An examination of issues related to the extractive industries, trade agreements, land grabs, capital flight, corporate tax evasions, human trafficking, mass migrations, the endemic conflicts and other things that deprive Africans of their dignity can be anchored on problem
of governance.

Africa: Impoverished By Wealth. Africa is perhaps the richest piece of land on earth, given its natural resources, rich fertile land, precious minerals and its bio-diversity. Yet majority of Africans live in abject poverty conditions. Why? Basically, it is the failure of government in the promotion of the common good, resource distribution, lack of transparency and accountability and independent  judiciary system that works for all. Analysts who anchor the problem of poverty and development in Africa strictly on the economic sphere are missing something fundamental to the causes of poverty and underdevelopment. Numerous programs such as the structural  adjustment programs (SAP), privatization, currency devaluations, and trade liberalization that have the economy as their primary focus have not only failed to alleviate the problems but have worsened the  fortunes of many Africans, making them poorer today than they were before these programs were initiated.

Governance and the role of citizens. An essential component of good governance is the promotion of the common good and protection of its citizens. Leaders must seek the good of all their citizens in formulating policies and applying laws. Both laws and leaders must be transparent and accountable to enable robust civil society participation in the governing process. They must uphold the principles of subsidiarity, that is, governments must not arrogate to    themselves the functions of a lower body. An over centralized federal government undermines the democratic principle.

True politics is a local affair. Former US Speaker of the House, Tip O’Neil aptly noted that “All politics is local.” African governments have failed to understand this. Politics in modern Africa is centralized in the hands of a few, and the majority of citizens are alienated from the process of governance and from their governments who privatize the state and act with impunity. Leaders in     countries with active citizenry are less likely to act with impunity.

Foreign Aid and Interference. Foreign aid on Africa impact on Africa is mostly negative. They have strong strings attached in favour of the donors.  Corporations contracting foreign aid make hundreds of millions of dollars, dodge taxes, and expatriate the money abroad. Foreign aid facilitate corruption, entrench “strong men” and create dependency. In general the donors do not conduct feasibility study for the viability of the projects and local communities are not consulted in the transaction. Some donors work in cahoots with the political elite to siphon the money out of the country in various ways including inflations of contracts, phony projects and direct theft of funds.

Africa and the global market. Africa’s participation in the global market is reduced mainly raw material exports (crude oil, minerals, and other primary products) whose value are tied to speculation by the stock   markets, making Africa’s economy unstable and subject to the “national interest” of international trading partners . African leaders continue to implement programs that serve the interest of these partners to the detriment of their citizens. A systemic change is needed to reverse this situation. This can be achieved by engaging citizens in shaping a future that promotes the common good, one that benefits them.

Just Governance Project – Rationale. An institution that is sustained over many generations with no major interruption takes on a life of its own and acquires a “sacred” status. The likelihood that it will persist regardless of the personnel or the challenges it faces becomes high. American political institutions continue to weather the economic and political storms regardless of their leaders.

African countries, especially those in the sub-Saharan region are not only a hodgepodge of ethnic communities merged together for colonial economic convenience; most lack a national spirit and have not had the chance to develop and sustain strong governance institutions across generations.  The transformation and sustained development of African countries will be achieved by engaging peoples at the grassroots in their social, political and economic environment and enabling them to work for the common good.

Aniedi Okure, OP
The Africa Faith and Justice Network (AFJN)
Washington, D. C.

In December 2019, the European Union agreed on the objective of achieving a climate-neutral EU by 2050. The fight against climate change along with the aim to limit global warming to well below 2°C in this century are at the heart of the EU’s energy policies.

Achieving these goals requires a strong commitment from EU governments to reduce the carbon emissions caused by the current model of energy production.
These objectives are essential if extreme climate effects would be avoided such as floods, forest fires, landslides and hurricanes, as well as the feared rise in sea levels that would lead to catastrophic changes especially for developing countries and their populations.

However, energy transition policies require decisions that must put an end to the concrete practices of current fossil energy model. Therefore, the EU is starting a period of energy transition in which concepts such as sustainable development, greenhouse effect, biodiversity, rare earths and renewable energies affect people directly, countries’ lifestyles, production systems, economic models, trade, etc. But do we know exactly what we are facing when we talk about energy transition and what consequences it has for developing countries and especially Africa?

The energy transition announced by the European Union makes direct reference to decarburization in forms of energy production. That is, it is the passage between the forms of energy production as we have known them until now (through fossil energy sources such as oil or coal) that generate an emission of CO2 into the atmosphere (producing the so-called greenhouse effect) and those clean energies that are produced without releasing carbon into the atmosphere and are therefore considered green or clean energies. Among the best known clean energies are wind energy, photovoltaic energy, solar energy, biomass or that produced by electric batteries.

