When the Africa Progress Panel launched its 2013 report in Cape Town this year, the findings caused something of a stir. Africa, its Equity in Extractives report stated, loses twice as much in illicit financial outflows as it receives in international aid. While mining investments have increased more than fourfold over the past decade, to around $80bn, billions of dollars are being lost through chronic mismanagement by state and private resource companies. Meanwhile, in many of the continent’s resource-rich countries, the gap between rich and poor is widening.
Speaking to This is Africa from his hotel in Cape Town, Strive Masiyiwa, a member of the APP and chairman of one of Africa’s homegrown telecom giants Econet Wireless, explains the problem: “The vast majority of businesses working in Africa, whether from the West or East, are serious, and are doing good work. Chevron, Anglo American, Tullow Oil – these are great companies, listed on stock exchanges around the world. But there are some bad apples who are exploiting weak governments who are not institutionally strong, or lack democracy or face conflict,” says the softly-spoken Zimbabwean.
One of the most glaring examples comes from Angola. Two years ago, the International Monetary Fund accused Sonangol, the state owned energy company, of missing money to the tune of $31.4bn between 2007 and 2010. By 2012, Sonangol had accounted for the majority of those funds, but $4.2bn was still outstanding – a figure about the same size as Angola’s 2013 budget deficit and double the estimated annual expenditure required for the country to put in place a basic infrastructure platform.
Problems are also chronic in Nigeria. Last year, the Petroleum Revenue Special Task Force revealed that cut-price oil and gas deals made with multinational companies have cost Africa’s biggest oil producer $29bn over the past decade.
But no country better evidences the high price related to non-transparent management of resource contracts than the Democratic Republic of Congo, which languishes at the bottom of the United Nations’ Human Development Index. Between 2010 and 2012, the APP report said, the DRC lost a minimum of $1.5bn in revenues due to the underpricing of mining assets that were sold to opaque offshore companies – a sum equivalent to more than double the annual education budget of the war-stricken country.
Amongst the companies whose practices were highlighted by the APP was the Eurasian Natural Resources Corp – accused of buying assets via an offshore company registered in the British Virgin Islands for a fraction of their market value. The APP report states that offshore entities including the Fleurette Group – a company linked to Israeli businessman Dan Gertler, who has close ties to the DRC government – made returns on five deals of $1.6bn on assets purchased for $275.5m.
With tax avoidance at the top of the agenda at the G8 meetings in June, the problem is very much an international one, Mr Masiyiwa says. “These aren’t issues that are unique to Africa. There is global awareness now of the existence of practices by the corporate sector to avoid tax, and it is a problem that exists even in the United States or in Britain, with the Starbucks, the Googles of this world,” he explains. “But if in a developed, highly sophisticated country like the United Kingdom there can be an outcry about the ability of companies not to pay tax, not to feel responsibility to society, then you can imagine the problem somewhere like the Democratic Republic of Congo.”
Of course, while the implications of tax avoidance in developed nations like the UK and US are revenue loss, “in Africa these practices cost lives”, Mr Masiyiwa points out.
Indeed, the failure of African countries to collect revenues from resource sectors may, in part, explain why human development records in the continent’s resource-rich countries are so variable. In the DRC, for instance, there has been no increase in the rate of reduction of child mortality since 2000.
Despite concerns around the dependency of Africa’s growth on commodities and the failure of resource-endowed nations to diversify their economies, Mr Masiyiwa does not come down too hard on resource-led development. “Africa’s growth figures are real and there is nothing wrong with resource-based growth – you can tell that by looking somewhere like Australia, or Canada, or even Brazil,” he says. “The issue is whether you can make that resource-based growth [into] equitable growth. We do not want to see jobless growth, particularly when we have a youth bulge. You will have a very explosive cocktail if people are hearing about increasing wealth and prosperity but they are not seeing it.”
Addressing issues of equity will require a reassessment of the terms of resource licences in many African countries where “some of the extraction agreements are lopsided and are not being negotiated properly”, Mr Masiyiwa argues.
“In most instances the contracts that have been issued are not corrupt, and the people who negotiated them were well meaning, but they just didn’t have sufficient skills to see that the concessions they were giving were too deep,” he says. “But now there needs to be greater transparency in the way that they are negotiated, and governments need to ensure that they are beneficial to the people of those countries.”
This is already top of the agenda for a number of governments, which are targeting foreign-owned miners and oil companies for higher rents and larger shareholdings in a bid to maximise revenues from resource sectors.
Among them is Ghana, Africa’s second-largest gold producer, which has set up a committee to review stability investment agreements with mining houses to ensure that mining profits are “maximised…[for] the good of the country”. Last year, the government also increased corporate tax rates on miners from 25 to 35 percent, while a law introducing a 10 percent windfall profit tax on mining companies is set to be finalised and passed by parliament within the next fiscal year. In February, Zambia announced that it had revoked the contract for the controversial Chinese-run Collum coal mine due to the operator’s failure to pay mineral royalties as well as violations of environmental and safety laws. Guinea, home to the world’s largest bauxite deposits, more recently selected law firm DLA Piper to help it renegotiate contracts with companies including Vale and Rio Tinto. Its aim is to ensure that licenses match the principles of its new mining code. That law more than doubles the government’s potential stake in mining projects to 35 percent.
“The Guineans have been quite impressive in the way that they are reviewing and publishing some of these contracts and allowed people to view and discuss them,” Mr Masiyiwa says.
New rules from the EU requiring oil, gas and mining companies to publish the payments they make to foreign governments may also help, he argues. The directives, passed by the European Parliament in July, follow similar legislation passed in the US via the Dodd-Frank Act, which demands transparent reporting by companies registered with the Securities and Exchange Commission. Together, the EU and US rules will capture 73 percent of the value of the global extractives market. Canada has also indicated that it will implement similar standards, paving the way for a global standard.
However, some companies see the measures as anticompetitive, and the cooperation of other G8 and emerging economy players will be necessary in order to create a real ‘publish what you pay’ standard on revenue reporting, Mr Masiyiwa argues.
“We are very excited about what Dodd-Frank and Europe are doing, but you can’t go global on an issue like this if China or India or Brazil aren’t prepared to play, because they are so significant in Africa,” he says. “We need to work towards creating a level playing field for everybody. If we don’t broaden the reach of these regulations that’s when the private sector says that it is an unfair system.”
The management of the continent’s resource sector may face roadblocks, but progress is nonetheless impressive, Mr Masiyiwa argues. “You have to put this all in perspective.
Twenty years ago, less than 10 countries in Africa were having regular elections that would pass a democratic test. Today, less than 10 countries are not having elections that could be considered democratic,” he says. “That’s a huge shift forward in quality of governance – albeit off a low base. And because of this improvement in governance, the growth that we are seeing is absolutely real and is absolutely sustainable.”
Original Source: This is Africa
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