African Extractives on the Frontline of Global Struggle for Tax and Commodities

Guest post by: Edward Harris, Head of Communications, Africa Progress Panel

Smart politicians talk about reform but they understand the value of promise without delivery, one academic told participants at a conference in Oxford last week. Organised by Oxfam and Oxford University, the one-day conference discussed how extractive industries can work for African people.

Reinforcing the conclusions in this year’s Africa Progress Report, the conference also highlighted the wider, global struggles for control of commodities and tax revenue.

Both struggles are better understood by examination of Africa’s oil, gas, and mining sectors, where tax avoidance is a major issue. One participant noted that extractive industries account for some 60 percent of illicit financial flows from Africa.

In the struggle for commodities, the big question is – and always has been – how government and business divide the mineral revenues. The private sector must focus on profit, of course, but multinationals have often negotiated grossly unfair deals with African governments, who are more confident now than ever before. Contract renegotiations by African governments have become a major threat to multinational profit.

Keen to head off this major risk, business displays both increased transparency and good intentions – “talking the talk”, at least. But have their incentives really changed? It’s still about the profit.

The struggle for tax payments is more nuanced. Tax justice has become a hot issue, and future regulation will likely require the multinationals to pay fair amounts of tax. The struggle is for control of those future tax revenues.

Assuming they are eventually restricted from using tax havens and offshore shell companies, should multinationals pay tax based on their headquarter location, for example?  Or based on the location of the minerals that they extract? It’s revealing that rich world clubs – the G20 and OECD – are setting the agenda for global tax reform. This can only work to their advantage.

The UK received a major PR boost with this year’s G8 agenda on tax and transparency, but a British official raised doubts in Oxford when he said that implementation of these promises could take a decade.

Business and government may be making the right noises, but actions speak louder than words.

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Chaired by Kofi Annan, former Secretary-General of the United Nations, the ten-member Africa Progress Panel advocates at the highest levels for equitable and sustainable development in Africa. The Panel releases its flagship publication, the Africa Progress Report, every year in May.