Opinion Piece: Tax dodging costs lives

We represent five African countries that are all affected by tax flight. Norwegian companies should become role models for financial transparency, because tax dodging costs lives.

This opinion piece was published in the norwegian newspaper Vårt Land on the 19.th of March 2014.

On the 1^st of January this year, the new law on country-by-country reporting took effect in Norway. The legislation requires Norwegian companies in the extractive and forestry industries to report key financial numbers, such as investments, sales and payments to foreign countries.

We represent the civil society in five African countriesrich in natural resources. We demand transparency on extractive companies’ operations in our home countries. This information is vital. In 2007, Tanzania alone lost 660 million US dollars due to capital flight. In comparison, Tanzania spent only around 500 million US dollars on the health sector that year. If the country would be able to spend more money on health, more women’s lives could have been spared, every day women die while giving birth in Tanzania.

Illegal money flows are a common problem for our entire continent. The value of the annual illegal capital flight is ten times higher the value of international aid to the African continent. The money disappearing could instead have been used by African authorities to promote development, fight hunger, disease and poverty.

How does this relate to a Norwegian law? The new law on country-by-country reporting has three advantages:

1. It will make it easier for the African civil society to get access to financial information from Norwegian companies operating in our home countries. This will make it easier for us to estimate the value of our non-renewable resources, and whether we get a fair share in return through tax payments. The rules will also enable us to get comparable data across countries, enabling us to see what our neighbouring countries get for their natural resources. It will also make it easier for us to hold our governments accountable for their spending.

2. Financial information will strengthen the negotiating position of our governments. The negotiations between multinational companies and national authorities are often marked by asymmetrical information, with the companies having the upper hand. Rules on country-by-country reporting can ensure a more balanced flow of information, where governments are not being forced to give advantages such as tax exemptions in order to gain foreign direct investment.

3. The demands on transparency are also an advantage for Norwegian companies. They gain more credibility and confidence in the markets and can be favoured when African governments choose their business partners to extract natural resources such as oil and gas.

Still, the demand for greater transparency meets strong opposition from the extractive companies themselves. The powerful lobby organisation American Petroleum Institute (API), which counts Norwegian Statoil as one of its members, has managed to temporarily halt the process of implementing a similar law on financial transparency in the US.

Many oil and gas companies are advocating for the Extractive Industries Transparency Initiative (EITI), as an alternative to a binding legal framework on a national or international level. EITI is based on a tripartite cooperation between state, civil society and companies.

EITI is a good standard, but it has its limitations.

Firstly, the standard is based on voluntary cooperation and holds no sanctioning power, neither states or companies are responsible of actually following the standard. Secondly, the standard only requires reporting of payments the companies have made to the authorities. It is therefore impossible for the African civil society actors to estimate the value of the natural resources that the companies extract. This makes it very difficult to judge whether the tax payments from the companies are actually satisfying.   

This is why African countries need and will greatly benefit fromstrong legislation on country-by-country reporting. This should be a legislation that is binding and gives no exemptions. Our hope is that other countries will follow Norway’s lead and implements a strong country-by-country reporting standard, so that multinational companies are forced to show how much they make from our resources and what they contribute with through tax payments.

It is however important to note that many African countries lack the institutional capacity to monitor and verify the data generated from country-by-country reporting. Our hope is that the Norwegian government can help train civil society organisations and other watchdogs in order to reap the benefits of this new legislation. 

Tax dodging hurts all countries, but it has the most devastating effects on developing countries in the South. We are a generation of young Africans that have a dream for Africa: a dream of a rich and developed continent.    

Authors:  

Emmanuel Eduah Offoh (Ghana)

Irene Ssekyana (Uganda)

Ercillo Zimba (Mozambique)

Lourino Chiconela (Mozambique)

Abena Afari (Ghana)

Sarah Shija (Tanzania)

Grace Kalambo (Tanzania)

Richard Ruati (South Sudan)

Upendo Peneza (Tanzania)

Winnie Ngabriirwe (Uganda)

Maria Lavik (Norway)