Nest-egging for a rainy day

The boom years of the commodities and the fast-growing African economies produced a growing class of millionaires and billionaires. According to a study by Capgemini and RBC Wealth Management, there were nearly 150,000 “high net worth individuals” in Africa by 2014, sharing wealth of $1.44tn.

But the revelations of the Panama Paper has the rich and famous worldwide squirming as their financial dirty laundry gets a public airing. Some of the documents released has uncovered illegal or scandalous conduct. But it may be revelations about the routine nature of offshore finance that have the most lasting impact. Mounting evidence suggests that a preference among African elites to shield their assets offshore means that inequality is greater than generally realised.

Between 1970 and 2010 an estimated $814bn flowed out of the continent, according to the Political Economy Research Institute at the University of Massachusetts.  “Most of the estimates we have for inequality leave out the fact that the top 1 per cent, in addition to all the money in their domestic accounts, have a lot of money offshore,” says James Henry, an expert in offshore finance and former chief economist of McKinsey & Company.

In Nigeria, Africa’s largest economy and top oil producer, for example, the number of individuals with assets over $1m surged by 44 per cent between 2005 and 2013, to 15,700.

Ethiopia, which has struggled with food insecurity and famine for decades, is producing millionaires at a faster rate than anywhere else on the continent. Between 2007 and 2014, the number more than doubled, from 1,300 to 2,700, according to New World Wealth, a consultancy based in the UK and South Africa.

The offshore industry has been growing since 2010 as stock markets in the region have taken off. The gains tended to accrue to a small elite and, thanks to the increasing ease with which money can be moved, the rate at which it flows offshore has surged. Global Financial Integrity, an NGO, estimates that illicit flows out of Africa are increasing at a rate of 20 per cent a year.

“Most ordinary people do not have stocks, so it is simply a result of the ownership of securities that has been a fact,” says Mr Henry at McKinsey. “What we tend to find is that once it is offshore, [money] stays offshore and is reinvested . . . Basically people are looking at this as their nest egg for when they get thrown out of power or need to retire.”

While rainy day funds held offshore tend to stay there, an estimated 20 per cent of such assets do circulate back into domestic markets. One popular avenue is through privatisation. However, such investments tend not to stay in domestic markets for long, as the companies invested in can then be used as vehicles to shift significant amounts of wealth offshore. “In every respect, this is an extremely poor quality of investment,” says John Christensen, director of the Tax Justice Network.

The private banking industry that caters to Africa’s wealthiest, including their offshore needs, has attracted many of the biggest global banks. Swiss banks such as UBS, Credit Suisse and Julius Baer are all major players in African private banking, as are family-owned banks Pictet & Cie and Lombard Odier. Big French banks such as BNP and Société Générale as well as British banks HSBC, Standard Chartered and the upmarket Coutts are also significant players.

Johannesburg-listed Standard Bank is among the firms that have expanded their services to cater to Africa’s new class of wealthy individuals. In 2009 it established a Wealth and Investment business as an offshoot of its existing Private Clients division, catering to individuals with $1m in investable assets or more. Since then, its business in South Africa has trebled, while franchises in Nigeria and Kenya have each grown by over 50 per cent. Offshore is a key component of the services offered. “Almost all of our clients chose to externalise a part of their discretionary savings into safe havens such as our offshore jurisdictions,” says Deon de Klerk, Jersey-based head of Africa and International for Standard Bank Wealth and Investment. “This part of their wealth is seen as the nest egg and philosophically tends to be managed for long-term capital preservation,” he adds. “UK property has been very attractive over the past few years, and many wealthy Africans own second properties there.” The business currently has in excess of $12bn in assets under management worldwide.

