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AfricaFocus Bulletin
"In Africa as elsewhere in the world, while energy companies might be somewhat undertaxed,
mining companies typically are greatly under-taxed. Indeed, it is only a
slight exaggeration to say that, with a few significant exceptions, notably
Botswana’s diamond mines, mining in Africa is barely taxed at all. One reliable
source indicates that contemporary African governments collect about 55% of the total
value of energy production in tax revenue, but only 3% of the value of mining
production." - Taxing Africa
Taxing Africa, published earlier this year by Zed Books in London, is
being launched in Washington, DC on November 16 by a coalition of civil society
organizations, including the International Centre for Tax and Development
(http://www.ictd.ac/), with which the authors are affiliated. See
http://tinyurl.com/ybezqa39 for more information on the launch and the ICTD web site
for much additional background and resoources.
Tax is a complex issue and it is easy to get lost in the detail. But the consequences
are fundamental for development and human welfare around the world. This new book
provides a comprehensive approach, highlighting not only the often-publicized abuses
by which the rich and multinational corporations evade and avoid taxes, but also
practical steps that African governments can take to ensure that their tax systems
work to provide revenue for the public good.
Based on both first-hand experience and extensive research, the book will be most
useful to those with some background in these issues, particularly scholars,
government officials, and civil society organizations. But it also warrants attention
from anyone concerned about turning critiques of African development into practice,
and is a significant contribution to the growing wider awareness of the centrality of
tax to other policy issues.
This AfricaFocus Bulletin contains an excerpt from this new book on the special
issues in taxing multinational mining companies.
Another AfricaFocus Bulletin released today, not sent out by email but available on
the web at http://www.africafocus.org/docs18/amv1811.php, summarizes the Africa
Mining Vision, by which Pan-African institutions aim to galvanize the transformation
of the mining sector to serve African development.
For previous AfricaFocus Bulletins on taxation and related issues, visit
http://www.africafocus.org/intro-iff.php For the wider range of economic development
issues, visit http://www.africafocus.org/econexp.php
++++++++++++++++++++++end editor's note+++++++++++++++++
By Mick Moore, Wilson Prichard, and Odd-Helge Fjeldstad
London: Zed Press, 2018.
Available at https://www.zedbooks.net/shop/book/taxing-africa/ or
https://amzn.to/2JTJzC2
[used by permission of the publisher]
Let us begin with a good film: Zambia: good copper, bad copper (Public Eye 2012;
https://www.youtube.com/watch?v=uamzirLswjk). Made in 2012, it contains some powerful
campaigning material: large numbers of former mine workers who cannot find jobs in
highly mechanised contemporary mining operations, yet suffer because the industry
poisons their air and water; a transnational mining company (Glencore) that pays
little tax on its Zambian profits; and the callous indifference of some of the people
enjoying these profits – the notoriously wealthy residents of Zug canton in
Switzerland. You might also watch Stealing Africa – Why Poverty? (Guldbrandsen 2013;
https://www.youtube.com/watch?v=WNYemuiAOfU). It tells a similar story.
[Editor's note: For additional selected videos of related interest see
http://www.africafocus.org/docs18/amv1811.php]
In fact, online there are dozens of video clips and countless blog and news items
about the exploitation of Zambia and Zambians by mining companies. Try, for example,
the video in which Anil Agarwal, the boss of Vedanta, one of the world’s largest
natural resources companies, is boasting to Indian business colleagues about how he
obtained his original mining concession in Zambia in 1994 with little money, modest
effort, petty deception, and few future tax obligations (Das 2014). The returns on
his investment have been sky-high. Or look at the wealth of commentary on Chineseowned
copper mines in Zambia, such as China Nonferrous Mining Corporation (CNMC),
Non-Ferrous China Africa (NFCA) and Sino Metals.
Mopani Copper Mine in Zambia. Credit:
http://www.counter-balance.org/mopani-copper-mine-zambia/
Why, in recent years, have journalists and video-makers been so interested in
Zambia’s copper mines, so critical of the mine owners, and so attentive to the
question of how little tax they seem to be paying to the Zambian government? The
answer comes in several parts. Two are specific to Zambia. First, it is one of the
largest mining economies in Africa. Second, there has been a great deal of open
controversy over mining between Zambians: strikes, protests, and electioneering
around employment conditions in the mines, environmental pollution and the small
contribution of mining companies to Zambia’s tax revenues. Global advocacy
organisations have certainly helped stoke the controversies. But the controversies
are rooted in Zambia’s history and politics. During the colonial era, Northern
Rhodesia, as Zambia was then known, was one of the few African countries to host a
large mining industry. Its Copper belt was urbanised, and its trade unions powerful.
The unions were weakened, however, after the mining sector was nationalised in 1969,
international copper prices declined dramatically in 1975, and most mines were
mothballed in the 1980s.
