HO-Finnida SOMO Going Public HQS 1. Background
Context analysis: policy, priorities, and policy frameworks
Despite its economic growth over the last two decades, Mozambique remains one of the poorest countries in the world, with a 42% youth unemployment rate, under the heavy external debt burden(estimated 85% of GDP) and the economy highly depended on volatile export commodities markets. In the backdrop of a bleak economic situation, the discovery of vast natural gas fields in the north of the country at the beginning of the decade has positioned Mozambique as a major global energy source. Located in the Cabo Delgado region, the project known as Mozambique LNG is led by French extractive company Total – which committed to a $20 billion investment in 2019 –is expected to contain approximately 65 trillion cubic feet of recoverable natural gas.  Extraction activities are expected to start in 2024, allowing a short time for the development of essential infrastructure and a legal framework for the public governance of extractive activities.

An essential part of this legal structure is a proper taxation framework to be developed and implemented in time to manage significant revenues expected to be generated as early as 2024. Despite recent reforms in revenue administration, fiscal governance structures in Mozambique remain vulnerable to corruption and lack efficiency. Tax collection across the country remains low due to the size of the informal sector (calculated at over 90% of the economy in 2020),  insufficient digitization of transactions and rent-seeking practices by high-profit businesses. In this context, the revenue stream from extractive activities in Cabo Delgado presents itself as a once-in-a-generation opportunity for Mozambique to invest in sustainable development of the country and the Cabo Delgado region. As Cabo Delgado is among the poorest regions in the country - long struggling with high levels of illiteracy, poverty, child malnutrition, and alleged government neglect and marginalization – revenue sharing of the upcoming extractives revenues is vital for the region. Improving domestic revenue mobilisation also requires revision of the some of the country’s tax treaties, as some of the largest FDI flows into Mozambique comefrom the world’s worst tax havens, including Mauritius, the United Arab Emirates, and the Netherlands.  Mozambique has signed Double Taxation Agreements (DTA) with Mauritius and the United Arab Emirates,  which aggressively limit Mozambique’s rights to tax financial flows leaving its jurisdiction.

2. Objective
2.1 Overall objective
The overarching development goal of this project is to: Moreprogressive, transparent, and accountable revenue generation and public spending in Sub-Saharan Africa that contribute to the realization of human rights and inequality reducing public spending for marginalized groups.

Specific objective: to strengthen the ability of CSOs and marginalized communities, particularly women and youth, to influence and hold to account local and national decision-makers in Mozambique to change policies and practices on revenue generation from extractive industries to benefit of marginalized communities.

The main Outcomes expected from the Project are as follows:

(i) Empowered CSOs have oversight and voice over fiscal issues and governments have increased political will for inclusive, transformative development by quality research evidence and policy analysis.
(ii) Civil society, including women and youth, actively engage and hold local and national authorities to accountfor more progressive, equitable and accountable management of extractive sector revenues;
(iii) Strengthened Civil Society actors work in alliance / coalitions to demand transparent, accountable and progressive fiscal reforms (National and Regional);
(iv) Preparatory desk review studies. These studies focused on: (1) analysis of fiscal and tax reforms; (2) Non-compliance and tax evasion in extractive industry sector;

Outputs:

(i) Facilitate assorted trainings and learning initiatives on fiscal andtax trade in extractive industry sector;
(ii) National High Level Policy dialogue to promote fiscal and tax reforms in extractive industry sector;
(iii) Promote the development of a framework for prudent use of gas revenues to support essential services, with focus on agricultural value chains;

Promote work in alliance / coalitions across Southern Africa region also Kenya / Uganda under this project

Topline activities (Outcome 1):
> Capacity strengthening - Facilitate training on Tax and fiscalissues;
> Consolidated platform of multiple stakeholders to promote national dialogue on fiscal and tax reforms ( Government, private sector, academics and communities);
> Strengthen national tax network advocacy and coalition capacity to address harmfultax practices and advocate for revenue collection in extractive industries;
> Facilitate influencing, engagement and trust-building between citizens, civil society and governments on fiscal issues such as domestic tax in extractive industry and participatory budgeting for essential services;

Topline activities (Outcome 2):
> Designa community training tool on linkages, local content and economic diversification;
> Dialogue between government, private sector and communities on local development models;
> Desk review on existing legal frameworks for Non-compliance and tax evasion in extractive industry sector;
> Media engagements on minimum transparency standards for public and private sector in the extractive industry, and support investigativejournalists;
> Develop policy papers on Fiscal and Tax reform issues for redistributing value generated in the extractives value chains.