[dehai-news] (IPS): MINING-AFRICA: Help Yourself, There's Plenty

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From: Berhane Habtemariam (Berhane.Habtemariam@gmx.de)
Date: Sun Mar 29 2009 - 06:37:33 EST

MINING-AFRICA: Help Yourself, There's Plenty

Joyce Mulama

NAIROBI, Mar 29 (IPS) - The African continent is rich in natural resources;
but the terms under which multinational companies exploit these resources
mean that governments - and Africa's people - enjoy only a tiny fraction of
the benefits.

Favourable legislation has set low royalty rates, which combines with mining
contracts - often negotiated behind closed doors - that routinely grant
companies further tax concessions and holidays of up to 25 years. On top of
this, Africa loses vast sums each year to corruption and illegal tax evasion
by multinational corporations (MNCs).

The Tax Justice Network for Africa (TJN-A), ActionAid, Southern Africa
Resource Watch, Third World Network Africa and Christian Aid - all
non-government organisations with an interest in an equitable world trade
system that will enable development - have just published a report titled
"Breaking the Curse: How Transparent Taxation and Fair Taxes can Turn
Africa's Mineral Wealth into Development."

The document draws on evidence from seven mineral-rich countries including
Ghana, Tanzania, Malawi, Zambia, South Africa, the Democratic Republic of
Congo and Sierra Leone, to reveal questionable accounting practices by
multinational companies that conceal the true value of their operations
while a mixture of secrecy and flawed laws passed by parliaments across the
continent further deprive Africa's people of revenue.

For example, Zambia's mining law allows the minister in charge to give
mining rights to a company without consulting anyone. "Surely the minister
is open to corruption because these contracts are not subject to any form of
scrutiny. This paves way for non-transparent transactions," a senior
official in the country's environment ministry told IPS on condition of

Similarly, the report is critical of mining laws adopted under pressure from
the World Bank, which pushed for low tax rates to attract foreign investment
in mining. "African governments have enacted laws giving tax subsidies to
the industry and mining companies have been pushing for tax breaks in secret
mining contracts, amounting to an aggressive tax avoidance strategy," says
the publication.

It cites Ghana and Tanzania, where low royalty rates cost treasuries 68 and
30 million dollars respectively in 2008. For South Africa, the figure is 359

Tax breaks granted in Malawi cost the treasury 16.8 million dollars; in
Sierra Leone eight million. The tax exemption on a single mining contract in
the DRC may have cost the treasury 360,000 dollars a year.

"The same governments continue to borrow almost to alcoholic proportions
from the developed world; they borrow in order to finance education, water
and sanitation. They borrow actually to provide basic services," observed
Brian Kagoro, the policy manager for ActionAid International.

This is in contrast to the situation in the 1960s and 1970s, when mostly
state-owned companies reaped healthy profits from mineral exploitation. In
some cases this revenue only fed massive corruption by African leaders like
Mobutu Sese Seko in what is now the Democratic Republic of Congo, but in
Zambia for example, it enabled strong investment in agriculture, healthcare
and education.

"When you look at the potential revenue lost as a result of tax concessions,
you realise that what was being borrowed could have been financed by an
equitable tax structure or equitable royalty," Kagoro added.

The establishment of mining tax regimes that so strongly favour
multinational corporations dates back to the early 1990s when the World Bank
asked Africa to open up its mining sector to foreign private investors.
Governments facing heavy debt loads, and unable to raise capital for
investment in the sector directly, were persuaded to offer favourable terms
to mining corporations - frequently entering into long-term agreements that
left the high profits from the 2002-2008 commodity boom in the pockets of
the corporations.

Corruption by African leadership continues, of course, but the "Breaking the
curse" report highlights a less-noticed aspect: sharp accounting practices
by multinational companies that allow them to evade taxes by over-valuing
imports and under-valuing exports as equipment and mined ore is transferred
between subsidiaries of the same company in various countries, or by
overstating operating costs.

To be able to tap the profits made from mining for development, the report
says the continent must reform its laws to have uniform tax rates and tax
holiday periods, as well as embrace legislation that ensures mining
contracts are scrutinised by parliaments, to guard against corruption. But
critics say the responsibility to address corruption is not only Africa's
but for the developed countries as well, where the mining companies come
from and where capital flight from Africa is stored.

"An act of corruption involves two parties. The developed countries also
have to play their part. We must all act together to end corruption," said
Prof. Olusanya Ajakaiye of the African Economic Research Consortium.

To address the question of illegal tax evasion by mining multinationals, the
report calls for the International Accounting Standards Board to adopt a new
accounting system compelling mining industries to issue clear statements
about their profits and expenditure as well as taxes paid in each financial
year on a country-by-country basis.

This will go a long way to address the challenge facing tax authorities in
most of Africa. Jack Ranguma, a former Domestic Tax Commissioner in Kenya ,
points out that tax data is still collected and processed manually, meaning
that catching companies concealing profits or mis-pricing transfers between
their subsidiaries is almost impossible.

A massive titanium mining project in Kwale District, on the Kenyan coast,
highlights many of the problems covered by this report. Titanium deposits in
the area amount to 3.2 billion tonnes - 14 percent of the world's titanium
resources. The mine will be operated by Tiomin Resources, a
Canadian-headquartered firm that was granted mining rights over 10 years
ago, but disagreements among its shareholders are holding up the
commencement of mining operations.

"The arrangement is that Tiomin is supposed to be set up as an EPZ (Export
Processing Zone), which means that were it to commence operations, it would
enjoy a wide range of tax incentives including tax holidays of 10 years,
exemption from withholding tax among others," Mosioma said.

Activists are calling on the Kenyan government to learn from the experience
elsewhere on the continent and revise terms of the deal to the benefit of
Kenya's people when the project takes off.


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