Africa as a continent is home to quite a sizable portion of the world’s minerals and natural resources. In development circles, it is not uncommon to hear the question, “why is Africa so rich in resources and yet their citizens are poor and their continent underdeveloped?” The answer usually given is that African leaders are corrupt. While this may be true in some cases, in others it is not. But even when it is true, other supra factors compound the intra factors such as corruption. What do I mean?
Africa’s challenges must be understood from an intra-continental context, inter-continental and supra-continental context if an accurate solution is to be prescribed. Today, we’ll consider the supra context. This is the realm or space within which transnational corporations (TNCs) relate with nations—especially within the so-called developing world. This space is mostly un-regulated and in many cases not characterized by equity during contract negotiations.
When one takes a cursory view at most of the mining contracts in sub-Saharan Africa, the host nations gets almost nothing, in most cases, less than 10% of what their resources are worth, while the TNCs take 90% or more. There needs to be a massive “as-one” review, renegotiation or annulment of unfair and unjust contracts and agreements with TNC and multinational corporations (MNCs).
THE TANZANIAN CASE
This article is about the country Tanzania and its dealings with a TNC called Acacia Mining plc in Tanzania. It is an FTSE 250 company and is 64pc owned by Barrick Gold of Canada. It was rebranded as Acacia Mining Plc in 2013. As per the company’s website, it is registered as a UK public company headquartered in London and listed on the London Stock Exchange and the Dar es Salaam Stock Exchange in Tanzania. It operates 3 mines, “all located in north-west Tanzania, together with several exploration projects at various stages of development, including exploration land holdings in the highly prospective greenstone belts in Western Kenya, Western Burkina Faso and Western Mali” according to the company’s website.
In a recent article in The Guardian titled, A brutal lesson for multinationals: golden tax deals can come back and bite you, the author remarks that:
“[Acacia] is the largest gold producer in the country [Tanzania], and has long faced criticism for the amount of tax it pays there. Acacia’s “payments to government” report released last week shows that the company, which operates three mines in Tanzania, exported $1bn (£770m) of gold, copper and silver last year , and ONLY PAID 8% of this in taxes and royalties to the government.
What’s more, between 2010 and 2015, it paid out $444m in dividends to shareholders WHILE NOT PAYING ANY CORPORATE INCOME TAX in the country”.
The conduct of this TNC can aptly be captioned “daylight robbery in Tanzania”. The CEO Brad Gordon has admitted that the original mining agreement was not EQUITABLE. He added, “The industry can be its own worst enemy when it sits down and agrees these terms, it’s gonna come back and bite us. And in this case it has”.
In 2016 after much pressure from the Tanzanian government and public, Acacia has agreed to bring forward corporate tax payments it has not paid.
In addition to the above, the President of Tanzania John Magufuli has accused “the company not only of striking an unbalanced deal but of massively under-reporting its gold exports to evade tax” as reported in The Guardian article. It turns out he was right. Working on an informed hunch earlier this year, the government “decreed a ban on exports of unrefined metals, preventing Acacia from selling partially processed “concentrate”. The following ensued:
In April, as containers piled up at the Acacia gold mines and the port of Dar es Salaam, Magufuli appointed two committees of academics to investigate their contents. In May, the committees declared that the president’s suspicions were correct and the concentrate contained eight times more gold than the company had reported, as well as several other rare minerals such as iridium and ytterbium“.
If the committees’ findings are accurate, the extent of the undervaluation is enormous, amounting to almost $4bn annually (one tenth of Tanzania’s GDP). Magufuli has responded forcefully, saying, “We should summon [Acacia] and demand that they pay us back our money. If they accept that they stole from us and seek forgiveness in front of God and the angels and all Tanzanians and enter into negotiations, we are ready to do business.”
This is not unbelievable. This is one of the ways TNCs plunder Africa via illicit financial flows. If Africa is ever to develop, such leaks should be plugged. In any case, why would these academics falsify findings? African governments have always known these leaks exist but few have been willing to even broach the subject because TNCs control in many cases more resources than small African nation. In a world where the media is favorable to the highest bidder, TNCs have an edge over these nations. It is thus admirable to see governments such as the incumbent in Tanzania attempt to tame this chimera that has ravaged much of the so-called “developing world”.
