Impact of fluctuating commodity prices on government revenue explored

By Patricia Mashiri and Byron Mutingwende

Fluctuations in mineral commodity prices hamper governments’ effort in mobilising domestic resources for economic development and poverty eradication, a study by one of the leading research thinktanks has revealed.

The African Forum and Network on Debt and Development (AFRODAD) released a report on the Drivers and Impacts of global mineral commodity price fluctuations on government revenue, in four selected SADC countries which are Angola, Democratic Republic of Congo, Zambia and Zimbabwe.

The report titled “Impacts of Fluctuating Commodity Prices on Government Revenue in the SADC Region” was released at a SADC Regional meeting held in Harare that was attended by parliamentarians and like-minded civil society organisations and policymakers from the SADC region, who are involved in strengthening extractive industries revenue mobilisation and management.

AFRODAD commissioned four country studies on the “Impacts of Fluctuating Commodity Prices on Government Revenue in the SADC Region” to deepen understanding on the trends, drivers and implications of fluctuating commodity prices on government revenues, economic development and social investment in the Southern Africa Development Community (SADC) region.The Regional report is a synthesis of the four cases that focused on Oil in Angola, Copper in the DRC, Copper in Zambia and Platinum in Zimbabwe.

The commodity sector plays a significant role in resource rich SADC countries by contributing to Gross Domestic Profit (GDP), merchandise exports, formal sector employment and also contributing to national governments’ tax revenue.

However, commodity prices are relatively volatile compared to prices of manufactured products. The volatility of commodity prices not only complicates the saving and investment decisions of households and businesses but also makes it more difficult for government authorities to develop spending and tax policies that are designed to boost inclusive economic growth and alleviate poverty.

The impact of volatility can even be exacerbated by lack of a developed domestic financial sector and limited access to international financial markets, both of which can provide sound management of risks arising from commodity price volatility.

Bright Masikati, AFRODAD Policy Researcher, said despite many African countries being abundantly endowed with rich natural resources, the region is not reaping much from its Natural Capital and that is compromising the region’s ability to realise the global developmental target such as the Sustainable Development Goals (SDGs).

“SADC countries have the potential to develop and improve on service delivery given their natural resource wealth, but their overreliance on the natural resource with no influence nor control on the prices of these commodities short-changes the resource rich countries’ development prospects. Most SADC countries base their economies on mining exports with little or no value addition to the minerals and this makes the economies of these countries vulnerable to the price falls,” Masikati said.

Daniel Shumba, the Parliamentary Portfolio Committee Chairperson on Mines and Energy urged all stakeholders to participate in the adoption of the Africa Mining Vision to reap tangible benefits from the sector and maximise on beneficiation. Honourable Shumba indicated that Zimbabwe is still to adopt the Africa Mining Vision which should start with the Country Mining Vision.

The report recommended that SADC countries should diversify their economies away from commodities, establish stabilisation funds, invest in enhancing tax administration, establish effective beneficiation and value addition policies, strengthen natural resources governance institutions and modify mineral commodity royalty systems.

 




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