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Maximizing Output and Government Revenues from Mining in Developing Countries: The Role of Country Political Risk and Investors’ Return, and Implications for the Energy Transition

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dc.contributor.authorDavis, Graham A.
dc.contributor.authorBou Habib, Chadi
dc.contributor.authorSolheim, Gaute
dc.contributor.authorLokanc, Martin
dc.date.accessioned2024-11-12T20:06:32Z
dc.date.available2024-11-12T20:06:32Z
dc.date.issued2024-11-12
dc.description.abstractThis paper investigates the determinants of mining projects, with a focus on green minerals. The research question is the effect of political risk on investment decisions, the size of projects, the volume of ore mined, and the ensuing resource rents captured by the host country. The paper shows the challenges of measuring and capturing resource rents, using a mathematical model of resource rent maximization for the host country under the constraint of a positive after-tax cash flow for investors. The analysis finds that the optimal approach for taxing extraction is a progressive profit tax on mining revenues that generates revenues for the country while minimally deterring investment. Alternatively, taxing cash flow, which can be non-distortionary, can be implemented. Using the S&P Capital IQ database, the analysis finds that the low-quality of governance, institutions, infrastructure, skills, and services dampens the exploration and exploitation of copper, a key mineral for green energy. The opportunity cost in terms of unexplored or underexploited deposits translates into suboptimal global copper production and forgone revenues for the poorest host countries. To unlock exploration, the paper proposes measures to mitigate political risk, including investing in geological surveys and institutions and designing stable tax systems. For underexploited projects, it proposes that countries not only invest in infrastructure, skills, and services, but also improve governance and institutions. This would lower the metal grade at which investors would be willing to commit, ultimately producing more metal from identified mineral deposits. Interventions from international financial institutions can help to alleviate all country risks, including political risks, that hinder credible intertemporal commitments between investors and countries.en
dc.identifierhttp://documents.worldbank.org/curated/en/099004311042428531/IDU179747984106fa146771af611c16144f6b01e
dc.identifier.doi10.1596/1813-9450-10965
dc.identifier.urihttps://hdl.handle.net/10986/42404
dc.languageEnglish
dc.language.isoen_US
dc.publisherWashington, DC: World Bank
dc.relation.ispartofseriesPolicy Research Working Paper; 10965
dc.rightsCC BY 3.0 IGO
dc.rights.holderWorld Bank
dc.rights.urihttps://creativecommons.org/licenses/by/3.0/igo/
dc.subjectMINING TAXATION
dc.subjectCOPPER
dc.subjectCLIMATE CHANGE
dc.subjectRISK=BASED APPROACHES
dc.subjectINVESTMENT CLIMATE
dc.titleMaximizing Output and Government Revenues from Mining in Developing Countriesen
dc.title.subtitleThe Role of Country Political Risk and Investors’ Return, and Implications for the Energy Transitionen
dc.typeWorking Paper
dspace.entity.typePublication
okr.crossref.titleMaximizing Output and Government Revenues from Mining in Developing Countries: The Role of Country Political Risk and Investors’ Return, and Implications for the Energy Transition
okr.date.disclosure2024-11-12
okr.date.lastmodified2024-11-12T00:00:00Zen
okr.doctypePolicy Research Working Paper
okr.doctypePublications & Research
okr.docurlhttp://documents.worldbank.org/curated/en/099004311042428531/IDU179747984106fa146771af611c16144f6b01e
okr.guid099004311042428531
okr.identifier.docmidIDU-79747984-06fa-4677-af61-c16144f6b01e
okr.identifier.doi10.1596/1813-9450-10965
okr.identifier.doihttps://doi.org/10.1596/1813-9450-10965
okr.identifier.externaldocumentum34417215
okr.identifier.internaldocumentum34417215
okr.identifier.reportWPS10965
okr.import.id5769
okr.importedtrueen
okr.language.supporteden
okr.pdfurlhttp://documents.worldbank.org/curated/en/099004311042428531/pdf/IDU179747984106fa146771af611c16144f6b01e.pdfen
okr.region.geographicalWorld
okr.sectorMining,Central Government (Central Agencies),Oil and Gas,Other Energy and Extractives
okr.themeInclusive Growth,Energy,Economic Policy,Public Finance Management,Economic Growth and Planning,Fiscal Policy,Energy Policies & Reform,Environment and Natural Resource Management,Domestic Revenue Administration,Public Sector Management,Tax policy
okr.topicMacroeconomics and Economic Growth::Investment and Investment Climate
okr.topicMacroeconomics and Economic Growth::Taxation & Subsidies
okr.topicEnergy::Energy and Mining
okr.unitProsperity-Econ Pol-Mac/Fis-Tax (EMFTX)
okr.unitEFI-AFR1-MTI-MacroFiscal-1 (EAEM1)
relation.isSeriesOfPublication26e071dc-b0bf-409c-b982-df2970295c87
relation.isSeriesOfPublication.latestForDiscovery26e071dc-b0bf-409c-b982-df2970295c87
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