In recent days, African Ministers of Finance engaged the managing director of the IMF, Ms Ms Kristalina Georgieva to discuss, among other things, how the continent can get the most out of the multilateral lender’s Special Drawing Rights (SDRs).
The IMF allocated US$650 billion in SDRs to help countries recover from the economic impact of the COVID-19 pandemic. But significantly less than half of that money made its way to the countries that need it the most, while the rich got the bulk.
This has resurrected the lobby to reform the global financial architecture so as to engender greater equity. This will not only address the concerns of uneven recovery from the pandemic-induced economic recession, but also deal with pre-existing structural issues that have kept African countries as third class citizens of the global village.
Of course, this will be a long road, as those who have benefited from the current system will not willingly surrender their privileged position, but it is a battle worth fighting all the same.
Tied to the global reforms of the financial architecture should be reforms of the internal financial, legislative and policy architecture within Africa.
Let’s establish some perspective on this.
The IMF recently published a paper titled “Tax Avoidance in Sub-Saharan Africa’s Mining Sector”.
The International Monetary Fund says in its report, “African countries are estimated to be losing about US$450-US$730 million in CIT (corporate income tax) revenue a year on average from mining MNE (multinational enterprise) tax avoidance. This baseline estimate suggests a loss of about US$600 million per year, based on the observed tax rate differentials between African countries and offshore affiliates in the same MNE (multinational enterprises) group.”
The first thing to take note of is the source of this data: the IMF.
We really should be worried when an organisation like the IMF, itself a citadel of global capitalism, is worried about how Western nations and corporations are benefiting from the looting of Africa. It tells us that the scale of damage has gone beyond the stage where even the IMF can gloss over it just because it’s benefitting Western nations and corporations.
A major problem with mining in Africa is that large companies have no legal obligations to publicly report what they dig up, what they export, how much they are paid, and where they keep the money.
All too often, their business practices routinely promote profit-shifting, tax avoidance, under-pricing, transfer pricing, and mis-invoicing, amongst other dark arts of the opaque world of the global mining, trade and financial sectors.
Simply put, there is no transparency in mining, especially when it comes to mining in Africa.
The continent is home to trillions of dollars worth of metals and minerals and these are being legally pillaged for the benefit of cartels who work with corrupt politicians and officials.
The system is deliberately soft on the operations of these miners so that every year at least US$600 million – according to the IMF – does not find its way to Africa and instead ends up parked in Switzerland, Panama or any one of a number of islands that have made themselves the willing homes of ill-gotten wealth.
In essence, only publicly listed companies have reporting obligations. The result is that the biggest miners naturally chose not to go on bourses so that they are not bound by public reporting requirements.
As Paul Miller told Mining Weekly this past week, “The problem is that large, significant private companies have no obligations to report to the public at large… We’ve got to close that gap and we’ve got to stop saying that a company needs to report because they’re listed.
“Stakeholders are no longer only shareholders, but civil society, employees and the environment itself. If a company is having an impact on all those things, it should have the same reporting obligations. But we’re not seeing that.”
So, while African Finance Ministers are right to call for a reform of the global financial architecture, they also need to step up and lead a similar fight at home.
It will do absolutely zero good for Africa if the IMF and other international financial institutions reform how they do business if we cannot make progressive changes on the continent itself.
There is need for wholesale reforms to the policy superstructure, the legislative environment and financial architecture in which mining is conducted in Africa.
If losses of US$600 million are being registered in mining alone, what more in other sectors of the African economy?
Deliberate, well-thought reforms to policy, legal and financial framework in which businesses operate in Africa could free up billions annually before we even talk of a reform of the global architecture.
So inasmuch as the IMF tells us it is concerned about how Africa is losing money in the mining sector and needs to institute reforms, that institution must first institute its own internal reforms.
And while Africa is calling on the IMF to reform how it does things, Africa should also conduct its own internal reforms.
As the saying goes, charity begins at home.