Corruption and Tax Havens

Oxfam estimates, at least $18.5 trillion is hidden in tax havens worldwide. The organisation found that two thirds of this offshore wealth is hidden in European Union related tax havens while a third is in UK-linked sites where it is left undeclared and untaxed.  Oxfam said that their estimate is a conservative one. Tax Justice Network suggests that between $21 to $32 trillion is being diverted into offshore companies. Oxfam found that tax dodging by multinational corporations alone costs the developing world between $100 billion and $160 billion per year. Added with profit shifting, approximately $250 billion and $300 billion is lost. This “missing” money could lift every person above the $1.25 per day poverty threshold three times over, according to Brookings Institution calculations. Oxfam added that for every $1 billion lost through commercial tax evasion, 11 million people at risk across the Sahel region could have enough to eat, 400,000 midwives could be paid in Sub-Saharan Africa which has the highest maternal mortality rates, and 200 million insecticide-treated mosquito nets could be purchased to reduce child mortality from malaria.

Former governor of Nigeria’s oil-rich Delta State James Ibori was also implicated in the Panama Papers,allegedly using Mossack Fonseca as an agent for four offshore companies in Panama and Seychelles. These entities provide anonymity, hiding true owners’ names and actions and thus allowing for finances and assets to be undeclared and untaxed.

Though he was detained in 2012 for diverting up to $75 million out of the country, Nigerian authorities estimate that Ibori stole and stored over $290 million in tax havens.

Like Uganda, Nigeria ranks low in health indicators, contributing to some 10 percent of global maternal, infant and child deaths. Poverty has increased in the country with 61 percent living below the poverty line, according to the most recent Nigerian Bureau of Statistics report.

The Niger Delta region in particular, despite being a significant contributor to the country’s economy through oil production, remains the poorest and least developed region in Nigeria. In Ibori’s Delta state alone, 45 percent of people live in poverty. The UN Development Programme (UNDP) report found that the majority of people in the region lack access to potable water, electricity, health facilities and infrastructure including roads and telecommunications.

“Have you seen any taps here?…Water used to run in public taps, but that had stopped 20 years ago. We basically drink from the river and creeks…hygiene is secondary,” a Niger Delta Resident told UNDP.

Though Ibori’s stashed money represents only a slice of Nigeria’s budget, it is indicative of a global and pervasive problem that goes beyond Mossack Fonseca.

Transparency International’s Senior Policy Coordinator Craig Fagan told IPS: “If you think about the millions of files that have been released and the number of high profile individuals [in the Panama Papers], this is just one law firm in Panama. We can be certain that there are many other law firms whether in London, Hong Kong, New York, Miami that are operating similar structures,” he said. The Swiss Leaks in 2015, revealed how over 106,000 clients from Venezuela to Sri Lanka hid more than $100 billion in Swiss HSBC bank accounts.

This is the same rigged system that has created the situation where the wealth of the richest 1% surpasses the combined wealth of the rest of the world.

Uganda and the Panama Papers

The Panama Papers show how an oil  company based in Jersey, a British crown dependency, attempted to avoid paying $400m (£280m) in Capital Gains Tax to the Ugandan government.

 In 2010, Heritage Oil and Gas Ltd realised it would be hit with a huge tax bill and started making efforts to avoid it by moving the country where the company was registered from the Bahamas to Mauritius. Mauritius has a double-tax agreement with Uganda, which in principle means companies pay tax in only one of the two countries. Since Mauritius does not impose any Capital Gains Tax, charged on the sale of assets, this would mean Heritage reduces its bill to zero.

An accountant acting on behalf of Heritage said the move to Mauritius would act as a "second line of defence" in efforts to "eliminate the potential tax charge imposed by the Ugandan authorities". Elsewhere, he was more precise: "We are looking to re-domicile Heritage Oil and Gas Ltd. [HOGL] to Mauritius (primarily due to the double tax agreement between Uganda and Mauritius). HOGL… is due to complete the sale of an asset in Uganda within the next 11 days. "Due to tax reasons emanating from Uganda, the directors have been advised by tax accountants to re-domicile HOGL to Mauritius from the Bahamas before completion."

