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Lack of transparency in mining sector killing Africa’s potential

Sunday January 01 2012

Secrecy in handling mining contracts and lack of disclosure on oil and mining revenues are crippling Africa’s mineral potential, denying the continent billions of dollars as commodity prices rise.

Experts meeting in Addis Ababa last week warned that while the sector has benefited from the recent commodity boom with net profits for top 40 mining companies expanding by 156 per cent to $110 billion this has yet to translate into substantial benefits for African countries due to governance issues within the sector.

“Contracts remain mired in secrecy; communities continue to be marginalised,” said Stephen Karingi, director of the Regional Integration, Infrastructure and Trade Division at the United Nations Economic Commission for Africa (UNECA) .

Mr Karingi while speaking at the African Union Conference of Ministers responsible for mineral resources said while high earnings in the past seven years have prompted countries like Australia and India to increase taxes on windfall earnings, in Africa, countries have not taken advantage of the current mineral commodity price boom to review their tax regimes.

Since 2003, mineral commodity prices have surged on account of high demand in emerging countries like China, India and Brazil.
“We are hesitant to increase taxes on account that we might frighten away the goose and hence have no more golden eggs!

I am not sure that so far we have any golden eggs,” he said, in reference to African countries losing out on mineral revenue in their quest to attract foreign investment.

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A report on Africa’s mineral development regimes by the International Study Group released last week, stated that while foreign investment has regenerated and expanded mineral production and exports, its contribution to social and economic development objectives has been far less certain and has even been contested in many countries.

The report further said African countries have not been getting adequate compensation from the exploitation of their mineral resources.

“The contribution from the development of the mineral industry to the national economy needs to be enhanced... the public should be well aware of the revenues generated from the sector and how they are being spent,” Mr Karingi said.

But according to Yao Graham, co-ordinator of the Accra based Third World Network – Africa, an NGO engaged in advocacy on development issues, more transparency and accountability is needed within the private sector, particularly mining companies.

“There is a need for more transparency and accountability from companies in relation to the kind of transactions they undertake because it is well established now that transfer pricing by companies and mis-pricing by companies drain a lot of resources out of African countries,” he said.

“If we paid more attention to what companies are doing we would be able to tremendously increase the amount of revenue that comes to countries because those mechanisms basically reduce the tax base of countries,”

Mr Graham said governments should be more vigilant and aware of double standards by big corporate companies which frequently “advertise” their social corporate responsibility projects, while also pushing for tax holidays that deprive governments of revenue tax policies and in aggressively avoiding tax.

“Where is the ethic in building a few toilets (corporate social responsibility)...when the focus of your corporate energy is on avoiding tax?” he said, adding that if companies want to show corporate social responsibility it must also be reflected in their tax strategies that they are contributing an optimum amount to the tax revenue.

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