Maendeleo Group Blog

On 12 June 2017, President John Magufuli of Tanzania received a report from the Osoro Committee which was commissioned to examine the economic and legal implications of the country’s export of gold and mineral concentrates. The establishment of the Osoro Committee follows a visit made in March by President Magufuli to the port of Dar es Salaam where he barred the export of 277 containers of gold and mineral concentrate belonging to Acacia Mining PLC, pending government verification of the amount and value of the minerals.

A probe team was established to carry out the chemical analysis and a report released in early April 2017. The chemical analysis pointed to significant variances in the amount of gold concentrate in the containers, suggesting that Acacia had under declared the export value and amount of mineral concentrate by as much as three times. The probe team also found that at least 10 other minerals were not declared by Acacia including zinc, nickel and lithium.

Based on the findings on the chemical analysis, the Osoro Committee estimates that Tanzania lost up to $ 84 billion between 1998 and 2017. Given that Tanzania’s proposed 2017/2018 budget is approximately $ 15 billion, the losses would be sufficient to run the country for at least 5 years. The Commission’s findings suggest that Acacia engaged in a number of dubious practices that contributed to Illicit Financial Flows including;

  1. Base erosion and profit shifting - Acacia would include illegible costs in the computation of its costs of production with the aim of eroding its tax base in Tanzania. Then through a network of subsidiaries, Acacia would export the gold concentrate from Tanzania (which now has a lower book value due) and sell it to third parties through its treasury department in South Africa at a much higher value.
  2. Trade misinvoicing – Acacia would misreport the nature, amount and value of mineral ore being exported.
  3. Transfer pricing – Acacia would collude with companies to sell gold and mineral ore at prices that were not reflective of the actual market value. The manipulation of the sale price was done for the purpose of avoiding or reducing its tax obligation.

Following these findings, the Osoro Committee made 21 recommendations related to legal, policy and institutional reforms. It noted that there were significant internal deficiencies in the countries tax, mining, business registration, judicial and freight management authorities. The Osoro Committee also recommended public disclosure of mining contracts and for appropriate criminal and administrative sanctions be taken against individuals who had occasioned losses or engaged in corruption and mismanagement.

Acacia which operates 3 mines in Tanzania is a subsidiary of Barrick Gold, the largest gold mining company in the world. Acacia strongly disputes findings of the chemical analysis and of the Osoro Committee. It has called for an independent audit of the findings. Following considerable pressure on its cash flows and a share price that nose-dived by 30%[1], executive vice chairman of Barrick Gold John L Thornton met with president Magufuli in Dar es Salaam on 14 June 2017. A statement issued by the presidency after the meeting suggested that Barrick would pay Tanzania any money it owes and that Barrick would help Tanzania build a smelter. Thornton’s brief statement after the meeting was coy, instead insisting that further discussions would be held by a joint team of experts to resolve the impasse.[2]

What way forward for Tanzania?

The Osoro report is not the first time there has been a detailed scrutiny of the country’s mining industry. There have been at least 5 other inquiries into the matter namely the 2002 General Mboma Committee, the 2004 Dr. Jonas Kipokola Committee, the 2005 Enos Bukuku Committee, the 2006 Lau Masha Committee and the 2008 Judge Bomani Committee. The real challenge therefore appears to be implementation deficit.

Commendably, president Magufuli announced that all the recommendations of the Osoro Committee shall be implemented. Three priority areas the author recommends are immediate execution are;

  1. Public dialogue and contract transparency – There is still need for reflection and discussion on the concerns raised by the Osoro report and preceding committees especially with respect to taking measures to enhance community beneficiation from mineral resources. In order for this to happen, mining contracts should be made publicly available. This would be in line with Tanzania’s commitments to contract transparency under Section 16(1) of the Tanzania Extractive Industries (Transparency and Accountability) Act.
  2. Constitutional, legislative and policy review – Tanzania is encouraged to review its mining, oil, gas, tax and company laws through a participatory process. A revamped legal regime would clear up the red tape that facilitates Illicit Financial Flows and encourage mineral beneficiation within the country. The government of Tanzania is also encouraged to assent to the recently adopted East African Community Mining Bill (2017) which seeks to establish a mechanism for reporting mining and mineral related activities in the region.[3] Tanzania should also resuscitate the stalled constitutional review process with a view to enshrining ethical standards for public officers, strengthening oversight bodies, creating space for public participation in resource management and limiting the broad discretionary powers of the executive that may be subject to abuse.
  3. Accountability – Criminal and administrative sanctions need to be taken against individuals and companies that may have facilitated the loss to break with the culture of impunity. Tanzania can use its recently unveiled Corruption and Economic Crimes Division of the High Court to prosecute offenders. Immediate measures should also be taken to freeze the assets of persons of interest while convicts should have their assets forfeited.