However, to generate this type of green energy that does not emit CO2 into the atmosphere, many materials are needed that are not always easy to obtain, either because they are scarce in nature or because they are controlled by few countries. In this group of minerals, considered essential for the energy transition are the so-called rare earths that constitute a group of 17 elements of the periodic table. These along with other elements such as indium, thallium, gallium, lithium, tellurium or cobalt are essential for the development of new technologies.  Furthermore, in cases such as Lithium or Cobalt, their extraction is at least ethically questionable due to the destruction it causes to the ecosystems and communities where these minerals are found; as well as, human rights violations or corrupt practices.

In the pursuit of this energy transition, the EU needs Africa once again and is reviving its assault on the continent’s mineral wealth for its own benefit. Through mining operations or the installation of solar and wind power plants, the EU seeks to secure access to clean energy sources to ensure consumption in Europe.

Africa’s wealth is mainly found in its subsoil, as it has one third of the world’s mineral reserves that are needed for the energy transition, such as 90 per cent of platinum reserves; 80 per cent of coltan; 60 per cent of cobalt; 70 per cent of tantalum; 46 per cent of diamond reserves; and 40 per cent of gold reserves. But the African continent is also brimming with clean energy sources such as river basins in Central Africa, uranium deposits (in Mali, Gabon, Niger or Namibia); sunlight in the Sahel countries; and geothermal potential in East Africa (Ethiopia, Kenya, Uganda, Rwanda Burundi, Zambia, DR Congo).

Public-private investment policies on the continent have led to economic growth in Africa in recent decades, but at the same time have made Africa a hostage to its investors. And this is once again the risk that the countries of the African continent face with the arrival of new investments to exploit renewable energies. The European Union takes political measures without considering the implications for developing countries that directly affect their development policies. The EU is once again thinking about access to these energy sources to ensure its clean future, while forgetting the reality of the supplier countries.

Again, the future of the rich countries is built on the abuse of those countries that depend on foreign investment. The dependence on income from renewable energy and energy transition minerals, the lack of industrial investment, the lack of economic diversification together with the abuse of multinationals and corruption make us foresee the same pattern of relationship between the North and the South in the energy transition period. A responsible and sustainable energy transition therefore requires developed countries, including the EU, to make an energy transition that does not create new inequalities.

The energy transition has to be first and foremost Just. The EU cannot carry out a new colonialism that would monopolize the energy wealth of the African continent. The EU must develop policies that guarantee the development of the countries and regions in which it operates by ensuring an adequate distribution of renewable energies.

 Firstly, the EU cannot supply itself with renewable energy and condemn developing countries to remain dependent on fossil energy. The energy development model must break with the economic dependence that African countries currently have on natural resources and must develop economic diversification strategies that create quality and stable jobs.

Secondly, the energy transition must provide security of energy supply for all countries, but especially for those countries who are the legitimate owners of the energy sources. Africa’s unstoppable economic growth requires increased energy supplies, which will grow in the coming years. This makes rich countries (the EU) nervous as their access to such energy is threatened.

Thirdly, the energy transition must be progressive and in line with the reality of each country, sensitive to the situation in Africa, encouraging the use of renewable energies and supporting any initiative that promotes their adaptation. It would be unfair to ask and demand that developing countries adapt all their infrastructure to new supply models that they could not afford.

Africa’s role in the global energy transition is crucial. That is why we argue that the energy transition must be for all countries, rich and poor, respectful of environmental quality standards, ensuring respect for human rights and doing everything possible to ensure that multinationals carry out their activities with transparency, fighting all types of corruption that benefit only the political and economic elites. The economic transition has to be for everyone or it will
not be for anyone.

José Luis Gutiérrez Aranda,
Trade Policy Officer,
Africa Europe Faith and Justice Network (AEFJN)

The European Commission recognises that mining and extractive companies in Africa are responsible for 65% of tax fraud, i.e. the money that states in Africa fail to collect due to the Illicit Financial Flows (IFF).

The mechanisms that the multinationals use for tax fraud are complex, such as tax avoidance, tax evasion and transfer pricing. In the case of extractive companies, these tax fraud practices are realized through multiple stages in which the companies carry out their activities. Each of these stages entails a number of specific activities that involve a risk of tax fraud and require appropriate national legislation, as well as coordinated international legislation to prevent the illicit
diversion of money.