The legal services head of the Uganda Revenue Authority (URA), Patience Tumusiime Rubagumya, told the BBC that the "re-domiciliation of Heritage had tax avoidance manoeuvres written all over it". The leaks, if true, only go to validate the position taken by URA as far back as January 2010." The dispute over the $400m tax bill has been dragging on since 2010 in a lengthy series of court battles in both Uganda and the UK. A Tax Appeals Tribunal heard the case, as the company denied it was liable to Capital Gains Tax on the sale of its assets. While the tribunal ruled in favour of Uganda, Heritage disputed the decision and the case was moved to a court in London and dragged on for months.

In the meantime, the Ugandan government clamped down on the new owners of the oil assets, Tullow Uganda Ltd, and relations between the two started to break down. In an attempt to salvage its business operations in Uganda, Tullow paid the Ugandan government and later successfully sued Heritage to reclaim the money.

In a region littered with mineral deposits of many sorts, and brimming with exploration being carried out by foreign companies, the revelations contained in the Panama Papers highlight the need to tighten tax laws, says Ms Rubagumya. "Base erosion and profit shifting through aggressive tax planning, treaty abuse and double non-taxation requires concerted effort from the revenue authorities and policy makers," she told the BBC. "African countries should therefore close all potential loopholes and stand firm to ensure that tax due is paid." 

Mossack Fonseca, is named as the registered agent of Heritage, whose founder Tony Buckingham is, according to the London-based Guardian newspaper, a donor of UK Prime Minister David Cameron's Conservative party.

Tax Evasion Revealed

Oxfam found companies based in the G7 nations made big profits from African operations and are fleecing Africa for nearly £4 billion a year in taxes, their report claims. They use a dodge called mispricing to shift profits to low-tax countries like the UK and Luxembourg to avoid higher local levies.

The money avoided in tax is three times the amount needed to plug the healthcare funding gap in the Ebola-hit states of Sierra Leone, Liberia, Guinea and Guinea Bissau.

Oxfam’s Nick Bryer, said: “Multinational companies, many with headquarters in the UK and other G7 countries, are cheating African countries out of billions of dollars in vital tax revenues that could help vulnerable people get decent healthcare and send their children to school.”

One quarter of South Africans go to bed hungry each night and a further 25 percent are at risk of missing a meal, said Malcolm Damon, director of Economic Justice Network for southern Africa. Governments need resources to reduce poverty, Malcolm Damon, director of Economic Justice Network for southern Africa said. "Though it is legal what transnational corporations are doing in transferring profits, the fact is that it is an immoral situation,"  in a telephone interview. 

Sadly, the best Oxfam came up with is a proposal for an international organization on taxes. But even economically sophisticated nations with complex rules and laws on taxes cannot stop the export of profits by off-shore accounting and tax havens.

The Real Black Economy

A Global Financial Integrity report conservatively estimates that between 2003 and 2012 $529 billion left Sub-Saharan Africa through illicit flows, growing an average 13.2 percent each year. If $529 billion seems hard to grasp, it's almost twice what Sub-Saharan Africa received in foreign direct investment and one-and-a-half times what it got in official development assistance in the same period. So for every $1 of foreign investment and aid, 84 cents leaves illegally. The system's like a sieve with billions of dollars falling through the cracks.

The lost billions are tied to expanding basic human rights and turning the continent's successful economic growth into things like jobs, service delivery, education and health. A leader of the World Bank has called illicit financial outflows a global priority, the White House has recognised the problem, the United Nations has a team on it and so does the African Union. On Monday, Global Financial Integrity president Raymond Baker said, “This is the ugliest chapter in global economic affairs since slavery.”

The Thabo Mbeki foundation traces the origins of illicit financial flows from Africa back to the 1960s, when elites in newly-independent governments were uncertain about stability and sought to stash money away in Western institutions. At the same time large corporations were globalising and looking to minimise corporate taxes. Essentially, the practice is the illegal transfer of money from one country to another, when funds are illegally earned, transferred or used. Think of tax havens and shell companies, a politician transferring dirty money offshore, criminal organisations laundering their cash through trade, terrorists doing wire transfers, or traffickers carrying suitcases of cash across borders.

