Building capacity to help Africa trade better

Africa faces the devil’s choice amidst huge natural resources


Africa faces the devil’s choice amidst huge natural resources

Africa faces the devil’s choice amidst huge natural resources
Photo credit: Ghanamma.com

The leaders of Africa, the world’s poorest continent in terms of economy but richly endowed in natural resources are facing the devil’s choice: to either invest their natural resource revenue in people in order to generate jobs and opportunities for millions now and in future – or squander those resources – and allow lack of jobs and inequality to take root.

This is the verdict of the Africa Progress Panel, contained in a report released here on Friday during the last day of the World Economic Forum for Africa.

Chaired by former UN Secretary-General Kofi Annan, the ten-member Africa Progress Panel advocates the agenda for equitable and sustainable development in Africa be addressed at the highest levels of the continent’s governance. The Panel releases its annual flagship publication, the Africa Progress Report, every May.

According to this year’s report, Africa is standing on the verge of enormous opportunities, and that African policy-makers face critical choices to ensure that the continent’s huge natural resources are harnessed to transform the lives of millions of people languish in poverty.

In many African countries, natural resource revenues are widening the gap between rich and poor and, though much has been achieved, a decade of highly impressive growth has not brought comparable improvements in health, education and nutrition.

Citing Tanzania as a case in point, the reports says that the country’s reformed mineral sector had raked in about $2 billion (Sh3.2 trillion) a year from exports of gold, diamond and Tanzanite over the past decade, but the economic impact of these huge economic gains to the people still remain largely elusive.

According to official statistics from the Bank of Tanzania, the country exported gold worth $11.3 billion between 1998 and 2011; in return, the government earned only $450 million or 4 percent as taxes and royalties. In the meantime, Tanzania last year announced a major discovery of 35 trillion cubic feeds of natural gas in the southern and coast regions, making it one of the continent’s major gas producers in future, a move that has attracted key foreign players from Europe and China.

Preliminary findings show that Tanzania would earn about $3.5 billion in revenues a year from the gas industry, but the question remains whether these monies will mean anything to the millions of poor in a country where per capital income is estimated at a paltry $500, the lowest in Sub-Saharan Africa.

The Africa Progress Panel is convinced that Africa can better manage its vast natural resource wealth to improve the lives of the region’s people by taking bold steps to improve transparency and accountability – both key to any national agenda.

However, an international syndicate of tax avoidance and evasion, corruption, and weak governance represent major challenges – and the report welcomes the commitment of the current G8 presidency, the United Kingdom, and other governments to put tax and transparency at the centre of this year’s dialogue. It urges all OECD countries to recognize the cost of inaction in this vital area, in itself sound argument given the fact that Africa loses twice as much in illicit financial outflows as it receives in international aid.

The Africa Progress Panel finds it ‘unconscionable’ that some companies, often supported by dishonest officials, are using unethical tax avoidance, transfer pricing and anonymous company ownership to maximize their profits, while millions of Africans go without adequate nutrition, health and education.

The report details five deals between 2010 and 2012, which costs the Democratic Republic of the Congo over $1.3 billion in revenues through the undervaluation of assets and sale to foreign investors. This sum represents twice the annual health and education budgets of a country with one of the worst child mortality rates in the world and seven million pupils out of school.

Kofi Annan, who chairs the Africa Progress Panel, says: “Tax avoidance and evasion are global issues that affect us all. The impact for G8 governments is a loss of revenue. But in Africa, it has direct impact on the lives of mothers and children.

Throughout the world, millions of citizens now need their leaders to step up to the mark and lead. Fortunately, momentum for change appears to be accelerating.”

Different partners have similar goals and their interests overlap, the report finds.

Building trust is harder than changing policies – yet it is the ultimate condition for successful policy reform. This year’s report identifies a shared agenda for change: African governments must improve their governance and strengthen national capacity to manage extractive industries as part of a broader economic and developmental strategy.

African governments are also urged to slate transparency and accountability at the top of of natural resource policies, secure a fair share of their natural resource revenues for the benefit of their citizens, and spread those gains via equitable public spending. The global community should build on the US Dodd-Frank Act and comparable EU legislation to develop an world-class standard for transparency and disclosure, develop a credible and effective multilateral response to tax evasion and avoidance, and tackle money laundering and anonymous shell companies.

The report further urges international businesses to follow best practices on transparency, help build national capacity, procure more products and services locally, and raise standards in all areas of corporate accountability and responsibility; at the same time, civil society should build capacity and continue to hold governments and companies to account.

Graça Machel, President of the Foundation for Community Development and Founder of the Graça Machel Trust and member of the Africa Progress Panel, says, “This report makes a critical contribution to debates on Africa’s natural resource wealth. If its recommendations are taken, Africa will accelerate progress towards the Millennium Development Goals. More kids will go to school, fewer women will die in child birth, and more children will survive their childhood.”

Strive Masiyiwa, Chairman and Founder of Econet Wireless and member of the Africa Progress Panel says: “While some major companies show outstanding leadership on transparency, others show a disregard for ethics and human lives. By cheating the system, they make work harder for honest business.”

Linah Mohohlo, Governor of Botswana’s Central Bank, also member of the Africa Progress Panel, says: “Botswana’s key lesson has been that Africa’s natural resources belong to the people.

“In this way, diamonds became the country’s relative economic success.”


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