Title: Extractive Industries, Revenue Allocation and Local Politics
Authors/Institution: Javier Arellano-Yanguas & Andrés Mejía-Acosta – International Centre for Tax and Development (ICTD Working Paper)
Publication Year: 2014
This study investigates how the allocation of extractive industry revenues shapes local politics and governance outcomes in resource-dependent countries. Arellano-Yanguas and Mejía-Acosta argue that the design of revenue distribution systems — whether centralized, decentralized, or hybrid — strongly influences political incentives and the prospects for development. Drawing on comparative cases from Latin America and Africa, the paper highlights how decentralization of extractive rents can empower local actors but also create new arenas for conflict, elite capture, and uneven service delivery.
A key insight is that resource revenues are not neutral transfers; they reshape power relations. In contexts where local governments have limited administrative capacity, sudden inflows of mining or oil revenues often exacerbate existing inequalities and clientelist politics. The authors show that while fiscal decentralization was intended to promote accountability and closer state–citizen linkages, in practice it has frequently fueled competition between local elites and deepened territorial grievances. The Peruvian canon Minero is used as a prominent example of how large transfers to mining regions did not translate into effective service provision but instead generated political disputes over allocation and control.
This perspective directly resonates with current news from Ghana and the DRC, where governments are reforming licensing and revenue-sharing frameworks. As in the Peruvian case, the challenge lies not only in securing higher fiscal returns but in ensuring that funds strengthen governance rather than destabilize it. Without institutional safeguards and mechanisms for transparency, resource nationalism may trigger new conflicts between central authorities, local governments, and communities. The 2014 analysis thus remains highly relevant to contemporary debates: the way extractive rents are allocated is as critical as the amount collected.
Issue Profile – Extractive Industries, Revenue Allocation and Local Politics
Lead Actor: National governments; subnational authorities; mining communities
Focus: How revenue-sharing rules from extractive industries shape local politics, accountability, and conflict dynamics
Update (2014): Evidence shows that while fiscal transfers from extractives increase local resources, weak institutions and political competition often distort spending priorities. This fuels elite capture, uneven service delivery, and persistent community grievances.
Strategic Significance: Highlights that equitable and transparent revenue allocation is crucial to transform mineral rents into developmental gains. Without credible fiscal governance, resource wealth reinforces local tensions and undermines the social license to operate.