By the mid-1980s Zambia was one of the most indebted nations
in the world, relative to its GDP. Following privatisation, the mines were reopened
on a small scale in the 1990s. At that point few people expected copper prices to
recover to historic levels. There were, however, sufficient residues and memories of
trade union power that the new mining companies – many of them Chinese or Indian –
faced continual political challenges. The companies paid very little for their mining
rights and began to profit very handsomely when world copper prices started to
increase early in this century. Partly because the new mining arrangements were
subject to so much political scrutiny and criticism, the Zambian government has
revised the ways in which it taxes the mining companies several times – but sometimes
it has been forced to retreat in the face of threats from the compa nies that they
would cut back on investment and production.
....
There are particular reasons why the Zambian mines attract so much attention. But the
underlying problems in taxing the extractive industries are common across Africa –
and, indeed, in lower- income countries generally.
...
Mining activities in Africa are mostly intensely politicised: there is political
conflict over mines, from the exploration stage, before precise locations are even
identified, to the end of their useful life. These conflicts involve shifting
combinations of presidents and ministers, ministries and other public agencies,
exploration companies, mining companies, managers of ports and railways, individual
politicians and bureaucrats, wheeler-dealer local and international businesspeople
and ‘political fixers’, grassroots political activists, small-scale (artisanal)
miners and their representatives, local bandits, lawyers, tax advisers, civil society
organisations, and local and international media. Their tools and tactics are complex
and variable mixtures of secrecy, stealth, public campaigning, bribery, principled
claims, bluff, manipulation, threat, lawsuits, misinfor mation and intimidation.
Anyone who combines an interest in the extractive sector with a taste for drama will
relish the ongoing story of Simandou. Simandou is a mountain range in the deep
interior of Guinea. It comprises so much high-grade iron ore that geologists have
given its peaks names such as Iron Maiden and Metallica. Rio Tinto, the BritishAustralian
mining multinational, was granted exploration rights in 1997. Two decades
later, no significant engineering work has been done. Many sceptics believe that
Simandou will never be exploited. The costs of building the infrastructure needed to
get the ore to the point of export – 650 kilometres of railway, tunnels, bridges, 128
kilometres of road and a new deep-water port – are estimated to be at least twice the
costs of setting up the actual mine. Yet vast amounts of money have been ventured,
won and lost in the course of political manoeuvring over the rights to develop
Simandou. Some advance taxes have even been paid.
Rio Tinto was granted exploration rights to Simandou in 1997. In late 2008, two weeks
before he died, the president of Guinea, Lansana Conté, expropriated half of Rio
Tinto’s rights and awarded them to Beny Steinmetz, an Israeli billionaire who had
made his fortune in the diamond business. Neither Steinmetz nor his business vehicle,
Beny Steinmetz Group Resources (BSGR), which is controlled by family trusts, had any
previous experience in iron ore mining. Contrary to the usual practice, BSGR made no
upfront payment to the government of Guinea for these rights. After about a year,
BSGR sold 51% of its interest in Simandou to Vale, the Brazilian mining conglomerate,
for $2.5 billion – of which only the first tranche was ever paid. There was a brief
period of military rule after Lansana Conté’s death, then free elections were held in
late 2010. The new president, Alpha Condé, had a reputation for honesty. His
government reviewed all the mining licences that Conté had awarded – for Guinea also
has large reserves of bauxite and significant quantities of diamonds, gold, uranium
and offshore oil. Following the review, the Simandou mining rights were returned to
Rio Tinto. At that point, Rio Tinto owned 46.6% of the total rights. Chinalco, a
Chinese state company, was the second largest stakeholder.
Simandou iron mine in Guinea (Conakry). Credit:
https://ejatlas.org/conflict/simandoun-mine
That is the outline of the plot. The play itself is much more complex and colourful.
Conté’s youngest widow testified that BSGR had offered her millions of dollars,
jewellery, two Toyota Land Cruisers and a 5% stake in the project to persuade her
dying husband to sign over the Simandou rights to BSGR. Among the supporting evidence
was a contract she had signed with the head of BSGR operations in Guinea, in which
she agreed to use her influence to get Simandou mining rights transferred to BSGR in
return for these rewards. This contract for corruption was stamped with the BSGR
corporate seal. Rio Tinto filed a case in the US courts against Vale and Steinmetz
for ‘racketeering’, and alleged that $200 million had been paid to Conté and his
ministers as bribes. The case was thrown out on a technicality in 2015. Meanwhile,
Steinmetz did not give up. He variously threatened or started court proceedings for
defamation against: Global Witness, the London-based advocacy organisation; Mark
Malloch Brown, a former Deputy Secretary-General of the United Nations and a former
UK government minister; Theresa May, the current British Prime Minister when she was
Home Secretary; the UK Serious Fraud Office; and the billion aire philanthropist
George Soros. Vale launched a compensation claim against BSGR. Rio Tinto, too, was
proactive in asserting its rights to Simandou.
In 2011, the company made a payment of $10.5 million to a former top French banker
who had been Alpha Condé’s classmate. When this became public in November 2016, Rio
Tinto immediately dismissed two senior managers who had been involved. Alpha Condé
survived an assassination attempt, and was re-elected president in 2015. But there
were serious accusations of election fraud, and his rule has been marred by violence
and large-scale street protests. Unsurprisingly, both government and opposition
allege that their opponents are working for foreign companies seeking either to
protect their mining rights or to grab a share of those currently belonging to
someone else. The latest twist is that, in October 2016, Rio Tinto agreed to sell its
rights in Simandou to Chinalco, leaving this Chinese company as the dominant player.