 

What lessons for other African countries?

The challenges facing Tanzania are not isolated. In fact, the situation obtains in other resource rich countries on the continent. Tanzania’s southern neighbour Zambia attempted similar strong-arm tactics to get a better deal from investors in its copper sector. The Zambian strategy focused largely on unilateral amendments to mining laws that saw an increase in mining taxes. The results were not very encouraging as mining companies sluggishly accepted the changes and threatened withdrawal from the copper sector.[4] The Zambian government was eventually forced to change its position and lower some taxes. Interestingly, Barrick was one of the companies operating in Zambia!

The Mbeki Panel on Illicit Financial Flows highlighted many of the opportunities available to African countries to redress the above challenges. For countries experiencing Illicit Flows in the extractives sector, the following recommendation may be crucial;

  1. Implement the African Mining Vision (AMV) - The AMV is a roadmap for the holistic development of mineral resources in Africa. It provides guidance for states to enhance community beneficiation, improve contract negotiation in the extractives industry and mainstream mining into industrial and trade policy. The implementation of the AMV is overseen by African Minerals Development Centre which can assist African states to promote the transformative role of mineral resources in the development of the continent through increased economic and social linkages.
  2. Engage the African Union Advisory Board on Corruption (AU-ABC) – Article 22(5)(e) of the African Union Convention on the Preventing of Corruption mandates the Advisory Board on Corruption to collect, analyse and disseminate information on the conduct and behaviour of multi-national corporations (MNCs) operating in Africa. Such reports could prove vital in monitoring new methods of Illicit Flows or reporting the activities of rouge MNCs.
  3. Build and support coalitions – African governments need to build strong coalitions among themselves and with key stakeholders including civil society to monitor and assess trends in tax management, Illicit Flows and money laundering. Platforms such as the African Tax Administration Forum, Tax Justice Network - Africa and the Financial Action Task Force (FATF) Style Regional Bodies in Africa are some key spaces where conversations about Illicit Flows are taking place. These institutions need to be supported and strengthened by African governments.
  4. Enhance contract negotiation and support – The African Legal Support Facility (ALSF) provides legal advice and technical assistance to African countries in negotiation of complex commercial transactions, creditor litigation and other related sovereign transactions. The ALSF also develops and proposes innovative tools for capacity building and knowledge management. It is currently providing services to only 18 of 55 African countries. More countries are encouraged to use the services of ALSF as they negotiate or review contracts in the extractives sector.

A strategic lesson to be drawn from these experiences is that Illicit Flows in the extractives sector in Africa is a systemic problem that requires a broad-based solution. Many useful tools specifically crafted for the African continent exist to fight Illicit Flows. However, only strong political will and the deployment of the right approaches can assist African states to break free from Illicit Flows and the resource curse.

 

*Selemani Kinyunyu is a Tanzanian lawyer and Strategic Advisor at the Maendeleo Group. The views expressed here are solely those of the author in his private capacity and do not in any way represent the views of any organisation he may work for or be affiliated with. Follow him on twitter on @selemani

 


[1] See Acacia Mining shares plunge as Tanzania keeps ban on gold exports https://www.ft.com/content/2c913ce0-4092-11e7-9d56-25f963e998b2

[2] See Further Market Update http://www.acaciamining.com/media/press-releases/2017/2017-06-14a.aspx

[3] See Four Key Bills sail through the first reading http://www.eala.org/media/view/four-key-bills-sail-through-the-first-reading

[4] See The Politics of Reforming Zambia’s Mining Tax Regime available at http://archive.resourcegovernance.org/sites/default/files/Politics_Reforming_Zambia_Mining_Tax_Regime.pdf

Saturday, 18 February 2017 15:53

Addressing the scourge of corruption in Africa: Video

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Watch this informative video on tackling the scourge that is Corruption in Africa.

Friday, 17 February 2017 08:49

Maendeleo Group In The Media

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Hot off the press on our newly launched you tube channnel @ MaendeleoGroup- economic integration in Africa

 

Saturday, 24 December 2016 14:30

Bringing the Personal to the Professional

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A long-held notion about professionalism is that it entails the ability to leave the personal at home. Implicit in this belief is that the personal should be set aside as one goes to work-arguably because it has a (potentially) negative bearing on the world of work at worst and is unnecessary in the workplace at best. As employees, we are asked to show up and give 100% - but only bring our technical expertise, experience, and ‘relevant’ skills along. However, in the increasingly competitive workplace in which we work and sectors we move around in, where very little differentiates one colleague from the next, we must increasingly look at the fuller person-and what more they can begin to actively, reflectively, and consciously draw on which may not be conventionally listed on the terms of reference for the positions we occupy.

