PwC warns against overtaxation in Africa's resources sector

3rd September 2015

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia


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PERTH ( – Advisory firm  PwC has warned African nations against overtaxing investments in the resources sector.

Launching a new report on the second day of the Africa Downunder conference, PwC African practice leader and resource sector partner Ben Gargett said taxation and fiscal settings had been a contentious issue across the globe for a number of years, with emerging markets at the forefront of the debate.

“There are only so many profits and so much cash flow generated by a mining project. If the costs are too high, the project is uneconomic. The same applies to government taxes. If they are too great for the project, there is insufficient [room] left for the miner to generate a commercial return, Gargett said.

He pointed out that it was the miner who was bearing the full capital and operating risk of a mining project and added that the miner’s capital was mobile and decisions were made in the allocation of this capital on a regular basis. 

“But further than that, in this tough market, where funding is scarce and hard to get, the decision may well be out of the hands of the miner and in the hands of those who finance such projects. The financiers are a further step removed and typically don’t have the same connection with the project or country and act on a pure commercial basis.

“Therefore, I would put it to you – that a smaller share of the pie is a better outcome for the government than no pie at all,” Gargett said. 

The new PwC report studied the taxation regime of four African nations, Tanzania, Burkina Faso, Namibia and Ghana, and analysed the impact of the tax setting in each of the four countries and on decisions to develop a new mine in the region.

Key assumptions covered an openpit gold mine with exploration costs of $30-million, a two-year approval process, development capital expenditure of $150-million for 150 000 oz/y in output and all-in sustaining costs of $957/oz, driven by a workforce of 1 100 local employees.

The study found that, based on that modelling, Namibia would be the only country where a new gold mine would be developed, with a “maybe” assigned to Tanzania and Ghana.

On the upside, the PwC study found that every direct mining job generated three to five jobs elsewhere in Africa and every mining dollar generated drove an additional $3 into local economies.

Jobs were the real beneficiary, with the modelled gold project generating 3 300 to 5 500 additional jobs.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online



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