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.

Africa risks losing out on natural resource boom, Kofi Annan warns

Africa and its partners could lose out on the enormous opportunities that natural resources offer. This was said by Mr. Kofi Annan in his speech delivered at the Graduate Institute of International and Development Studies (IHEID) on September 26, 2013 to mark the opening of the 2013-2014 academic year in Geneva. “Africa and its partners will miss the opportunity to transform the lives of future as well as present generations, however, if they carry on with business as usual”, Mr. Annan warned.

Kofi Annan recounted the challenges that confront Africa’s extractive sector. He stressed that though natural resource wealth rightly belongs to the continent’s citizens, the “citizens are being robbed of its benefits by revenue diversion, corruption, jobless growth, and rising inequality.”

Africa’s impressive economic growth in the past decade has largely been driven by natural resource boom. However, this growth has done little to reduce poverty and improve the living standards of the people particularly those in resource-rich countries.

Mr. Annan urged governments in Africa to adopt transformational measures that will harness the potentials of the natural resource sector. He advised that natural resources should be processed to bring extra value before export. He again charged African leaders to adopt effective transparency and accountability measures. “African governments must put transparency and accountability at the heart of their natural resource policies. They must manage their citizens’ natural resources efficiently and share the revenues fairly”.

Some African countries have made strides in ensuring transparency by publishing oil, gas and mining contracts online. These include Ghana, Guinea and Liberia. More to this, several resource-rich countries have subscribed to the Extractive Industries Transparency Initiative (EITI). “Some 12 African countries are now compliant with the Extractive Industries Transparency Initiative, which recently announced more rigorous standards”, said Mr. Annan.

Mr. Annan indicated that multinationals have a role to play. Though there is growing commitments to transparency, he charged multinationals to “improve their behaviour” adding that “they also play a critical social role and that doing good is ultimately good for business”. He further advised multinationals that “transparent corporate governance builds reputations, reduces political risk, and may ultimately win more extractive contracts, too.”

Multinational companies into oil and gas and mining extraction in Africa have often been cited to engage in illicit practices including tax evasion and trade mispricing. The cost of these illicit practices is staggering. The Global Financial Integrity indicates that developing countries lost an estimated $98 billion to $106 billion annually to corporate tax dodging during the years 2002 through 2006. Africa is hard hit in these practices. Mr. Annan also added that “trade mispricing, a technique to lower tax payments, costs Africa an estimated US$38 billion per year, more than the US$33 billion in foreign direct investment or US$30 billion in official development assistance”.

He called for equitable tax justice system that will “bring benefits for Africa and for the international community more generally.”

BY: Stephen Yeboah, Geneva.

Read full speech of Mr. Kofi Annan here: http://bit.ly/18LS8VA