Most importantly, think of multinational companies. According to Global Financial Integrity, corruption accounts for about five percent of illicit flows, criminal activity like drug trafficking and smuggling 30 to 35 percent, and transactions from multinational companies 60 to 65 percent. Addressing the African Union this year, Mbeki, chair of the high level panel on illicit financial flows, agreed “that large corporations are by far the biggest culprits responsible for illicit outflows, especially given their ability to retain the best available professional legal, accountancy, banking and other expertise”. They do it mostly through mis-invoicing, or lying about the commercial value of a transaction on invoices submitted to customs. It's often easy, because trading partners write their own invoices. Companies can evade taxes, claim certain tax incentives, and shift money into tax havens and secret accounts.

It's estimated that at least $122 billion was illegally transferred out of South Africa between 2003 and 2012, recording the tenth highest illicit outflows in the world (Nigeria was ninth). Ceasing illicit transactions does not mean the money would be available directly to spend on services, but to put it into perspective, the $29 billion estimated to have illegally left the country in 2012 exceeds the total 2015 education budget. It's something like 1,300 Nkandla upgrades. Curbing illicit financial flows would significantly boost tax collections in developing countries. Currently, these countries struggle to collect taxes from much of the population and those who can afford to pay, wealthy citizens and international companies operating in the area, are doing all they can to avoid paying, leaving governments with fewer resources to improve the lives of citizens. “Clearly, massive reductions in existing human rights deficits could be achieved by allowing poor countries to collect reasonable taxes from multinational corporations and from their own most affluent nationals, assuming the resulting revenues were appropriately spent,” said Yale University's Professor Thomas Pogge. 

  

Capitalism is Theft

Companies and government officials are illegally moving up to $60 billion out of Africa each year, according to a new report, depriving the world’s poorest continent of capital and tax revenue that could spur faster economic growth. The problem isn’t unique to Africa. Taken together, developing nations lost nearly $1 trillion through illicit channels in 2012, according to the Washington-based research and advocacy group Global Financial Integrity. The loss of capital is particularly painful here in Africa because development needs are so acute. The level of illicit financial outflows from Africa exceeds the official development assistance to the continent, which, according to the commission, stood at $46.1 billion in 2012.

Former South African President Thabo Mbeki said “large commercial corporations are by far the biggest culprits of illicit outflows, followed by organized crime.”

In Mozambique total declared exports of 260,000 cubic meters of logs were only about half of the amount China reported to have imported from the southern African country. That suggests that logging and shipping companies are intentionally underreporting the amount of wood they handle to pay lower taxes. In Nigeria, some companies and officials were colluding to secretly sell about 100,000 barrels of oil a day, a cottage industry the report described as “looting on an industrial scale.” And Ghana, Kenya and a half-dozen other African countries are believed to be losing tens of millions of dollars each year to a scheme mobile service providers use to make international calls appear to regulators as local calls, which are taxed at lower rates.

In some countries, regulation is too decentralized—Nigeria alone has 12 agencies with some responsibility for stemming illicit flows—offering wide regulatory and enforcement cracks for those who want to exploit them. And Africa’s 54 countries have little capacity to exchange information or help each other pursue potential tax dodgers.

“It is important to note that this isn’t just an African problem, much of the money that leaves Africa illicitly by way of corporate tax evasion or corruption ends up in banks within Europe and the United States”, said Henry Malumo, a coordinator at anti-poverty group Action Aid International.

Even as 300 million Africans entered what the African Development Bank calls a nascent middle class in the past 25 years, rapid population growth pushed the number of people living on less than $1.25 a day to 414 million from 290 million. While Africa’s economic growth of around 5% annually in the past decade has outpaced most other regions, Mr. Mbeki’s group said it won’t be enough to guarantee a better life for those hundreds of millions of poor Africans.