Summary of allegations against Acacia Mining plc include:
Unethical deal/contract between Acacia and Tanzania
Massive under-reporting of gold exports to evade tax
Tax malfeasance: Acacia’s exported $1bn (£770m) worth of gold, copper and silver last year, they only ONLY PAID 8% of this in taxes and royalties to Tanzania—the host nation and owner of the resource
Not paying any corporate tax for 5 years straight: Between 2010 and 2015, Acacia paid out $444m in dividends to shareholders while NOT PAYING ANY CORPORATE INCOME TAX in the country
What is the main issue being discussed here?
It is not solely the corrupt behavior of Barrick Gold and Acacia or other blameworthy TNCs but rather how this behavior deprives African nations of resources needed for development.
BULLYING WON’T CUT IT ANYMORE
During Obama’s Presidency when Western leaders asked African nations to legalize same sex marriage and they refused, much needed funds allocated for key sectors of the economy were diverted to NGOs that were anti-government. This happened with Uganda and others.
In a recent decision of the Eastern African Community to phase in a ban on used clothing from the West which is detrimental to both the cotton and textile industry, the U.S. threatened to review Agoa benefits to these countries.
And now, as Tanzania attempts to right some wrongs by forcing Barrick Gold to do the right thing, threats like “this will make Tanzania unfavorable for business” are being spoken of in the media.
Being open for business should not be synonymous with “African nations will let you get away with thievery and corruption”. Africa is open for fair and honest business. But it will not encourage Illicit Financial Flows out of the continent.
As of now, Barrick Gold is negotiating a way forward with Tanzania. Had the Tanzanian government not taken a stance to correct the wrongs—damning any retribution that may arise—Barrick Gold would not be seeking to make amends now.
TNCs largely operate in unregulated space not subject to host governments or their parliaments and laws. For this reason, many TNCs are not incentivized to conduct themselves in a manner that respects the laws of nations they operate in. Tanzania is changing that—at least in their corner of Sub-Saharan Africa.
TNCs and MNCs do not only operate outside national laws but also settle disputes in foreign private courts of settlement. These courts are setup in such a way as to disadvantage host nations—especially those in developing countries. Tanzania through its Parliament has set a precedent by making TNCs subject to national laws. And why not? The resources belong to the public of that nation. They should have a say in bringing TNCs to book if they behave unconscionably. Why should this privilege be given only to foreign courts to the exclusion of the owners of the resource?
Tanzania’s parliament has passed two laws which allow the government to dissolve existing contracts if the terms are deemed “unconscionable”. The new laws ban companies from turning to foreign courts or tribunals to resolve disputes, and compel companies to process minerals within the country rather than exporting them as raw materials as reported by The Guardian.
So what are some recommendations for other sub-Saharan African countries?
Uphold National Interest in all contracts: African governments should review existing contracts and make sure they are equitable—accruing to the mutual benefit of the host populace and TNCs
Where not equitable, annul old contracts legally or force TNCs to come back to drawing board to renegotiate. If this means using Parliament, so be it.
Strict monitoring and evaluation: Make sure there is no underreporting to evade tax (You can use Tanzania’s style by checking containers or some other monitoring and evaluation scheme) and make sure TNCs are following their part of the bargain
Make TNCs subject to national laws
Give nations the power to annul contracts that do not promote fairness and development
The African Union should champion some of these initiatives at the regional level to harmonize resource contracts and provide a forum for governments to learn from each other.
African governments must learn to work together and they should learn from each other—especially from the likes of Tanzania and Rwanda who are leaving positive marks on the sands of history. There is no need to reinvent the wheel when others have already done it and can show us the way so we can build upon their success.
There is strength in unity. Sometimes TNCs get their way in Africa because they play the divide and rule tactic. They tell country A, sweeten the deal by waiving X, Y, AND Z or else I will go to this other African county e.g. country B. For instance “allow us not to be subject to your national laws or else we will go elsewhere in Africa”. In such a case, if all sub-Saharan Africa countries had the same policy harmonized in the area of mining negotiations, the TNCs will be forced to deal on Africa’s terms. The resource holder should never feel like they do not have options. They do. TNCs get away will spills and other such poor conduct in Africa that they would never get away with in the West. This is because Western governments would hold them accountable. It is time Africa’s leaders hold them accountable.
As one, there is nothing that they cannot do—including reforming government, governance and leadership on the continent such that it looks out always for the best interest of its varied populations in all contracts and dealings.
God bless Tanzania and God bless Africa.