23 March 2019

Africa: Consider revising extractive industry agreements, ECA counsels African countries

Marrakesh, Morocco, March 23, 2019 – Natural resource-rich African countries should consider revising existing agreements with multinational corporations operating in their countries to see that they derive maximize returns from such contracts.

Countries should also enhance transparency and accountability in the industry to combat rampant cases of tax avoidance and illicit financial flows that are denying them of billions of dollars in derivable revenues.

This advice is in the 2019 Economic Report on Africa (ERA), an annual publication of the Economic Commission for Africa (ECA) launched today in Marrakesh, Morocco.

The Report notes the importance of multinational and state-owned corporations that are dominant in this sector as only they have the ability to raise the necessary capital and manage the associated high risks.

“However, multinational corporations also have the ability to undertake complex international tax avoidance strategies that shift profits from where the underlying economic activities take place to low- or no-tax jurisdictions, a behavior referred to as base erosion and profit sharing,” it says.

Closing loopholes in existing agreements with the multinationals could boost tax revenues accruing to concerned governments by about 2.7 percent of gross domestic product (GDP), funds that can be deployed for achieving the Sustainable Development Goals (SDGs), says the Report.

To tackle these problems, the Report says African countries should strengthen their oversight of the sector by engaging stakeholders in tax policy formulation and implementation, ensure that legislation is clearly drafted to avoid ambiguity, and issue public guidance and rulings to clarify ambiguous provisions wherever they exist.

Each country equally needs to develop an action plan that addresses key vulnerabilities and build local capacity for assessing taxes and understand how illicit financial flows operate, according to the Report.

There is also the need to require more transparency from extractive companies while governments, too, become more accountable by joining the Extractive Industries Transparency Initiative and implementing its recommendations, it says.

This year’s edition of ERA examines the institutional and policy reforms that can enable African countries to maximize domestic public resource mobilization to finance their development agenda, focusing on the role of fiscal policy. It identifies several quick wins in Africa’s pursuit of additional fiscal space to finance achievement of the Sustainable Development Goals (SDGs) and the aspirations of Agenda 2063.

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