By Sipho Mthathi
JOHANNESBURG, Jun 12 2015 (IPS)

Africa is known as the ‘paradox of plenty’. How can a continent so rich in natural resources be so poor?

Economic growth is predicted to increase by 4.5 percent across the continent this year, despite falling oil prices and the Ebola crisis. South Africa’s economy, the second biggest in Africa is expected to continue to grow by 3.5 percent this year; Nigeria will grow by an enviable 5.5 percent.

Sipho Mthathi, Executive Director of Oxfam South Africa

However, millions across Africa are struggling.  Economic inequality is on the rise, and public coffers are insufficient due to an increasing demand for public services like health, education and housing.

Recently, Thomas Pogge and other distinguished academics have written about the cost of progress. Surprisingly, history provides us with examples of countries where, if there is a balance between economic growth and public spending, it is possible to address inequality.

There is no time to waste in looking for ways to address this widening gap across Africa.

It is urgent that, collectively, African nations look at the billions of dollars flowing out of the continent every year, most of which can be attributed to corporate tax dodging.

In January, the report of the High Level Panel on Illicit Financial Flows (IFFs) from Africa, chaired by former South African President Thabo Mbeki, contended that IFFs from Africa increased from about 20 billion dollars in 2001 to 60 billion in 2010 in the merchandise sector alone.

According to Global Financial Integrity’s 2014 report on IFFs from developing countries, South Africa alone may have lost more than 122 billion dollars between 2003 and 2012 in IFFs.

This is a lost opportunity for money that could have been reinvested in advancing Africa’s development and increased access to public goods for her Africa’s people.“It is urgent that, collectively, African nations look at the billions of dollars flowing out of the continent every year, most of which can be attributed to corporate tax dodging”

But this is only the half of the story. Multinational companies are gaining at the expense of African people through other ‘legal’ forms of corporate tax dodging, and through negotiated tax breaks. This is happening because of a lack of fair global tax rules, and behind-closed-door deals between corporations and governments, rushing to seal deals under pressure.

Africa’s astounding growth is affecting human development. And these losses in tax revenue come at a time when the role of official development assistance to Africa is declining.

Fair and progressive tax systems should be providing financing for well-functioning government programmes to enable governments to uphold citizens’ rights to basic services (such as healthcare and education), and cement trust between citizens and governments.

Establishing an effective tax system is critical if Africa is going to mobilise the resources it needs to tackle poverty and inequality.  Africa is home to six out of ten of the world’s most unequal countries – South Africa, Lesotho, Namibia, Botswana, Zambia, and Central Africa Republic.  Some estimates on Africa’s financing needs include 40-$60 billion dollars per year to finance the post-2015 development agenda.

This is not just Africa’s problem. Around the world, many lower-income countries have been subject to harmful tax practices, including transfer pricing, whereby a transfer price may be manipulated to shift profits from one jurisdiction to another, usually from a higher-tax to a lower-tax jurisdiction.

After revelations of how multinational enterprises (MNEs) such as Starbucks, Google and Apple deliberately structured themselves to minimise their tax bills, the Organisation for Economic Cooperation and Development (OECD) launched an effort to reform this base erosion and profit shifting (BEPS) practice. This reform is expected to wind up by the end of 2015.

However, since the launch of the BEPS Action Plan, developed countries have not had a real voice or influence in the process.  Just four African countries, including South Africa as a G20 member country, have been invited to participate as observers.  These countries are bringing attention to the many mining corporations which are offered lucrative tax incentives which must be addressed in the BEPS plan.

The African Tax Administration Forum (ATAF) is a regional tax body that has been invited by the OECD/G20 to participate in the BEPS reform process.  This should provide further scope to influence the BEPS process with an African perspective.

At the same time, the South Africa Revenue Services (SARS) is going after billions lost through wasteful incentives and trade mispricing. SARS has recovered 5.8 billion rand (460 million dollars) over the three-year period 2011-2014, 55 percent (3.4 billion rand or 274 million dollars) of which is attributed to the mining industry.