“The benefits of this growth have mostly been confined to those at the top of the income distribution and it has not been accompanied by an increase in jobs,” wrote the group, officially called the High Level Panel on Illicit Financial Flows from Africa.

http://www.wsj.com/articles/africa-loses-60-billion-a-year-illegally-report-says-1422794047

Aid Versus Raid

Western countries are using aid to Africa as a smokescreen to hide the "sustained looting" of the continent as it loses nearly $60bn a year through tax evasion, climate change mitigation, and the flight of profits earned by foreign multinational companies, the Guardian quoted as a group of NGOs has saying. The perception that such aid is helping African countries "has facilitated a perverse reality in which the UK and other wealthy governments celebrate their generosity whilst simultaneously assisting their companies to drain Africa's resources", the report claims.

Although sub-Saharan Africa receives $134bn each year in loans, foreign investment and development aid, research by a group of UK and Africa-based NGOs suggests that $192bn leaves the region, leaving a $58bn shortfall. According to the report, while western countries send about $30bn in development aid to Africa every year, more than six times that amount leaves the continent, "mainly to the same countries providing that aid".

It points out that foreign multinational companies siphon $46bn out of sub-Saharan Africa each year, while $35bn is moved from Africa into tax havens around the world annually. African governments also spend $21bn a year on debt repayments. Aid sent in the form of loans serves only to contribute to the continent's debt crisis.

Outflows Dwarf Money in Health Care and Prevention Budgets

New reports show that the Ebola-affected countries of Liberia, Guinea and Sierra Leone lose an average of $1.4 billion each year to corruption, debt payments and tax evasion. Global Financial Integrity (GFI) calculates the three countries lost about $1.3 billion per year to corruption and tax evasion in the decade leading up to the Ebola outbreak. New World Bank data indicates the countries spent over $80 million on debt payments in 2013, the year the outbreak began. According to the World Bank, the countries spent a total of $270 million on public health in 2012.

"Debt, corruption and tax evasion are part of why people die in West Africa," stated Eric LeCompte, Executive Director of Jubilee USA, a religious development coalition. "The money was there to contain Ebola and save more people from preventable diseases."

Guinea, where the outbreak began, spent more on debt payments in 2012 than it spent on public health. Guinea spent $207 million on debt payments in 2013 and 2012. According to the Financial Times, the three countries owe the International Monetary Fund (IMF) nearly $480 million.

Sierra Leone spent $2.3 million paying off debts since the IMF announced a debt relief plan in November and will spend nearly $2 million more before the end of the year.
The three countries accrued much of their current debt burden during civil wars, dictatorships and one-party rule. US Treasury Secretary Jacob Lew brought Jubilee USA's plan for debt relief to the November G20 meetings held in Brisbane, Australia. The G20 made a financing commitment to the three Ebola affected countries of 300 million dollars in debt relief, grants and new loans. The IMF could announce the financing plan as early as January.

"Winning debt relief and stopping tax evasion provide long term monies for healthcare and development," said LeCompte, who serves on United Nations Expert Groups that address debt and illicit finance. "More people die from preventable diseases annually in these countries than from Ebola."

According to GFI, developing countries lose nearly $1 trillion each year to illicit flows. From 2003 - 2012, Liberia lost more than $900 million annually on average, while Guinea lost more than $300 million. In 2013, the G8 signed a joint declaration calling on the international community to curb corruption and corporate tax avoidance. This past August, during the White House Africa Summit, the Obama Administration announced a committee to make recommendations to address these outflows.

"There's broad consensus that we need to keep money from flowing out of developing economies," added LeCompte. "There's so much the international community can do."