I would not call myself a poet-rather I write poetry. And savor reading in that particular style. This is not something new-I have been drawn to poetry since middle school, close to two decades ago. My love of poetry and that particular art form shapes me. Poetry is an approach.
The great American poet Robert Frost once said, ‘'I have never started a poem yet whose end I knew. Writing a poem is discovering”. Hence, poetry shapes my comfort with and acceptance of emergence, an acknowledgement that we cannot commence with predetermined ends, and that an open process can lead us to where we need to go. Poetry also hones one’s ability to encapsulate potent, big, and pregnant ideas and thoughts in small packages.

It is not only our ‘extracurricular’ passions and habits that present critical personal resources that we can draw from. Our various identities and subcultures that we subscribe to can also provide us with powerful metaphors, languages, images and perspectives that can inform the search for literal and figurative solutions to the critical challenges that form our work. I am a woman of East African heritage. That means many things. For one, the importance of the Nile river in our imagery and consciousness. It represents an important connective thread and image for many of us in the region-it is a symbol of linkages, interdependence, and collective problem solving-as well as the pull of migration and our diasporic communities.

On that note, I leave you with a poem called the Nile Series.

she
bint al nil (daughter of the Nile)
azraq (blue) gushing through her veins
memories
drawing her to far oceans
pulling towards closer rivers

So, here is to 2017-the year when we bring more of ourselves-draw more from our personal repertoire to influence our work and professional thinking.

Written By Semiha Abdulmelik

The Panama Papers’, a data leak of client documents belonging to Panama-based law firm Mossack Fonseca, were exposed by German newspaper, SüddeutscheZeitung, in conjunction with the International Consortium of Investigative Journalists (ICIJ). These controversial documents haveraised some ethical and legal questions around financial disclosure and transparency; and the role of tax haven jurisdictions in the facilitation of tax evasion, trade-based money laundering, organised crime, illicit financial flows (IFFs) and other issues of grave concern to the international community.

Although holding ownership of a shell company or an offshore account, in most cases is not unlawful, some negative practices have come to be associated with financial activities in secretive jurisdictions. In general, countries could prosecute individuals and corporations involved in the operation of offshore business interests, in instances where:

  • a public official has failed to disclose the offshore accounts;
  • the funds held in the offshore account are the proceeds of crime;
  • the offshore accounts facilitate the evasion of tax liability for an individual or corporate entity.

What has the response of African states been to the Panama Papers? The Economic and Financial Crimes Commission of Nigeria declared that it would investigate the nationals implicated in the scandal. Despite the existence of legislation enabling the prosecution of parties involved in the illegal use of offshore accounts, months of silence ensued, and after much protest, the Nigerian government eventually announced the names of prominent individuals to be prosecuted. Instrumental in this achievement were the concerted efforts by the Nigerian civil society which demanded that strong action be taken against those individuals with financial dealings in secretive jurisdictions.

It is interesting to note that before the data leaks such as WikiLeaks and the Panama Papers put a spotlight on offshore accounts, Nigeria and Kenya had already prohibited the use of foreign banking accounts by public officials in their respective Constitutions. Although Nigeria has disclosed the names of the individuals who will be prosecuted, there are no known prosecutions, intended or otherwise, relating to the Panama Papers in Kenya.

The South African Code of Conduct for Public Servants on the other hand, does not forbid the use of foreign banks by public officials and a proposed amnesty for those who declare their financial interests in offshore accounts, makes no distinction between voluntary disclosures to be made by public officials and individuals not in public service. There are also no known prosecutions in South Africa, relating to the Panama Papers or the holding of offshore accounts and companies. African responses have largely focused on individuals in public service and little attention has been placed on the role of corporate entities in IFFs and tax evasion.

The Panama Papers not only confirmed the losses that the continent suffers as a result of IFFs but also brought to light the existence of IFFs in other commercial industries. Tour operator agencies and companies operating in Southern and Eastern Africa have found themselves embroiled in the Panama Papers scandal; with at least 30 offshore Safari companies revealed to have been incorporated through Mossack Fonseca. Many of these companies are officially registered in the British Virgin Islands while their daily operations continue from Southern and East African countries such as Zimbabwe, Namibia, Botswana, Tanzania and Kenya.