South Africa’s membership in the G20 (and its role as co-Chair of the G20 Development Working Group) provides an enormous opportunity to insist on broad inclusion of all nations in the BEPS reform process.

At a recent conference convened by ATAF, South African Finance Minister Nhlanhla Nene called for “Africa to protect its own tax base, and advance domestic resource mobilisation through a common voice, a common concern and a common action plan.”

It is time that all African finance ministers wake up to the possibility that tax revenues for financing essential services for their citizens, or investment in small-holder agriculture or infrastructure, could come from the recovery of billions of dollars lost from corporate tax dodging and unfair tax competition.

Tax breaks provided to six large foreign mining companies in Sierra Leone, for example, are equivalent to 59 percent of the total budget of the country – or eight times the country’s health budget.

It is time for a global inter-governmental body on international tax cooperation to allow for a more inclusive and coordinated approach to ongoing tax reform, beyond BEPS.

All countries should be able to participate in tax negotiations on an equal footing, which guarantees one country, one vote, and where representatives will have the political mandate to speak on behalf of their governments.  Simply relying on the BEPS process to re-write tax rules will not be enough to end international tax dodging.

Through the BEPS reform process and this new tax body, there would be real potential for an African taxation renaissance.

Edited by Phil Harris

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

Excerpt:

Uncontrolled woodcutting in remote areas of Zimbabwe like Mwenezi district has left many treeless fields. Credit: Jeffrey Moyo/IPS

By Jeffrey Moyo
HARARE, Feb 6 2015 (IPS)

There’s a buzz in Zimbabwe’s lush forests, home to many animal species, but it’s not bees, bugs or other wildlife. It’s the sound of a high-speed saw, slicing through the heart of these ancient stands to clear land for tobacco growing, to log wood for commercial export and to supply local area charcoal sellers.

This, despite Zimbabwe being obliged under the United Nations’ Millennium Development Goals (MDGs) to ensure environmental sustainability by the end of this year.

“The rate at which deforestation is occurring here will convert Zimbabwe into an outright desert in just 35 years if pragmatic solutions are not proffered urgently and also if people keep razing down trees for firewood without regulation,” Marylin Smith, an independent conservationist based in Masvingo, Zimbabwe’s oldest town, and former staffer in the government of President Robert Mugabe, told IPS.“The rate at which deforestation is occurring here will convert Zimbabwe into an outright desert in just 35 years if pragmatic solutions are not proffered urgently” – Marylin Smith, independent conservationist based in Masvingo, Zimbabwe

According to the United Nations Environment Programme (UNEP), Zimbabwe lost an annual average of 327,000 hectares of forests between 1990 and 2010.

Smith blamed Zimbabwe’s deforestation on the growing numbers of tobacco farmers who were cutting “millions of tonnes of firewood each year to treat the cash crop.”

According to the country’s Tobacco Industry Marketing Board, Zimbabwe currently has 88,167 tobacco growers, whom environmental activists say are the catalysts of looming desertification here.

“Curing tobacco using huge quantities of firewood and even increased domestic use of firewood in both rural and urban areas will leave Zimbabwe without forests and one has to imagine how the country would look like after the demise of the forests,” Thabilise Mlotshwa, an ecologist from Save the Environment Association, an environmental lobby group here, told IPS.

“But really, it is difficult to object to firewood use when this is the only energy source most rural people have despite the environment being the worst casualty,” Mlotshwa added.

Zimbabwe’s deforestation crisis is linked to several factors.

“There are thousands of timber merchants who have no mercy with our trees as they see ready cash in almost every tree and therefore don’t spare the trees in order to earn money,” Raymond Siziba, an agricultural extension officer based in Mvurwi, a district approximately 100 kilometres north of the Zimbabwean capital Harare, told IPS.

According to the Zimbabwe National Statistics Agency (ZimStat), there were 66,250 timber merchants nationwide last year alone.

