The PWYP-SA coalition

is focused on transparency and accountability in order to combat opacity, in its various forms (financial and non-financial) across the extractives value chain.

The Importance of Mandatory Disclosures in the Extractives Industry in South Africa

Governments across the world are gradually recognising the importance of transparency to ensure that companies duly pay what is owed to the state. The sharpened focus on transparency in the extractives industry is also due to the ownership of natural resources in most states being vested in the public, with the state as the custodian of the resources – a situation that also pertains in South Africa. These resources are limited and non-renewable and, as a result, there is a legitimate expectation that they be managed sustainably and that the revenues derived from their exploitation should compensate for the loss in natural capital. Consequently, effective oversight and governance is necessary for the effective management of resources. It is often stated that South Africa’s extractives sector is overregulated. However, given the historical nature of this industry within South Africa, as well as the apparent harmful effects that extractives operations have on local people, communities and the environment, a number of legislative requirements have been developed to govern the extractives industry so as to mitigate these risks. These laws are constantly reviewed to enhance the regulatory environment and so improve equitable access to mineral resources as well as maximise the benefits from mineral resources. This is achieved through initiatives such as beneficiation in order to contribute to the development of the economy. Challenges such as tax evasion, transfer pricing and profit-shifting rob the state of the funds due to it. To overcome these challenges, illicit flows of revenue from the extractives industry need to be curbed through a wholly transparent system. A more transparent regime would allow effective economic management of the revenue streams derived from the extractives industry. Fully disaggregated disclosures would provide the tax authorities with data on extractives-industry companies in a standardised form, thereby reducing the cost of data collection and ensuring improved communication between tax authorities and companies. In South Africa, claims of lack of transparency relating to the operational and financial information of mining multinational corporations (MNCs) have often been made against the industry, resulting in calls for more effective oversight over the industry. In this regard, mandatory disclosures (MD) become necessary so that tax payments can be transformed into valuable information for investors,