“Put an end to the secret, murky and exploitative deals that have robbed Africans of the gains of their natural resource wealth.” As G20 finance ministers meet in Moscow, Kofi Annan urges their governments to seize the current opportunity to stop illicit tax practices.
There is a growing global consensus about the corrosive effects of unfair tax practices. Spurred by the tough economic climate, citizens around the world are now increasingly aware that there is no level playing field when it comes to paying tax. Something is indeed gravely amiss when multi-billion dollar companies are paying a lower rate of tax than the citizens from whom they derive their profits. Corporate tax evasion and avoidance drains public coffers, costing governments billions of dollars in lost revenue each year.
While these practices are endemic globally, no region has suffered more from tax evasion and aggressive tax planning than Africa. The continent loses more in illicit financial outflows than it receives in international aid.
The costs to Africa are greater still when we consider the potential impact of the lost revenue. With their abundant oil, gas and mineral reserves, African governments literally have the raw materials needed to lift millions of their people out of poverty. By using the revenues from their natural resources to invest in health, education and infrastructure, the continent’s resource-rich countries can make dramatic gains in poverty reduction and human development.
International tax evasion and avoidance robs African governments — and their people — of the fair proceeds of their own resource wealth. Instead of being used to improve the lives of the communities where the resources are found, these profits are often diverted to tax havens and offshore centres abroad. Africa’s development potential is being short-circuited by these unconscionable practices.
The global nature of the problem calls for a robust, multilateral response. I was delighted to see the G8 take positive steps to crack down on tax evasion and avoidance during their summit last month. As the G20 leaders prepare to meet, they should take up the mantle and further this progress.
Africa’s unshared wealth
The 20 resource-rich countries in Africa
Central African Republic
Democratic Republic of Congo
Republic of Congo
Africa is home to vast natural resource wealth, from diamonds and cobalt in the Democratic Republic of the Congo to natural gas and coal in Mozambique. Fuelled by the global commodities boom, Africa’s resource-rich countries are experiencing dramatic growth; half of them saw their average income rise by one-third or more over the past decade. Yet this increased prosperity has not been shared in by those who would benefit from it the most. While countries such as Tanzania and Mozambique have dramatically reduced extreme poverty over this period, Nigeria and Zambia actually registered small increases in poverty despite increased growth.
Despite this uneven progress, the human development record of the past decade shows the results that are possible through good governance, strong economic growth and strengthened policies. For the first time in over a generation, the number of people in poverty in Africa has fallen. Child death rates are declining. There has been progress in combating major infectious diseases. More of Africa’s children are in school. Effectively harnessed, there is no doubt that the revenues from the continent’s natural resource wealth can transform the lives of its citizens.
A drain on Africa’s public purses
While African leaders must take bolder measures to better manage and more equitably use their countries’ resources, we must recognise that a major obstacle lies beyond their shores. Their ability to convert their natural riches into increased prosperity for their citizens is compromised by the tax evasion and avoidance tools deployed by foreign investors.
Africa loses a staggering amount of money from the use of shell companies, offshore companies and tax havens by multinational companies. It is virtually impossible for the region’s understaffed and poorly resourced tax authorities to track payments through these opaque webs. Transfer pricing — the practice of shifting profits to lower tax jurisdictions — costs Africa US $38.4 billion annually. The international community has the responsibility to act; together, they must stop illicit tax practices from draining Africa’s public purses.
A global response to tax evasion and avoidance
At the G8 summit in Northern Ireland last month, the leaders of the world’s major industrialised countries put tax and transparency firmly on the international agenda. The Lough Erne Declaration identified several measures needed to tackle tax evasion and avoidance, including exchanging information between tax authorities and strengthening developing countries’ capacity to collect the taxes owed to them. While the G8 leaders should be congratulated for taking these steps to create a fairer global business environment, much more remains to be done.
As the G20 finance ministers meet in Moscow today ahead of the G20 summit in September, they should build on these previous efforts. The United States and the European Union have already led the way by demanding increased transparency from oil, gas and mining companies. If implemented, the US Dodd-Frank Act and EU Accounting and Transparency Directives would make major inroads into stamping out corruption and improving accountability in the extractives sector. It is now time for all governments to commit to a global transparency standard modeled on these landmark measures.
There must also be greater legislative commitment to compel companies in every jurisdiction to disclose their ‘beneficial ownership’ – who ultimately owns, controls and benefits from them. For too long, companies in many countries have been able to operate under cloaks of anonymity, skirting law enforcement and tax authorities as well as corroding public trust. Creating public registries of company owners would help to stem the tide of tax evasion, money laundering and other illicit transfers.
It is clear that a shared global agenda has emerged on tackling illicit tax practices; this must now be followed by a shared global response.
Seizing the opportunity for change
This is a unique moment where world leaders, industry and civil society have overlapping interests for policy change at the highest levels. We must not let this opportunity slip away.
The international community can put an end to the secret, murky and exploitative deals that have robbed Africans of the gains of their natural resource wealth. By doing this, we will help to ensure that the revenues from Africa’s resources can be invested in its people, creating opportunities for future generations.