Like the extractive industries, tourism is a major contributor to the economies of African countries. In 2014, tourism on the African continent contributed $798 million, with a total GDP input of 10.5%. The total number of jobs supplied by this industry in 2014, amounted to 543,500, which accounts for 9.2% of Africa’s jobs. Tourism is not only a major contributor to the GDP but is also a key foreign exchange earner as many tourists bring foreign currencies. In countries with weak financial controls, foreign currencies can more easily be channeled out to tax havens than the local currency. The inability to adequately control forex can impact a country’s balance of payments and adversely affect the viability of import and export markets.

Despite the devastating revelations brought forth by the Panama Papers, few African countries have taken decisive action with regard to the investigation, prosecution and subsequent recovery of assets of individuals and corporations linked to the Panama Papers.

At the regional level, the African Union’s (AU) Advisory Board on Corruption issued a statement to the effect that each country should conduct its own investigations into the persons mentioned in the Panama Papers. Although the AU Advisory Board on Corruption has the mandate to advise and develop disciplinary and investigation procedures for corruption and related offences in the public service, with the exception of a call for investigations, no guidelines for the investigation and prosecution of public officials linked to the Panama Papers have been issued. The inconsistent and often lax responses to the Panama Papers across the continent indicates the need for the harmonization of standards.

The Mbeki Panel Report on illicit financial flows in Africa highlighted that IFFs, organised crime and money laundering are negatively affecting the African continent’s ability to develop. The billions of dollars syphoned out of Africa’s reserves could be used for education, healthcare and other basic provisions, yet civil society in the countries most affected by IFFs, money laundering and tax evasion are not vocal about these serious impediments to sustainable development. In order to curb this major stumbling block to development, African states must take responsibility for the regulation and monitoring of funds transferred to offshore and secretive jurisdictions.

Blog written by Olwethu Majola-Kinyunyu Maendeleo Group’s Senior Analyst based on her research and article published by the Anti-Money Laundering Journal of Africa (AML Journal of Africa).

One just needs to look at the newspaper headlines across Africa to see the continent’s struggle with corruption: South Africa, Kenya, Nigeria, all have seen corruption and bribery rise recently. According to the latest Transparency International’s Corruption Perception Index, “not a single country, anywhere in the world, is corruption-free”. But in sub-Saharan Africa, people in 40 out of 46 countries think theirs has a serious corruption problem.

Africa has lost over USD 1 trillion to illicit financial flows over the last 50 years, as reported the African Union’s high level panel on illicit financial flows (IFFs), led by South Africa’s former President Thabo Mbeki. This is roughly equivalent to all the official development assistance the continent received during the same timeframe. According to the panel, companies and government officials are illegally moving as much as USD 60 billion out of Africa each year.

From high-level political abuse to harassment by police officers, teachers, doctors or customs officials, corruption drains countries of resources, stifles small businesses and hampers education and healthcare. Together with lack of accountability and transparency, it is the most harmful barrier to development in Africa. While there’s no silver bullet to eradicate corruption, a combination of forces can improve the situation.

Enforcing targeted legal frameworks and policies and restoring the integrity of government institutions should come first. But the media and civil society also have a watchdog role to play. As long as the public continues to distance themselves from the fight against corruption, corruption will persist.

corruption mgEvidence shows it is more effective to target corruption-prone sectors than trying to fix it all in one go.

For example, Botswana and Rwanda use technology to limit direct contact between government officials and citizens in public procurement processes, one of the largest source of corruption in Africa today. The result is a much improved service delivery.

Our ‘Tax Inspectors Without Borders’ partnership with the OECD improves local audit capacities to address tax avoidance. Since the launch of the project in July 2015, eight pilot countries in Africa, Asia and Latin America collected more than $260m in additional tax revenue. More than $100m of that was generated through tax audits in Zimbabwe.

While governments must keep the pressure on closing international financial loopholes that perpetuate illicit finance, creating a domestic culture of accountability and transparency underpinned by effective public finance management tools is also essential.

Governments must be seen to fight impunity. A “get rich quick” culture in which wrongdoing, theft and corruption go unpunished perpetuates a society-wide crisis of integrity, compromises the youth and future leaders, and jeopardizes long-term stability and development.

Prosecution and convictions on corruption-related offences need to be strengthened, with long jail terms or banishment from political or business life serving as strong deterrents. On the other hand, paying back or returning what has been acquired illegally could be considered as an incentive for corrupt individuals and mitigating circumstances for judges.

With the Sustainable Development Goals and Agenda 2063, African countries have committed to “leave no one behind” and “to an integrated, prosperous and peaceful Africa”. There is no doubt that tackling corruption matters for people long-excluded from decision-making processes, for small businesses unable to grow due to red tape, for disabled people denied access to services, and for marginalized communities that are victims of land grabbing and displacement by the powerful.