According to a study presented by the United Nations in 2019, the amount defrauded by mining companies operating in Africa exceeds the global foreign direct investment received by the continent. For example, the United Nations estimates that undeclared gold exports just from South Africa were 78 billion between 2000 and 2014, representing 67% of total gold exports.
These companies operate with outrageous impunity in the tax sphere and carry out illegal practices that find refuge in the governments of developed countries, in tax havens or in the lack of binding international legislation as it is the case in the European Union.

The fight against the IFF must be strategic and take into account all the stages in which extractive companies carry out their work, as there are multiple factors involved that can facilitate money laundering, corruption or tax evasion. Following the outline set out in the paper “the complexities of tackling illicit financial flows” of The European Centre for Development Policy Management we will briefly outline these stages and how companies should reinforce their responsibility to avoid behaviour that even if some of them are legal, deprives developing countries of their own natural wealth and resources through IFFs.

Exploration. During exploration and prospecting stage, companies must be transparent about the expenses incurred in such investment, as well as avoid any situation of bribery to obtain the necessary permits. This stage must be coordinated with the local and national authorities in order to declare a correct estimation of the quantities of minerals are found, as well as their quality. The quantities extracted for valuation must be declared to tax financial services and the companies must pay the fees required to carry out these explorations.

Contracts and licenses. Negotiations to obtain the licenses and contracts needed to operate in a country must be carried out exclusively by the administrative bodies depending on the corresponding ministry and never carried out by the authorities to prevent briberies. Negotiations processes should be transparent, with clear requirements for obtaining licenses. Tax rates, incentives and fiscal exemptions should be established in such contracts. In addition, these contracts should be audited by independent companies that verify that the content of the contracts are in accordance with the mining code, the country’s tax legislation and the international regulations.
Under no circumstances should payments be made arbitrarily or without the knowledge of tax authorities.

Production and Processing. These stages include those activities of the company in which the minerals are extracted from the subsoil, classified, prepared for distribution and export. In these stages, decisive steps are taken to determine the production costs, such as machinery and labour costs. These stages are also important at the accounting level since the produced quantities will determine the amounts to be paid on the basis of production. Moreover, the risk of smuggling is present at these stages where companies can camouflage the production of small-scale and artisanal miners which would make it easier to reduce production costs and pay less tax as their productions are outside the official
production channels.

Assaying, Selling and Exports. During the assaying process, companies declare the quality of the minerals. It is easy for companies to reduce both the quantities and the qualities of the minerals to reduce both direct taxes (on quantities) and indirect taxes (TVA). The quantities and qualities of the minerals determine the price and therefore the potential profits of the companies. The higher the quantity and quality of the minerals, the more production, the higher the profit and therefore the higher the taxes. It is unethical to reduce these quantities as well as the qualities and thus pay less taxes. Sometimes companies even declare losses to avoid paying tax and use other companies in the same group located in tax havens to set fictitious prices (transfer pricing).

To combat IFFs at this stage, international coordination is required to verify that the quantities exported are the same as those received by the recipient countries. Similarly, it should be possible to verify that losses in the countries of origin are not converted into profits in the host countries or into tax havens. Traceability of minerals and transparency are essential in the fight against IFF.

Closure. The activity of the extractive companies cannot end with the export of the minerals, the payment of taxes and the abandonment of the mine. Mining codes must require proper closure and environmental restoration of the mine site in compliance with international standards that allow local people to have alternative employment opportunities.
It is therefore contrary to the established international standard to close mines without proper restoration of the sites in a bid to avoid fiscal responsibilities.

Transparency is key in the control of IFFs. The monitoring and traceability of the minerals, the purchase and sale invoices of the mineral ore, as well as the company’s tax declarations in all the countries where they operate are necessary to control tax fraud. The coordination and enforcement of binding international legislation is necessary to end the impunity of extractive companies that use tax engineering and business strategy to evade their tax obligations and maximize their profits.

The European Union must make progress on the Transparency Directive and demand the publication of accounts, payments and economic movements made in all countries where companies have operated and paid taxes to advance the extraterritoriality of multinationals and strengthen the United Nations Business and Human Rights initiative.

Companies and mining lobbies put pressure on governments not to make legislative changes with threats of possible lawsuits through bilateral investment treaties, Investor-State Dispute Settlement (ISDS) clauses as well as the threat of withdrawing their direct investments from those countries, closing down mining operations with the consequent loss of jobs, decrease in revenues and loss of direct investment in the country. A succession of threats that are never carried out or the worst of predictions are never fulfilled because the reality continues to show that the profits of these companies are still much higher than the taxes they pay to the legitimate owners of these natural resources.

José Luis Gutiérrez Aranda,
Trade Policy Officer,
Africa Europe Faith and Justice Network (AEFJN)