How foreign firms profit from Africa's wealth

A report released about a month ago, but which for some reason did not make headlines in the African media, shows that while African countries receive $161 billion in loans, aid, grants and remittances every year, the continent pays out $203 billion in debt repayments, multinational company profits, illicit financial flows and illegal fishing, among other costs.

The report, Honest Accounts 2017: How the World Profits from Africa’s Wealth, published by a consortium of civil society organisations, including Jubilee Debt Campaign and Global Justice Now, shows that Africa is a net creditor to the rest of the world to the tune of $41 billion a year, which is more than double what it receives in official aid.

Some more shocking statistics: African countries receive around $19 billion in grants, but over three times this amount ($68 billion or six per cent of the entire continent’s GDP) leaves Africa through illicit financial flows, mainly through multinational companies that deliberately misreport the value of their imports or exports to evade or reduce tax.

Illegal logging

African governments received $33 billion in loans in 2015, but paid $18 billion in debt interest and principal payments.

Further, an estimated $29 billion a year is being stolen from the continent through illegal logging, fishing and trade in wildlife and plants.

“The figures show that the rest of the world is profiting from the continent’s wealth — more so than most African citizens.

"Yet rich country governments simply tell their public that their aid programmes are helping Africa.

"This is a distraction, and misleading,” say the authors of the report.

Africa is not poor. It is estimated that the untapped mineral reserves in the Democratic Republic of Congo — where the average citizen wallows in poverty and where civil conflict has raged for decades — is worth $24 trillion (yes, trillion!).

People still live

In 2015, African countries exported $232 billion worth of minerals and oil to the rest of the world.

Yet, about two-thirds of the continent’ people still live on less than $3 a day.

Why is this so? There are two main reasons. One, when multinational companies export commodities such as minerals from Africa, these countries benefit only marginally.

In key sectors such as mining, oil and gas, foreign companies tend to pay low taxes or are given tax incentives that reduce these taxes even further.

African governments have a very tiny shareholding in these companies (between five and 20 per cent), which means that Africa’s wealth is largely owned and exploited by foreign companies.

Remains poor

One report found that 101 companies listed on the London Stock Exchange control $1 trillion worth of resources in Africa in just five commodities – oil, gold, diamonds, coal and platinum; more than half of these companies are British.

The second reason Africa remains poor is because these companies and the African elite who benefit from this wealth, are able to avoid paying tax altogether because they use tax havens in places such as the Channel Islands, Switzerland and the UK.

Super-rich Africans ensure that their wealth remains outside the continent.

It is estimated that Africa’s richest people hold a total of $500 billion offshore.

What is to be done to reverse this situation? The report offers solutions that may not be palatable to neoliberals and their free-trade mantra.

One is that African governments should adopt protectionist policies that favour domestic companies over foreign investors.

Use tax havens

This means nurturing local companies and industries until they are in a position to compete in the international market.

Another is to ensure that stock exchanges do no permit companies to be listed unless they can show that they do not use tax havens and that they pay taxes wherever they are located.

African governments must also stop putting their faith in the extractive sector to avoid the “resource curse” that has plagued so many countries, such as the DRC and Nigeria.

Instead, governments should focus on promoting other economic activities, such as agriculture and manufacturing, that foster sustainable growth.

The media and NGOs must also dispel the myth that Western countries are playing a leadership role in Africa’s development when, in fact, these countries are benefiting the most from Africa’s wealth.

rasna.warah@gmail.com

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