Multinationals exposed for shady mining deals

March 25, 2009

, NAIROBI, Kenya, Mar 25 – African countries are reportedly losing 90 billion dollars of revenue through tax evasion by international mining companies, a new report has revealed.

Titled, “Breaking the Curse” by Action Aid observed that African countries rely heavily on aid from foreign donors yet they were rich in mineral and other resources.

“It is surprising how potentially wealthy nations depend, almost at alcoholic proportions, on aid from countries in the West and most recently Asia,” Brian Kagaro, Action Aid Pan African policy Manager said.

 “If Africa is truly a mineral-rich continent, why are its people languishing in poverty?”

Mr Kagaro pointed out that Africa’s challenge was the lack of technical capacity to extract minerals opening the door for international organisations.

He said the international mining companies employ underhand tactics to pay as little tax as possible.

“Forcing governments to grant concessions by threatening to go elsewhere and falsifying accounts depressing profit margins to evade tax are some of the measures employed by unscrupulous organisations to defraud governments,” Mr Kagaro added.

Another method, according to the report is using secrecy when signing contracts to pursue aggressive tax avoidance strategies.

The report puts blame on governments in some few cases. In the case of the Democratic Republic of Congo, corrupt politicians award illegal tax exemptions to mining companies in return for private gain.

Allowing ministers to negotiate tax deals with individual mining companies has often led to lower royalties, taxes and levies than those stipulated by law, according to the study.

The report also highlights that mineral exploitation often leads to environmental degradation and in most cases to the evolution of crisis.

D.R Congo accounts for a third of the world’s total natural resource deposits but has been plagued by civil war for many years. Sierra Leone is another example where diamond exploration has seen the emergence of warlords.

Professor Olusanya Ajakayie Research Director at African Economic Research Consortium believes the root cause of this problem arises from weak laws and institutions of governance.

Professor Ajakayie calls on policy makers to take a more active role and come up with better laws that would ensure they benefit from the exploration.

“Our leaders should overhaul the existing mining laws that would ensure our countries benefit from their natural resources,” He said.

The report calls for scaling up of financial assistance to African countries to improve their capacity to monitor and audit the accounts of mining companies and the establishment  of a new international accounting standard for extractive industries which would require them to report their profits.

The report was jointly commissioned by Christian aid, ActionAid International and Tax Justice Network Africa.

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