July 2013

The World Bank released the latest Africa’s Pulse Volume 7 on April 15, 2013. It reports that Africa has maintained impressive growth momentum as well as having made progress towards the Millennium Development Goals. Another highlight of the report includes a graph on the fastest growing economies that depict a number of African countries outperforming China and India in terms of economic growth.

Greater transparency is needed in the extractive industry to prevent illicit cash outflows from developing nations.  

One of the main themes of the Africa Progress Report 2013 on Equity in Extractives is transparency. The lack of transparency in the extractives sector is the bane of many developing countries, who cannot hold their governments accountable because the international economic system is set up in such a way as to promote opaqueness. Is it any wonder that financial institutions were able to take advantage of this and so mismanage the global economy that a worldwide recession was the end product?

This lack of transparency costs developing nations billions of dollars each year. It shields transnational corporations (TNCs), as well as governments in sub-Saharan Africa and other developing regions, from scrutiny. Behind this cloak of secrecy, tax evasion and avoidance, and other forms of illicit dealings, cash outflows are carried out with impunity. Moreover, the possibility of detection is slim to none.

Fortunately, since the mid-2000s, there has been a growing movement of civil society organizations pushing for greater transparency, specifically in the extractives industry. If transparency becomes the order of the day, billions and possibly trillions of dollars in illicit transfers could be detected and stopped. The good news is this has begun and promises to continue.

Much of the Global North, including the G8, seem to be moving more and more in the direction of removing the opaque barriers that have stood in the way of transparency for a long time; this is to their advantage. As the Africa Progress Report 2013 states: “If the international community comes together to tackle tax evasion, rich countries as well as poor will gain as the losses associated with aggressive tax planning diminish. By the same token, when there is a deficit of trust there are no winners – and resource governance in Africa has long been blighted by a lack of trust.” 

Let us take a look at some positive developments.

The US

An excerpt from the 2013 Africa Progress Report, published by Kofi Annan and the Africa Progress Panel (APP), which he chairs, reads as follows:

“In July 2010, the United States Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. Its Section 1504 represents a landmark, requiring full disclosure of 'any payment made by the resource extraction issuer, a subsidiary of the resource extraction issuer, or an entity under the control of the resource extraction issuer to a foreign government... for the purposes of the commercial development of oil, natural gas, or minerals.' In 2012, the Securities and Exchange Commission (SEC), the principal government agency responsible for regulating the US financial sector, adopted the final rules for implementation of the legislation. Companies will be required to file annual reports with the SEC. Critically, the reporting will require public disclosure of all payments in excess of US$100,000 on a project-by-project basis.”

This is a significant move by the United States, taking the lead among the G8. Regrettably, other countries who are major players in the extractives industry, like the European Union (EU), Canada, and China, were not as keen on pushing for such regulations. Probable reasons for this are outlined in the aforementioned report. Fortunately, after much deliberation, the EU has agreed to follow the US example.

European Union

On June 12, 2013, the European Parliament approved EU Transparency and Accounting Directives. The move was applauded by Annan and the Africa Progress Panel (APP). The press statement from the APP states: “The vote in the European Parliament creates a binding legal requirement for EU-listed and large privately owned oil, gas, mining and logging companies to publish all payments over €100,000 to governments in every country where they operate. This brings the EU in line with similar extractive industry transparency rules in the United States, under the 2010 Dodd-Frank Act, that will take effect this year.” Notably, the EU initially resisted transparency in a bid to protect their business interests overseas.

Canada

Canada is home to some of the world’s largest mining companies; yet, it had long resisted the transparency movement in extractive transactions. On June 12, 2013, Canada announced that it would “now establish new mandatory reporting standards [and bring] the country in-line with the direction taken by the US and the EU,” according to an APP statement. Indeed, this was a landmark decision considering how much influence Canada wields in the extractives sector.

Switzerland

Like Canada, Switzerland is a huge player in the commodities market. The Bern Declaration issued a press release just a day before the EU adopted its new transparency measures, which reads: “On the eve of the adoption of new EU transparency rules for commodities companies, Switzerland has now also taken the next political step. As today's decision by the National Council shows, there is now broad consensus that the Swiss commodity trading hub needs mandatory transparency standards.” Again, this step is worthy of note. The measure not expected but is very welcome. The press release concedes that: “The increasing pressure on Switzerland is also reflected in the recent success of international transparency efforts.”

China

China is still resisting the move, however. Overall, it is in China’s best interest to join, as the days of blatant opaqueness of deals impoverishing millions seem to be numbered. They will have to either join sometime in the near future or risk possible loss of trade to those who practice open business.

Why Now?

For centuries, opaque deals have been the modulus operandi in extractives sector. The international system is set up this way. However, why have there been such drastic moves towards transparency?

In an enlightening World Economic Forum blog entry titled, The Crumbling Silos of Secrecy, authored by the executive director of the Africa Progress Panel Secretariat, Caroline Kende-Robb, we get a clue as to a possible motivation for the consensus among of the Global North towards a shift to more transparency. Kende-Robb explains: “As austerity bites in many G8 countries, citizens are demanding fairness and action. They feel cheated, and will no longer tolerate secret deals, illicit financial flows and tax havens that stash money away for the rich.” She adds: “In Africa, too, citizen opposition is growing to the squandering of oil, gas and mining resources as evidence emerges of undervaluation, shady deal making and mismanagement.”

Who would have thought that any good could have come from the global economic downturn? It makes absolute sense that the Global North and South would, in times of austerity, push for more transparency as a means of stopping further damage to the world's economy. Needless to say, this should have been done eons ago.

Credit must be given to the US for leading the pack, and to the EU, Switzerland, and hopefully Canada for following suit.

 


 

This article was originally published on the Fair Observer website. The author Solomon Appiah is a policy enthusiast with a heart for the development of Africa. A DAAD Public Policy and Good Governance fellow, he is a native of Ghana. 

For more information: 

Blog: www.solomonappiah.wordpress.com

Follow on Twitter: @SolomonAppiah5

 

 

 

Image credit: Flickr images/Julien Harneis

 

 

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