Tackle tax and transparency issues to give Africa a fair chance

Guest post by: Caroline Kende Robb, Executive Director, Africa Progress Panel.

With the commodity supercycle still rumbling on, Africa’s natural resources should be transforming the lives of millions across the continent. After all, Africa has an estimated 30 percent of global mineral reserves and less than 15 percent of its population.

But jobless growth, corruption, and rising inequality are still robbing African citizens of the benefits of their natural resources, as we showed in this year’s Africa Progress Report, Equity in Extractives – Stewarding Africa’s natural resources for all.

Tax and transparency issues merit special attention. And we, the global community, must tackle these issues if Africa is to have a fair chance of profiting from its natural resources.

Transparency can be a deceptively complex concept, referring variously in this context to beneficial ownership of companies and trusts, contracts between governments and multinationals, or even the use of public revenues.

But we all understand the basic principle that transparency prevents corruption and improves accountability.

Our report details five shadowy mineral deals which cost the Democratic Republic of the Congo good opportunities for a fair price on mineral concessions. As a result, one of the poorest countries in the world effectively lost$1.4bn, roughly twice its combined annual budgets of health and education.

The good news is that the transparency train has left the station. More and more African governments are publishing contracts online, the Extractive Industries Transparency Initiative is rolling out tougher standards, and western governments are implementing tough new legislation.

The journey will not be without its delays, of course. China has not yet implemented such legislation, state-owned enterprises often remain out of reach, and the American Petroleum Institute continues to fight against the tide of history.

Ultimately, however, the transparency train can only go in one direction, driven on by the increasing accessibility of data and growing demands for fairness in Africa and across the world.

The same is true for tax justice. But why tax? And why is it such an issue for the extractives industries?

Answers can be found in the combination of weak capacity in many African tax administrations, the nature of the extractives industries, and a global tax system that has failed to keep pace with the realities of globalisation.

The practical complexities of extracting oil, gas, and minerals in hard-to-reach locations produces high barriers to market entry and strong economic advantages for companies that are vertically integrated and present in several different countries.

With a focus on profit, these companies use a variety of practices to shift their profit and revenues to low tax jurisdictions. The scale of these practices has led our Panel Chair, former UN Secretary-General Kofi Annan, to describe them repeatedly as “legal but morally unacceptable”.

By misrepresenting the values of their imports and exports, for example, a practice known as trade mispricing, companies can lower their tax obligations considerably. This practice alone costs the continent an estimated $38.4bn every year, more than it receives in either international aid or foreign direct investment.

This year’s G8 Summit gave hope that the international community can tackle these issues effectively. Indeed, African governments, the international community, and many multinational corporations all seem to be aligning around the need for fair and transparent relationships.

After all, transparent corporate governance builds reputations, reduces political risk, and may ultimately win more extractive contracts too. And we all benefit from an Africa that is prosperous, stable, and fair.

Original source: This is Africa

Chaired by Kofi Annan, the former Secretary-General of the United Nations, the Africa Progress Panel (the Panel) includes distinguished individuals from the private and public sectors, who advocate on global issues of importance to Africa and the world.