The stability clause paradox: How binding tax commitments in mining contracts undermine WAEMU/CEMAC coordination and lock in race-to-the-bottom dynamics

Ayoki, Milton (2025): The stability clause paradox: How binding tax commitments in mining contracts undermine WAEMU/CEMAC coordination and lock in race-to-the-bottom dynamics.

Abstract

Since 2003, the West African Economic and Monetary Union (WAEMU) and Central African Economic and Monetary Community (CEMAC) have implemented binding directives to harmonize mining tax regimes and eliminate fiscal competition. Yet, we observe a proliferation of mine-specific stability clauses—contractual provisions that freeze tax rates for 20-30 years—in response to these coordination efforts. Analyzing 47 mining contracts across 12 WAEMU and CEMAC countries (2010-2023), this paper identifies a Stability Clause Paradox: instruments designed to provide tax certainty have become the primary vehicle for undermining regional tax coordination. Our results show that mines with stability clauses face effective tax rates that are 18-23 percentage points lower than statutory rates, creating a dual fiscal regime that coordination cannot reach. Our theoretical model demonstrates that stability clauses act as commitment devices in tax competition, locking in race-to-the-bottom dynamics for decades. The paper provides the first empirical evidence that regional tax coordination in Africa is systematically circumvented through contractual tax stabilization, with immediate implications for WAEMU's ongoing mining code reforms and CEMAC investment policy reviews.

• Item Type: MPRA Paper
• Language: English
• Keywords: Tax competition, regional integration, stability clauses, WAEMU, CEMAC, extractive sector, tax coordination, mining contracts
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H25 - Business Taxes and Subsidies; H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H77 - Intergovernmental Relations ; Federalism ; Secession; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture ; Natural Resources ; Energy ; Environment ; Other Primary Products; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q38 - Government Policy

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