Read more about Ebola debt relief.
Read GFI's report on illicit financial flows.
Read the World Bank's new debt statistics.

from here

The Rape of Africa

Despite decades of public fundraising and aid, the end to Africa’s poverty is nowhere in sight. This “aid” is actually a smokescreen used to hide from public view the fact the it is the donors themselves who are perpetuating this cycle of dependence. Africa is essentially not poor. A combination of inequitable policies, massive disparities in power and criminal activities perpetrated and sustained by wealthy elites both inside and outside the continent are keeping its people in poverty. The UK and other wealthy governments are at the heart of this theft.

A coalition of UK and African researchers has released findings that illustrate how the continent actually loses over six times the amount it receives in aid. 

As we often watch wealthy countries heap on themselves and each other generous portions of praise for helping ‘needy’ countries and using their donations to accelerate development in impoverished regions so as to end poverty, another scenario is playing itself out. This scenario is rarely reported. Africa, the receiver of $30 billion in annual monetary handouts, is not only making nothing from the aid it receives but it actually loses $192 billion to the rest of the world within the same time frame.

Research published recently indicates that current practices within the continent tend to favour wealthy countries. These practices include tax dodging, the repatriation of multinational companies’ profits with their unjust trade policies, the costs incurred from climate change and the exodus of skilled workers. This means, basically, that if you take into account the money coming in through aid, investment and remittances ($134 billion), Africa is left with a $58 billion annual loss. To put this into perspective, the money that Africa loses each year is over one and half times the amount of additional money needed to deliver affordable health care to everyone in the whole world!

$35.3 billion annually through the tax evasion and other dodgy financial flows enabled by tax havens. These tax havens are jurisdictionally linked to the G8 and the European Union and account for 70% of global tax haven investment. The UK has 11 tax havens under its jurisdiction!

It is time to stop misrepresenting the real nature of the relationship between aid and poverty in Africa.

Missing billions

A September report by the Zimbabwe Vulnerability Assessment Committee (ZIMVAC) estimates that 63 percent of Zimbabweans are poor, with 16 percent of the country’s 12.5 million people deemed extremely poor. Yet Zimbabwe has lost 12 billion dollars in illicit financial flows over the last three decades and experts say this illegal practice is perpetuating social inequalities and poverty.

  Zimbabwe has vast natural resources, the blessings of its natural wealth has not benefitted its people. The nation has of some of the largest diamond and platinum reserves in Africa and the world, and has over 40 exploitable minerals. All of this could potentially transform the lives of Zimbabwe’s citizens.

The Zimbabwe Environmental Law Association (ZELA) points to a dearth of transparency and accountability in the management of the Marange diamond mines. Minister of Finance Patrick Chinamasa said in December 2013, during his presentation of the 2014 national budget, that the government did not receive any diamond dividends in that year.

The Rich Go West-end

A new wave of African oligarchs are following the trail blazed by Russian billionaires, buying up luxury properties in some of London’s most exclusive postcodes, according to new research.

Buyers from six African countries – Nigeria, Ghana, the Democratic Republic of the Congo, Gabon, Cameroon and Senegal – are estimated to have spent a total of £600m on luxury residential property in the capital over the past three years.

The purchases by the wealthy Africans are concentrated in the so-called “platinum triangle” of Mayfair, Belgravia and Knightsbridge. Most, around 80%, typically spend £15m-£25m on a property, with 10% spending over £30m and the balance paying less than £10m, according to Beauchamp’s figures. Some of the key addresses include Eaton Square, One Hyde Park, Grosvenor Square and Regent’s Park.

Buyers from Nigeria, for example, have been longstanding purchasers of property in the capital, but have previously favoured homes in the north London districts of Hampstead, St John’s Wood and Primrose Hill. With their enhanced wealth, they are now moving into the ultra-prime market.

 Behind every great fortune lies a great crime. Vast sums have been and continue to be siphoned out of Africa into tax havens. So this news should come as no surprise. The elites of Africa appear no different to elites elsewhere in their rapacious greed, extreme reluctance to pay tax and lack of concern for the wellbeing of their fellow citizens. This parasitical upper class have a greater ability to steal, hoard and squander their countries' wealth as people languish in poverty, because of government incompetence and corruption. Whilst millions live in shanty towns, lacking decent sanitation, their masters are allowed to spend appropriated wealth on flamboyant homes.

