Mining in Africa: Defying the laws of profits… to lose

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Non Governmental Organisations have just published a report from a study conducted on some of the fiscal irregularities of mining companies and mineral rich African countries. In the report, the NGOs denounce the unjustified tax exemptions accorded to international mining companies and the opacity of some contracts, which only serve to swell the bank accounts of certain African officials.

Millions of dollars from the mining industry escape taxation on the African continent every year. This is indicated in a recent report released by several non-governmental organisations NGOs). Entitled “Breaking The Curse”, this study is mostly concerned with the cases of Ghana, South Africa, Democratic Republic of Congo, Sierra Leone, Zambia, Malawi and Tanzania.

According to the report, the vast losses in revenue for mineral rich countries are as a result of subsidies accorded to the rich multi-national companies by host governments, the practice of gross tax evasions by the multi-nationals and the inability of some African countries to correctly audit these mining companies.

A country like Ghana, Africa’s second biggest gold producer, is said to be losing over 68 million dollars per annum due to the weak royalties it receives from mining companies. Royalties, which according to the law is supposed to be set at 12 per cent, have always been at a meagre 3 per cent. According to the report, if the level of royalties as set by law had been adhered to between 1990 and 2007, Ghana would have raked in “US$1.163bn (if royalties had been paid at 12 per cent) and US$387.74m (if royalties were paid at 6 per cent).”

Gold represents 90 per cent of Ghana’s exports. In Tanzania, another major gold producing country, losses are estimated at 30 million dollars per annum according to the report.

Secret contracts with officials

“Breaking the Curse” also questions the opaqueness of financial deals and transfers to government accounts. The report insists that some of these companies do not pay these essential taxes because of secret contracts some of them may have signed with the various governments. The African mining industry is said to benefit only four categories of persons, namely; Politicians, Shareholders of Mining Companies, Engineering Consultants and Financiers.

The document further indicates that these mineral rich countries have been incapable of taking advantage of peak market periods in favour of precious metals. The NGOs also point out that, even though the present market trend is not as favourable as the first half of the year 2008, prices have still remained competitive. Among some of the figures they have provided to prove this point is a 269 per cent increase in the price of precious metals between January 2002 and April 2008. This increase in demand, the report says, has been possible thanks to a high demand from emerging economies, particularly China and India.

Countries like South Africa, Tanzania and the Democratic Republic of Congo have recognised the great losses they have suffered and have moved to revise their fiscal laws. But the revision of these fiscal laws is not enough. Wole Olaleye, a researcher with ActionAid, the NGO behind the study, argues that the terms of contracts for these mining companies should be made public to avoid corruption.

Download the document: Breaking the Curse

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