TY - JOUR
T1 - When ‘Pockets of Effectiveness’ Matter Politically
T2 - Extractive Industry Regulation and Taxation in Uganda and Tanzania
AU - Kjær, Anne Mette
AU - Therkildsen, Ole
AU - Buur, Lars
AU - Hansen, Michael Wendelboe
N1 - Published online: 8 January 2021.
PY - 2021/3
Y1 - 2021/3
N2 - It is a common view that states in the developing world with substantial extractive natural resource discoveries may not have the capacity to tax and regulate multinational companies in the sector. In this article, we show that ruling elites in recently resource-rich Tanzania, and in Uganda – expected to become resource-rich in the foreseeable future - have learned from the resource curse: they seek to construct ‘pockets of effectiveness’ (POEs) to regulate and tax natural resources. We explain the political incentives to create such pockets by combining insights from the POE and the Political Settlement literatures. We argue that POEs are likely to be established in emerging resource-rich countries with three characteristics: some degree of competitive elections; widespread voter expectations of future natural resource prosperity; and absence of powerful domestic firms in the sector who can resist taxation. The political benefits of such POEs are higher revenues that can boost government spending power and, hence, political legitimacy. These outweigh the political costs of establishing POEs, namely rents and patronage foregone. This insight is missed in much of the writings on the impact of natural resource wealth in African countries.
AB - It is a common view that states in the developing world with substantial extractive natural resource discoveries may not have the capacity to tax and regulate multinational companies in the sector. In this article, we show that ruling elites in recently resource-rich Tanzania, and in Uganda – expected to become resource-rich in the foreseeable future - have learned from the resource curse: they seek to construct ‘pockets of effectiveness’ (POEs) to regulate and tax natural resources. We explain the political incentives to create such pockets by combining insights from the POE and the Political Settlement literatures. We argue that POEs are likely to be established in emerging resource-rich countries with three characteristics: some degree of competitive elections; widespread voter expectations of future natural resource prosperity; and absence of powerful domestic firms in the sector who can resist taxation. The political benefits of such POEs are higher revenues that can boost government spending power and, hence, political legitimacy. These outweigh the political costs of establishing POEs, namely rents and patronage foregone. This insight is missed in much of the writings on the impact of natural resource wealth in African countries.
KW - Pockets of effectiveness
KW - Extractive natural resources
KW - Taxation
KW - Uganda
KW - Tanzania
KW - Pockets of effectiveness
KW - Extractive natural resource
KW - Taxation
KW - Uganda
KW - Tanzania
U2 - 10.1016/j.exis.2020.12.010
DO - 10.1016/j.exis.2020.12.010
M3 - Journal article
SN - 2214-790X
VL - 8
SP - 294
EP - 302
JO - The Extractive Industries and Society
JF - The Extractive Industries and Society
IS - 1
ER -