 The truth is, that the UK doesn’t care where the money comes from. Just that it keeps coming in. No questions asked about the chains of anonymous shell companies. The UK facilitate corruption whilst the African elites live the high life in London. Steal millions from the poor from anywhere in the world and the City of London bankers, lawyers, property specialists, and investment consultants will literally be queuing up to offer their services. Border control policy deliberately excludes the mega rich, swindlers and embezzlers from all corners of this planet.

The missing trillions

Researchers working with the African Development Bank say that African countries have lost as much as $1.4 trillion in cash leakages over the last 30 years. Much of the lost money is a result of illicit cash flows and corruption. Global Financial Integrity (GFI) say West and Central Africa have lost the greatest amount of money. An estimated $494 billion left those two regions between 1980 and 2009 as illicit cash flows.

 Ibrahim Aidara, the economic governance program manager for the Open Society Initiative of West Africa (OSIWA), says the amount of money flowing out of the continent both legally and illegally is now nearly equal to Africa’s current total gross domestic product:
"The amount flowing out in Africa is, according to the estimation, more than all the foreign direct investment we are getting from the outside and more than the African debt by about four times, and even more than all the official aid Africa is receiving from the rest of the world," he said. "Any time you take that kind of money out of economies, certain things don’t happen," he said. "Investment in plant equipment doesn’t happen, job creation doesn’t happen, the tax revenue you would have had from those activities doesn’t exist.  Governments don’t have money to put into social programs, like health, education, and clean water programs.  So many things don’t happen.  It’s the opportunity cost of the loss of that money." He added that “There’s a push to have governments begin to require country-by-country reporting by multinationals so that taxes are paid when they are supposed to, in the amount they are supposed to be, and where they are supposed to be paid.  This is critically important for developing countries because many times… it’s companies not paying their fair share basically and putting the burden on the individual tax payers." .
 Aidara said nearly all of the loss stems from corrupt practices, such as trade mispricing, money laundering and tax evasion. The most affected countries are the ones rich in natural resources, such as oil producers Nigeria and Angola, or diamond producer Zimbabwe.

With vast new reserves of oil and gas discovered in the Sub-Saharan region, its poverty level is poised to increase to 50 percent of the world's poor by 2030.

Nigeria, for example, said last week it cannot account for $50 billion in revenue from the sale of crude oil between January 2012 and July 2013 - an amount that exceeds the total annual foreign development aid to the region.
In Angola, the IMF has estimated that $32 billion in oil revenues went missing between 2007 and 2010, equivalent to one quarter of its GDP.

Business malpractice

Tax avoidance, secret mining deals and financial transfers are depriving Africa of the benefits of its resources boom, ex-UN chief Kofi Annan has said.
Firms that shift profits to lower tax jurisdictions cost Africa $38bn (£25bn) a year, says a report produced by a panel he heads.

"Africa loses twice as much money through these loopholes as it gets from donors," Mr Annan told the BBC.

It was like taking food off the tables of the poor, he said.

Between 2010 and 2012 five under-priced mining concessions were sold in "highly opaque and secretive deals" in the Democratic Republic of Congo, depriving the country of $1.3bn in revenues, double DR Congo's health and education budgets combined.

In Zambia between 2005 and 2009, 500,000 copper mine workers were paying a higher rate of tax than major multinational mining firms.

Sweet Profits

Associated British Foods, one of Britain's biggest multinationals, whose brands include Silver Spoon sugar, Twinings Tea and Kingsmill bread, Primark clothes and Ryvita, is avoiding paying millions of pounds of tax in an African state blighted by malnutrition. It contributed little corporation tax to the state's exchequer between 2007 and 2012, and none at all for two of those years (between 2008 and 2010).  Zambia Sugar,  recently posted record pre-tax profits and its huge plantation is increasing its capacity to produce more sugar for markets in Europe and Africa. Yet it paid less than 0.5% of its $123m pre-tax profits in corporation tax between 2007 and 2012.

