Africa: a continent of wealth, a continent of poverty

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Africa: a continent of wealth, a continent of poverty

By Tom Lebert

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Mining in Maniema, Democratic Republic of Congo (Julien Harneis under a Creative Commons Licence)

Lots of people talk about the new Africa. Thabo Mbeki (the second president of South Africa after apartheid) has spoken about a ‘rebirth for all Africans’. This week, African politicians and mining companies are meeting in London for a conference: ‘Mining on Top’ But where are the normal people? They are not important.

Africa has a lot of natural resources. It has about 30% of the minerals we know about in the world. These include cobalt, uranium, diamonds and gold, as well as a lot of oil and gas. Because of this natural wealth, and the fact that mineral and oil prices have tripled in the last 10 years, it is not surprising that there is so much more mining in Africa now. Between 2000 and 2008 mining produced more than 30% of Africa’s GDP. And the money coming into Africa as foreign investment increased from $9 billion to $62 billion (most of this for mining). But Africa has not had much benefit from this mineral wealth and is still one of the poorest continents. Almost 50% of the population live on less than $1.25 per day.

So how can a continent with so much possible wealth continue to be so poor? This is mainly because of the illegal movement of money or capital from one country to another. There is a lot of corruption and most of the resources and money goes to the rich – local and foreign – not the general population. Most often, they send the money to other countries by ‘trade mispricing’. This is when companies try to get more profit artificially. They say they have more expenses where they pay a lot of tax, and say they do not make much money where the tax is low. So the companies do not pay much tax and send the money to other countries.

This stops social development and the economic growth of the people. The important politicians do not invest money from resources into infrastructure, health and education. But they often work with the mining companies and get a lot of money for themselves. Ordinary Africans get nothing.

Zambia looks like a rich country. It is the largest producer of copper in Africa and the 7th-largest in the world. But Zambia is one of the poorest countries in the world. 74% of the population live on less than $1.25 a day and 43% of the population do not have enough food. This is partly because the money leaves the countries, mainly to big international mining companies. The Zambian Deputy Finance Minister said in 2012 that the country was losing $2 billion a year from tax avoidance. This is about 10% of Zambia’s GDP (Gross Domestic Product). This is mostly because of the mining industry. Most of the loss was because of 'transfer pricing' – where parts of the same company trade with each other at prices that they decide on. It is also because they say the costs are higher than they are, and say they produce less than they do. The situation is worse because the Zambian government gives good tax incentives to companies.

It doesn’t only happen in Zambia. It happens in mining all across Africa. In South Africa, the mining money goes to other countries because of ‘trade-misinvoicing’ (a way of not paying tax). Between 1995 and 2006 this lost the country $167 million. And the countries that export oil and gas, between 1970 and 2008, lost, on average $10 billion per year because of misinvoicing. This money is nearly half of all illegal money leaving Africa at this time. Also, statistics from the Kimberly Process Certification Scheme (introduced in 2003), showed that they actually produced nearly twice as many diamonds as they said. This shows that there was a lot of smuggling, under-reporting and tax evasion in the diamond industry. And there are many more examples.

So, what should happen? It is very important for countries to be transparent (open with information). Countries need to be more open in agreements with mining companies. They need to set up fair tax and anti-corruption laws, and make sure everyone follows these. And they need economic policies that make the economy varied so they don’t rely on money from minerals. Money from international mining capital must be controlled. If they do these things, this will help to make sure that the wealth of Africa helps ordinary people and makes Africa richer.

Mining often destroys people’s lives and jobs. It also damages their health and the environment. Local communities all across Africa are most affected by mining. The ‘Mining on Top’ meeting should be the perfect opportunity to talk to these communities. But no-one has invited them. So while the important people in mining discuss how they can make more money from Africa, ordinary Africans continue to lose.

Tom Lebert is senior international programme officer (Resources & Conflict) at War on Want.

The ‘Mining on Top’ Africa – London Summit is on 24-26 June at the Park Plaza Riverbank Hotel, 200 Westminster Bridge, SE1 7UT. On Thursday 25 June, War on Want, London Mining Network and Gaia Foundation will protest because the organisers did not include local African communities.

NOW READ THE ORIGINAL: http://newint.org/blog/2015/06/24/africa-a-continent-of-wealth/ (This article has been simplified so the words, text structure and quotes may have been changed).