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How the lords of poverty fleece Africa

By | Apr 7th 2009 | 4 min read
By | April 7th 2009

By Peter Orengo

A report has come out to confirm what was common knowledge: How international mining companies rob Africa of its mineral resources.

The report comes at a time when there is an influx to Kenya of mining companies seeking contracts to prospect for oil and other resources.

Equipment set up by Tiomin Kenya Limited to extract titanium in Kwale District.

The report, titled, Breaking the Curse: How Transparent Taxation and Fair Taxes can Turn Africa’s Mineral Wealth into Development, highlights the methods mining companies employ to pay as little tax as possible.

The companies, the report states, use complicated corporate tax structures and accounting procedures to pay a pittance as tax.

Reports that Uganda and Tanzania recently struck oil and gas have opened up the same possibilities in Kenya with prospecting companies upping their quest to discover the ‘black gold’ in the country.

Action Aid’s Eric Mgendi, one of the contributors to the report, says Kenya would not fare any better than her mineral-rich neighbours like DR Congo, that are being ripped off of huge amount of tax revenue

"Most companies mining in Kenya do not report on how much tax they pay in individual foreign jurisdictions. This is partly because they are not under any international obligation to do so. They are also not keen to disclose information to tax authorities and others," says Mr Mgendi.

He adds: "Tax avoidance is clearly often in breach of the spirit of the law and does not tally with many companies’ social responsibility rhetoric. Companies that regularly and aggressively avoid paying tax do not fully contribute to the social and economic fabric of society where they operate."

In extreme cases, the companies force governments to grant tax subsidies and concessions by threatening to invest elsewhere if they are not forthcoming and insist that mining contracts signed between them and governments remain secret.

The Action Aid, Christian Aid, Third World Network Africa, Tax Justice Network Africa, and Southern Africa Resource Watch published the report.

Magnets for scandal

The report blames weak governance institutions as the root cause of Africa’s ‘Resource Curse’.

"One practical step to address poverty in Africa is to ensure that all multinational mining companies pay equitable amounts of tax," said Action Aid’s Pan African Policy Manager Brian Kagoro during the report launch at a hotel in Nairobi.

Some of the questionable deals between Kenya and international companies that rocked the social and political fabric of the country include Anglo Leasing, Goldenberg and Tiomin Kenya Limited. Anglo Leasing and Goldenberg deals resulted in about Sh65 billion and Sh60 billion losses. The scandals have not been fully unravelled.

In 1995, Tiomin Kenya Ltd, a Kenyan subsidiary of a Canadian firm, struck what it said was the biggest unexploited titanium deposit in the world.

One of the ships exploring for oil off the Kenya coast. Photos: File/Standard

These included five titanium-rich sites with 650 million tonnes at Mambrui and 1.2 billion tonnes at Sokoke. The deposits at Sabaki, Mombasa and Kwale were never made public, although they were included in their contract.

Since the resource at stake represents more than 10 per cent of the world’s titanium deposits, opponents of the project argued that licensing should not be rushed. Civil society accused the company of ignoring the law and offering little compensation to residents who owned the land. The financiers withdrew at the last moment.

Mgendi said: "Tiomin preferred to deal with Government officials behind the scenes, ignoring stakeholders in the areas where deposits were found."

But before Tiomin, there were mining companies who have continued to enjoy exclusive mining rights to mine fluorspar, soda ash, cement and lime. Residents in the mineral-rich areas have complained that they do not benefit from mineral resources in their localities.

The mining sector plays a fairly insignificant role in the national economy because it employs just slightly more than 5,000 people and contributes less than 1 per cent of Gross Domestic Product (GDP).

Lion’s share

Compared to sectors such as agriculture, manufacturing and service industry, which contribute the lion’s share of GDP earnings, mining is yet to make an impact in the national economy and has traditionally received peripheral treatment in national development plans. In 2000, close to 700,000 tonnes of minerals valued at about Sh3.6 billion (£36m) were produced by the mining sector in Kenya.

"Kenya desperately requires investment, more now than ever before. But we would appreciate investment so long as it is responsible and considers the rights of the citizens," said Mr Alvin Mosioma, Tax Justice Network Africa co-ordinator at the launch.

Some governments, according to the report, anxious to seal the contracts, are happy to oblige to investors demands before public scrutiny.

Kagoro said the secrecy surrounding such contracts is a recipe for tax avoidance strategies by the multinationals.

"Mining contracts and payments to governments need to be subjected to rigorous parliamentary scrutiny to improve accountability in this sector," he said.

He added: "We need to strengthen the capacity of national regulatory tax authorities as well as rationalise international accounting standards to ensure compliance."

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