The company benefits from generous capital allowance and tax-relief schemes in Zambia including one obtained by taking the Zambian government to court, but the investigation also found that it funnels around a third of its pre-tax profits to sister companies in tax havens, including Ireland, Mauritius and the Netherlands. Tax treaties between Zambia and some of those countries mean the state's revenue authorities are unable to charge their normal tax on money leaving their shores. The tax haven transactions of this one British headquartered multinational deprived Zambia of a sum 14 times larger than the UK aid provided to the country to combat hunger and food insecurity. There is an annual $2.6m payments to an Irish sister company whose accounts have stated that it has no employees. The firm also pays $3m a year to a sister company in Mauritius for access to "trade contacts with customers in the European sugar market, transportation of sugar to Europe, foreign currency management and the availability of cost effective credit terms". Yet when an ActionAid investigator, called the director of the Mauritius holding company and asked how many employees they had, he was told: "One … it's me." ABF says that the fees to Mauritius and Ireland are rolled up into their tax liability in South Africa, where they are taxed at 28%. Yet accounts show that in 2011/12 the entire tax liability in South Africa was $308,000 – the equivalent of just 4% of the $7m fees paid by Zambia Sugar to Ireland and Mauritius.

Its Nakambala Sugar plantation in the Mazabuka district are vital to local livelihoods. The plantation and factory made record profits in 2012 and is expected to exceed 400,000 tonnes of sugar production this year for its Europe and Africa markets. To fund its expansion last year, Zambia Sugar borrowed $70m from two commercial banks. The loan is in the Zambian currency kwacha and secured on Zambia Sugar's estate and assets in Mazabuka, and it is repaid via a Lusaka branch of Citibank Zambia. Yet, on paper, the loan is actually to the Irish subsidiary. Why? ABF told ActionAid: "Interest on loans to Zambia Sugar from such banks would have been subject to [Zambian] withholding tax. The banks would therefore have increased their interest charge to compensate for this."

Zambia Sugar's immediate owner is a Dutch co-operative. The owners of Dutch "cooperatiefs", in this case companies in Mauritius and Jersey, are classed as members rather than shareholders so the income they receive is not classified as taxable dividends. And under this structure Zambia can only apply a 5% tax on the cash leaving its shores, a smaller rate than normal because of a tax treaty between the Netherlands and Zambia.

 Mazabuka's Nakambala Urban health centre say two malnourished children die every month with it. At the school, 1,200 children fit into 12 classrooms in shifts taught by 20 teachers. In Zambia 45% of children are malnourished and two-thirds of the population live on less than $2 a day.

The total loss to tax avoidance by multinationals in the developing world is estimated to be around £70bn a year, enough to save the lives of 85,000 children under the age of five in the world's poorest countries every 12 months, campaigners say.

Source

White collar international fraud

The Democratic Republic of Congo and the Republic of Congo are losing at least $12m annually in tax avoidance by logging companies, Greenpeace says.

The environmental group says it has evidence showing how firms like German-owned Danzer group have set up "elaborate profit-laundering schemes". In its report, Conning the Congo, Greenpeace alleges the amount of tax lost each year is 50 times the DR Congo's Ministry of Environment's annual operating budget.Greenpeace says it has documents showing that Danzer's Swiss subsidiary company (Interholco AG) buys timber from its African sister companies (Siforco and IFO) at below the market price and then makes up the shortfall by depositing money in offshore bank accounts. In so doing, the group evades paying big corporate tax and export duties.

Environment Minister Jose Endundo told the BBC's Focus on Africa programme."What I can say about forestry, is that the commission in charge of setting the minimum export prices for timber has not met since 2000. So the logging companies took advantage of the situation to export timber at a price under its real value. It means that the Congolese government has suffered losses in terms of foreign currency earnings and taxes."