Transparency needed to curb Africa’s loss of $38bn through trade mispricing
There has been a general improvement by several mining companies, as well as some governments and policy makers, concerning transparency in mining deals and taxation in Africa, according to Caroline Kende-Robb, executive director of the Africa Progress Panel.
“If you look at governments, a country like Guinea is now publishing contracts online. They have now 60 contracts online within the last year. Nobody thought that that would happen about a year ago,” Kende-Robb told How we made it in Africa.
A report published by the Africa Progress Panel last year revealed that billions were leaving Africa through illicit deals such as tax avoidance and evasion, unfair pricing practices and secrecy around company ownership and revenue flows.
“Billions and billions of dollars are leaving Africa. We calculated, with the help of Global Financial Integrity, that there was US$38bn leaving Africa every year… [through] trade mispricing, where you undervalue the prices of your imports and exports so you don’t have to pay the appropriate amount of tax,” added Kende-Robb.
Other illicit outflows – such as funds that are illegally earned, transferred or utilised, as well as unrecorded private financial outflows – are estimated to total $25bn. In fact, the report highlights that Africa loses more through illicit outflows than it receives through aid and foreign direct investment.
“And we estimate when we look at the Democratic Republic of the Congo that they undervalued just five deals by $1.4bn… over a matter of two years,” continued Kende-Robb. “And these are massive amounts of money that are flowing out, that people have difficulty tracking, because of the lack of transparency.”
She added that with beneficial ownership and a large portion of companies registering in offshore accounts, it is also difficult to know who owns which companies and where mining goods, tax and financial inflows are actually going.
“But this is now on the agenda so I think we are seeing an alignment of interests where people recognise that there has to be more transparency,” she said, adding that this was one of the central discussion points at the G8 Summit last year.
“This whole issue of tax justice is affecting everybody. It’s affecting the tax base in Africa and it’s affecting the tax base in Europe and these European countries with the financial crisis in their own region… But it’s also companies that are saying we don’t want to trade with people we feel are not acting in a way that is ethical. In Africa there are a lot of companies knocking around the place who are taking a lot of money out of these countries, through a process of undervalued assets.”
Recognising a need for a social licence
The Africa Progress Panel – chaired by former United Nations Secretary-General Kofi Annan – consists of 10 influential members who advocate for shared responsibility between African leaders and their international partners to promote fair and sustainable development for Africa by ensuring that African issues remain prominent in global discussions.
One major issue the panel wants to bring to international attention is how local communities can benefit from the extractive companies operating in their areas.
Kende-Robb said many of the mining companies operating in Africa are now beginning to understand that they need a “social licence” to operate within communities.
“I think that some of the companies are now saying to us that this can’t be a short term relationship between the communities and [themselves]. [They] have to think more long term, and [they] can’t see the communities as a liability… Without the support of the communities the companies will get into very big trouble and that will affect their reputation, which affects their long term investment.”
She added that mining companies should place community development at the top of their agendas, not just for the community’s benefit, but for the sustainability of the company’s operations too.
“It’s about partnering with communities to make sure that they are part of the development process because business should not be seen outside society. Business and society should be joined to add social value thereby increasing the chances of sustainability in the longer term. It’s good for business; it’s good for society,” emphasised Kende-Robb.