The Simandou story is particularly colourful. But it is not unusual.
...
There is no single feature of the extractives business that is not found in some
other economic sector. Nevertheless, extractives exhibit such a combination of
special characteristics that the political economy of the sector is quite
distinctive. We list below six of these characteris tics. We then detail five
characteristics of the mining subsector that distinguish it from the energy (oil and
gas) subsector.
These are the main distinctive features of the extractive sector.
There are then five characteristics of the mining subsector, which are not generally
shared with oil and gas, that help explain why mining in particular is associated
with controversy, corruption and drama.
1. The risk that governments will try to renegotiate agreements in their own favour
is increased because, in mining but not in the energy sector, experience and
expertise in the business are not essential conditions for entry. Beny Steinmetz had
no significant experience of iron ore mining when he bid for the rights to Simandou.
Vedanta, which is now a major global mining company, originated in the scrap metal
business in Mumbai. Because of the high level of politicisation and conflict in the
sector, some operators can be very successful on the basis of an aptitude for the
politics, access to large amounts of capital, and a huge appetite for risk.
‘It’s roulette,’ Steinmetz said; if you work hard, and take risks, you sometimes ‘get
lucky.’ As a small company that was comfortable with risk, BSGR made investments that
the major mining companies wouldn’t. His company lost money in Tanzania. It lost
money in Zambia. But in Guinea it won. (Keefe 2013)
Once entrepreneurs have control of mining rights, they can either sell them on for a
profit to more established and experienced mining companies or buy in the expertise
needed to open and operate mines. It would not be difficult for any government to
find a private company willing to take over a functioning mine if the terms were
right – and even if more established global firms declined to participate. A former
minister of mines in Guinea is quoted as saying: ‘When a new government comes into
power, especially an inexperienced one, there’s one phenomenon that never fails:
every crook on earth shows up. And every crook on earth has the biggest promises, has
access to billions of dollars of lines of credits, of loans’ (Mailey 2015: 53).
2. Mining is more diverse than energy in terms of the range of products produced and
the processes involved in extracting and processing them. The energy subsector
produces only oil and gas, and the range of types of each product is limited. Each
type can normally be identified in terms of one of a small number of standard
reference types – West Texas Crude, Brent Blend and Dubai Crude in the case of oil –
for which there are large, deep global markets and daily posted reference prices.
Miners, by contrast, unearth a much wider range of products including, in sub-Saharan
Africa, bauxite, chromium, coal, cobalt, coltan, copper, diamonds, gold, iron ore,
lead, nickel, platinum, palladium, phosphate, soda ash, titanium, zinc and various
radioactive chemicals and rare earths. Global markets are more fragmented and
diverse. There is less product stand ardisation and less market information.
Governments trying to regulate and tax mining have less access to reliable informa
tion and reliable independent consultants than do governments dealing with energy
companies.
3. Some minerals, including diamonds, gold and palladium, have a high value-toweight
ratio. It is relatively easy for miners to understate production levels and
smuggle product out of the country.
4. These adverse effects of the diversity of the mining subsector are exacerbated by
the near absence, at least in Africa, of an organisational arrangement that is common
in the energy sector: a national oil and gas corporation. These corporations employ
professional staff and, in varying combinations, regulate private sector operators,
own some of their equity, engage in production-sharing agreements, or undertake
exploration, extraction or downstream processing in their own right. These activities
give governments some insight into the logistics and economics of oil and gas
extraction, and thus some capacity to regulate the activities of private companies.
Some governments, including those of Botswana, Guinea, Tanzania and Zambia, own
equity in companies operating mines on their territory. In principle, this is an
alternative way for governments to obtain revenue from mining operations. However,
there is no evidence that, by owning a minority share of the equity in a locally
incorpo rated mining company, governments can prevent companies from engaging in
transfer mispricing and shifting their profits offshore to their parent companies.
Botswana is the exception. The government owns 50% of Debswana, the main diamond
producer, and is generally believed to obtain a fair share of diamond revenues.
5. Joint ventures between two or more large transnational companies (with or without
the participation of the host government) are common in the energy sector but rare in
mining. The energy sector is technically the more demanding. Oil and gas
transnationals enter into unincorporated joint ventures with one another to share
expertise. One of them is responsible for operations and has to report in detail to
the others. This ensures a degree of accounting transparency and accuracy that
reduces the scope for cheating the local tax administration. There are few joint
ventures in the mining sector in Africa.
AfricaFocus Bulletin is an independent electronic publication providing reposted
commentary and analysis on African issues, with a particular focus on U.S. and
international policies. AfricaFocus Bulletin is edited by William Minter.
AfricaFocus Bulletin can be reached at africafocus@igc.org. Please write to this
address to suggest material for inclusion. For more information about reposted
material, please contact directly the original source mentioned. For a full archive
and other resources, see http://www.africafocus.org
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