Africa paying a heavy cost for tax havens

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Friday, 21 June, 2013

“Africa loses more money every year through tax avoidance than it receives in international development assistance.” Kofi Annan At yesterday’s UN Security Council debate on natural resources and conflict prevention, Kofi Annan called for greater transparency in the extractive industries.

As world leaders discussed tax avoidance at the G8 summit this week, Kofi Annan stressed the responsibility of the international community to clamp down on the “secret, murky and exploitative deals” that deny African countries billions of dollars in much-needed income each year.

Kofi Annan addresses the UN Security Council during their debate on conflict prevention and natural resources, June 2013. Photo: UN Photo | Eskinder Debebe

During a UN Security Council debate on natural resources and conflict prevention yesterday, he highlighted how the lack of transparency in the extractive industries has often been a major driver of violent conflict, citing Sierra Leone, Liberia, the Democratic Republic of Congo (DRC), Sudan and South Sudan, and the Niger Delta as examples.

However he disputed the idea that natural resources are a ‘curse’, arguing that they present huge opportunities for investment and profit. The challenge for African governments, he said, is ensuring that these profits are not just short-term windfalls, but are equitably shared and contribute to their long-term development.

Foreign investors, he said, can undermine efforts to promote transparency and encourage tax evasion and corruption when they use offshore companies, shell companies and tax havens to exploit Africa’s natural wealth.

This year’s Africa Progress Report – published by the Africa Progress Panel, which Kofi Annan chairs – found that deals involving ‘anonymous shell companies’ in the extractive industries cost the DRC nearly $1.4 billion from 2010-2012, or almost double the country’s annual health and education budget. As Mr Annan told the Security Council yesterday, “Africa loses more money every year through a tax avoidance technique, known as trade mispricing, than it receives in international development assistance.”

In a separate statement Mr Annan urged G8 leaders to take action on tax avoidance, “not just because of the palpable injustice of enormous tax avoidance by major multinationals including many headquartered in G8 countries, but also because to do so could save many, many lives around the world.”

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