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30 April 2014

Africa Cheated Of US$38 Billion Annually Through Trade Mispricing: Report.

African countries are losing US$38 billion dollars a year through trade mispricing, according to a recent report published by the Africa Progress Panel, a group of 10-eminent persons set up to promote equitable and sustainable development for Africa.

Mispricing is where one undervalues imports and exports to avoid paying the appropriate amount of taxes.

The report reveals that billions of dollars are leaving Africa through illicit deals such as tax avoidance and evasion, unfair pricing practices and secrecy around company ownership and revenue flows.

"We calculated, with the help of Global Financial Integrity, that there was US$38 billion leaving Africa every year through trade mispricing, where you undervalue the prices of your imports and exports so you don't have to pay the appropriate amount of tax," the report says.

Other illicit outflows, such as funds that are illegally earned, transferred or utilised as well as unrecorded private financial outflows, are estimated to total US$25 billion.

In fact, the report highlights that Africa loses more through illicit outflows than it receives through aid and foreign direct investment (FDI).

"And we estimate when we look at the Democratic Republic of the Congo (DRC) that they undervalued just five deals by US$1.4 billion over a matter of two years," said Caroline Kende-Robb, executive director of the Africa Progress Panel.

"And these are massive amounts of money that are flowing out, that people have difficulty tracking, because of the lack of transparency."

She added that with beneficial ownership and a large portion of companies registering in offshore accounts, it is also difficult to know who owns which companies and where mining goods, taxes and financial inflows are actually going.

"But this is now on the agenda so I think we are seeing an alignment of interests where people recognise that there has to be more transparency," she said, adding that this was one of the central discussion points at the G8 Summit last year.

"This whole issue of tax justice is affecting everybody. It's affecting the tax base in Africa and in Europe and these European countries with the financial crisis in their own region."

The Africa Progress Panel, which is chaired by former United Nations secretary-general Kofi Annan, consists of 10 influential members who advocate for shared responsibility between African leaders and their international partners to promote fair and sustainable development for Africa by ensuring that African issues remain prominent in global discussions.

One major issue the panel wants to bring to international attention is how local communities can benefit from the extractive companies operating in their areas.

Kende-Robb said many of the mining companies operating in Africa are now beginning to understand that they need a "social licence" to operate within communities.

"I think that some of the companies are now saying to us that this can't be a short-term relationship between the communities and themselves. They have to think more long term, and [they] can't see the communities as a liability," she said.

"Without the support of the communities, the companies will get into very big trouble and that will affect their reputation, which affects their long term investment."

Kende-Robb added that mining companies should place community development at the top of their agendas, not just for the community's benefit, but for the sustainability of the company's operations too.

"It's about partnering with communities to make sure that they are part of the development process because business should not be seen outside society.

"Business and society should be joined to add social value hence increasing the chances of sustainability in the longer term. It's good for business; it's good for society," she emphasised.



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