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African Economics Assignment Help Uk

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African Economics Assignment Help Uk

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Answer to Question 1. 

The slow progression of the majority of the African countries towards democratic government and market economics during the late 90’s created interests among the global oil and gas companies to invest in the West African countries for petroleum extraction and refinement despite of its diversified and volatile political situation. The oil exploration activity in West Africa resumed in 2017 after the price of the Brent Crude Oil was averagely priced at $54 per barrel. Previously, the West African oil exploration activities came to a halt because of certain political and global issues like government change in Gambia, terrorist attack in Nigeria, spread of Ebola virus and most importantly the legal tiff between Ghana and Cote D’Ivorie.

Considering the case of one such West African nation, Wakunda that shares borders with several West African countries, the oil and gas exploration activities look possible. Presently, the concerned nation is underdeveloped, however, with development of certain fiscal and legal system along with support from neighborhood countries can result in development of a mid-sized oil and gas exploration and refinement centre. The government of Wakunda is advised to develop a strong “fiscal regime”, which helps both the government and the investors to share the risks and benefits arising from a new project. In order to earn a significant share of revenue from the petroleum sector, the government should frame strong laws and administrative capacity to attract potential investors to begin oil exploration activities or setting up oil and gas distribution pipelines.

The government is also advised to amend the petroleum tax laws for safeguarding the revenue due to the government from the major petroleum operations. The following fiscal regimes are to be constructed to attain investment in the initial stages- the fiscal terms and conditions must be dependent on four main traits of extraction companies- extractive revenues hold the potentiality to represent a significant part of the nation’s public revenues, petroleum resources are finite, hence government must generate returns adequate enough to compensate the degradation of national asset, requirement of investment, and significance of different risks like project risk, political risk, geological risk and variation in price. 

The petroleum sector have the potential to generate huge volume of revenue and a proper set of fiscal terms assists the government in striking a balance between inviting the best investor and grabbing a decent foreign investment for the welfare of the country. The fiscal terms influence the theoretical assessment of the national revenue along with enforcement of different extractive agreements. The success or failure of a nation’s legal system in providing the benefits for the nation is relied on the ability of the government to ensure that all commitments of the government and the rules for all the related parties are followed. The government of Wakunda should focus on structuring the following fiscal and legal agreements to attract inventors:

Royalties- The investing companies should be entitled to pay the government in return to compensate for allowing extraction activities of non-renewable natural resources. The base rate should be complied with the global standard either 5% of the minerals produced or $10 per ton.

Bonuses- While finalising the contract, a one-time payment should be paid at the beginning of the excavation activity or on achieving certain feats (as per the terms of contract).

Income tax- Like most of the countries, the government should demand for a certain percentage of income tax from the petroleum investors. Due to requirement of bulk capital investment in petroleum exploration activity, rules related with the tax system controlling the costs and deductions like deduction in interest payment, physical asset depreciation etc plays an important role in deciding the benefit of the government and the company as well.

Government equity- The investing companies could be established as entities that are incorporated locally, which will enable division of shares between the public or private owned companies. Possessing these equity stakes provides access to the government to pay dividends.

The fiscal terms are considered as the only aspect of rights and obligations that are mentioned in the contracts and legal structure developed between the government and the investing companies. The legal part is expected to contain certain terms related with safeguarding the environment, economic development, employment generation, and rights to information and dispute process. 

Despite of opening opportunities to earn a significant portion of revenue by the government of Wakunda from incorporating oil and gas industry, several issues like environmental protection, health and safety concerns, decommissioning, and unitisation should be mitigated for the benefit of the people and the economy as a whole. In order to protect the environment, the government should impose restrictions through deployment of certain laws like “Pollution control and fire and explosion prevention act”,” safe working environment act” etc, which will be concerned towards protecting the environment or compensating for the damages caused to the environment and the residents because of exploration and mining activities, water and air emissions, waste management, climate surveillance and environmental protection. 

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