Deforestation is a complex issue. A recent study by the Food and Agriculture Organization (FAO) reported that during the decade from 1980 to 1990, the world’s tropical forests were reduced by an average of 15.4 million hectares per year (an 0.8 percent annual rate of deforestation).

The area of land cleared during the decade is equivalent to nearly three times the size of France.

Developing countries rely heavily on wood fuel, the major energy source for cooking and heating. In Africa, the statistics are striking: an estimated 90 percent of the entire continent’s population uses fuelwood for cooking, and in sub-Saharan Africa, firewood and brush supply approximately 52 percent of all energy sources.

Zimbabwe is not the only sub-Saharan country facing a crisis in its forests. A panel run by the United Nations and the African Union and led by former South African President Thabo Mbeki found that in Mozambique thousands more logs were exported to China than were legally reported.

Disappearing forest cover is a particular problem in Ghana, where non-timber forest products provide sustenance and income for 2.5 million people living in or near forest communities.

Between 1990 and 2005, Ghana lost over one-quarter of its total national forest cover. At the current rate of deforestation, the country’s forests could completely disappear in less than 25 years. Current attempts to address deforestation have stalled due to lack of collaboration between stakeholders and policy makers.

In west equatorial Africa, a study by Greenpeace has called logging the single biggest threat to the Congo Basin rainforest. At the moment, logging companies working mostly in the Democratic Republic of the Congo (DRC) are busy cutting down trees in over 50 million hectares of rainforest, or an area the size of France, according to its website.

An estimated 20 to 25 percent of annual deforestation is thought to be due to commercial logging. Another 15 to 20 percent is attributed to other activities such as cattle ranching, cash crop plantations and the construction of dams, roads, and mines.

However, deforestation is primarily caused by the activities of the general population. As the Zimbabwe economy plummets, indigenous timber merchants are on the rise, battling to eke a living, with environmentalists accusing them of fuelling deforestation.

For many rural dwellers, lack of electricity in most rural areas is creating unsustainable pressures on forests in Zimbabwe.

“Like several other remote parts of Zimbabwe, we have no electricity here and for years we have been depending on firewood, which is the main source of energy for rural dwellers even for the past generations, and you can just imagine the amount of deforestation remote areas continue to suffer,” 61-year-old Irene Chikono, a teacher from Mutoko, 143 kilometres east of Harare, told IPS.

Even Zimbabweans with access to electricity are at the mercy of erratic power supplies from the state-owned Zimbabwe Electricity Supply Authority (ZESA), which is failing to meet electricity demand owing to inadequate finances to import power.

“With increasing electricity outages here, I often resort to buying firewood from vendors at local market stalls, who get this from farms neighbouring the city,” 31-year-old Collina Hokonya, a single mother of three residing in Harare’s high density Mbare suburb, told IPS.

Government claims it is doing all it can to combat deforestation but, faced with this country’s faltering economy, indigenous timber merchants and villagers say it may be hard for them to refrain from tree-felling.

“We are into the timber business not by choice, but because of joblessness and we therefore want to make money in order to survive,” Mevion Javangwe, an indigenous timber merchant based in Harare, told IPS.

“A gradual return of people from cities to lead rural life as the economy worsens is adding pressure on rural forests as more and more people cut down trees for firewood,” Elson Moyo, a village head in Vesera village in Mwenezi, 144 kilometres south-west of Masvingo, told IPS.

“Politicians are plundering and looting the hardwood forest reserves since they own most sawmills, with their relatives fronting for them,” Owen Dliwayo, a civil society activist based in Chipinge, an eastern border town of Zimbabwe, told IPS.

“For all the forests that politicians plunder, they don’t pay a cent to council authorities and truly how do people get motivated to play a part in conserving hardwood forests?” Dliwayo asked.

“We will only manage to fight deforestation if government brings electricity to our doorsteps because without electricity we will keep cutting down trees for firewood,” said Chikono.

Edited by Lisa Vives/Phil Harris