This International Anti-Corruption Day is an opportune time to recommit and be #UnitedAgainstCorruption in order to achieve these two bold and ambitious agendas that have people’s wellbeing at their core. The future of the 1.2 billion people in Africa rests on it.

Written by: Njoya Tikum


ORIGINAL ARTICLE: http://www.africa.undp.org/

The migration crisis in Europe has brought to the fore divergence of opinion and strategies on how to address global challenges of our time. Europe’s reaction with consternation at the ‘invasion’ of its shores by outsiders is hardly surprising to curious observers of geopolitics. What could one expect with the heightened rise of rightwing political rhetoric and sentiment that is gaining traction across Europe and spreading to North America? BREXIT is a useful data point on the limitations of regional integration that has citizens as observers rather than its drivers.

Are the emerging fears from the migration crisis unfounded or rooted in deep seated structural but unaddressed issues? Can regional organizations such as the African Union contribute to stemming the tide that seems bent on sacrificing gains made on adherence to international law standards at the altar of political expediency?

On 29 September 2016, experts drawn from Africa and the Netherlands pondered over these questions among others at the Hague under the auspices of the Royal Kingdom of the Netherlands Ministry of Foreign Affairs, the Platform and ECPDM.

The deliberations among others called for a paradigm shift in state-society relations and a revisit of existing partnerships and collaboration between global actors in dealing with contemporary challenges of this and future generations. Acknowledging that no country or region is an island when it comes to global issues such as climate change, terrorism, piracy, corruption, trafficking, drug smuggling, conflict and insecurity, migration and shrinking resources, the experts urged for a move beyond the rhetoric if Africa, Europe and indeed the rest of the world is to succeed in finding durable solutions to these challenges. Three important issues emerged during deliberations as critical points of departure towards a more holistic strategy for strengthening ties between Europe and Africa in addressing contemporary global challenges.

First is an imperative to accord primacy to addressing structural root causes and triggers of these challenges rather that their symptoms. For instance while conflicts in several parts of Africa manifest in open hostilities, displacement and destruction of property and loss of life, fundamental reasons for the conflicts flaring up in the first instance are hardly dealt with. The structural issues include but are not limited to lack of service delivery, socio economic injustice, democratic governance deficit, impunity, corruption, lack of accountability and inequitable distribution of resources. While it is the primary responsibility of individual states to address these challenges, regional organizations such as the African Union and international partners including Europeans have a role to play as guarantors and beneficiaries of global peace and security. The failure to prevent conflicts globally and instead focus on addressing their symptoms as exemplified by the knee-jerk reactions to the migration crisis will continue to haunt and affect the current and future generations.

Second is the importance of strengthening equal partnerships and collaboration beyond financial aid. For more than half a century donor aid in billions of dollars and Euros has been poured into Africa but the impact and results of that aid is negligible or at best cannot be accounted for. Is it a case of missed targets, priorities or poor return on investments? The experts at the consultation reaffirmed a growing concession that while development aid has certainly helped highlight some important issues in the global south, it has mostly fomented a dependence syndrome rather than enhanced ownership by beneficiaries and crafting of sustainable solutions. With shrinking global financial resources including in Europe, the experts urged for honest partnerships and collaboration that place emphasis on primacy of citizens and socio political solutions and not merely technical and financial solutions that have hardly worked. For instance, by more constructive engagement of political actors, citizens inclusion and participation including those whom Europe may disagree with will yield more sustainable results than merely pouring billions of dead aid as Dambisa Moyo puts it that has little or no traction with citizens.

Finally there was an acknowledgement that notwithstanding significant challenges, regional organizations such as the African Union and Regional Economic Communities are prime positioned to be game changers in securing global peace and development. While bilateral agreements and engagements between different countries have significant potential to improve global peace and security, the role played by regional organizations cannot be gain said. These organizations have far more political leverage and credibility among Member States that no amount of money can buy. As illustrated by various African common positions on diverse issues including on migration in Valletta, Humanitarian effectiveness in Istanbul and Post 2015 Development Agenda, African solidarity in addressing common global challenges through the African Union is commendable. Accordingly, while some European countries might be tempted to explore bilateral deals outside the collective when the African common positions might be uncompromising, the success of such deals is unlikely to hold in the long term as is emerging with the post Valetta bilateral deals. Short-circuiting agreed collective compromises for convenience and behind the scenes bilateral deal is untenable in modern geo-political configurations. It is therefore imperative to rebuild trust and move beyond the rhetoric to respectful and sincere partnerships and collaboration as envisaged in the Sustainable Development Goals 17. That is the only sure way and guarantee for Africa and Europe to strengthen ties to address global challenges

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