participants from governments, bilateral and multilateral organisations, private mining companies, and civil society groups.

The report, Running the Numbers: How African Governments Model Extractive Projects,  analyses the capacity of 19 African resource-rich countries to use financial models, which simulate a simplified version of a real-world project in order to determine their financial benefits to the countries. AfDB and Open Oil conducted a survey of nearly 50 government officials to illustrate not only how widespread use of financial models is, but also how their results are utilised to inform policy, but also how they are used.

“Financial models are essential throughout the life-cycle of extractive projects,” said Johnny West, Director of OpenOil. “They are not just important during the development of the fiscal regime, but also for the negotiation of fiscal terms with companies, for revenue forecasting, and for auditing and tax-gap analysis.”

“This report not only stresses the need for African Governments to make efforts to close the information gap with extractive companies, but also shows where there are capacity gaps and how those gaps could be addressed, calling for development partners to invest further in capacity building.” recognized Modibo Traore, Officer in Charge of the African Natural Resource Center of the AfDB,

African countries also face a substantial gap in access to data that are key inputs for financial models, with the largest gaps seen in assessing information on capital costs and operating costs of projects.

In addition to the need for governments to build in-house financial modelling capacity, the report suggests that governments need to improve internal business processes and address the large gap that the report shows exist between information available to different agencies, departments and ministries.

“This study forms a crucial part of the Center’s support to African countries in realising the full potential of their natural resources”, said Modibo Traore, “How are countries supposed to enter, for example, negotiations with extraction companies -who all use financial models- if the government has not used the latest and best models to calculate what a potential project is worth?” added Pietro Toigo, macroeconomist at the African Natural Resources Center.

The report also encourages development partners to make capacity building in financial modeling a more significant part of their support to the management of extractive resources. Those partners who already do are encouraged to not just supply financial models as part of isolated technical assistance, but to also invest in equipping government officials with skills to create and use models.

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