The crumbling silos of secrecy

Hope can come from surprising places. Twelve months ago, who would have thought the US mortgage crisis and the euro zone’s predicament might improve global transparency and accountability?

When we started writing the 2013 Africa Progress Report on oil, gas and mining one year ago, we recognized that although Africa was riding the crest of the global commodities wave, resource-led growth had yet to transform the lives of Africa’s people. Billions of dollars were being squandered on building personal fortunes, financing civil wars, and supporting corrupt and unaccountable political elites. What we did not anticipate was that over the year, a picture of hope would somehow emerge.

Where is this hope coming from? Secrecy is being challenged at all levels. As austerity bites in many G8 countries, citizens are demanding fairness and action. They feel cheated, and will no longer tolerate secret deals, illicit financial flows and tax havens that stash money away for the rich. For citizens everywhere, in Africa, in G8 countries and across the globe, current tax practices raise questions about fairness, social justice and citizenship.

The recent passing of the Dodd-Frank Act in the United States and similar EU measures that require extractive companies to meet higher standards of disclosure surprised many. Now the G8 is on the case, with the UK Presidency putting tax and transparency on the agenda for the Summit in Ireland.

In Africa, too, citizen opposition is growing to the squandering of oil, gas and mining resources as evidence emerges of undervaluation, shady dealmaking and mismanagement. The Africa Progress Report identifies deals in the Democratic Republic of the Congo and Guinea in which significant mineral resources were being sold at a fraction of their real value in transactions using shell companies and offshore tax havens. In the Democratic Republic of the Congo, the report states, “In a country with 7 million children out of school, the sixth highest child mortality rate in the world, and endemic malnutrition, losses of this order carry high human costs”.

Indeed, trade mispricing costs governments in the region of US$34 billion annually. Closing the loopholes that facilitate this practice is vital.

Recognizing these costs, some governments are taking action. Liberia, Sierra Leone and Guinea now make mining contracts publicly available. Ghana is strengthening accountability in the management of petroleum revenues. Nigeria is publishing national budgets online and the new sovereign wealth fund will have far higher standards of transparency than has been the case in the past.

At the same time, many companies are now looking beyond short-term profits towards long-term investment partnerships. These companies recognize the economic, as well as the ethical, case for strengthening linkages to local firms and engaging with local communities. They know that sustainable investment needs a stable country and a “social license to operate”.

What is emerging as the silos of secrecy crumble is a shared agenda, in which different parties have overlapping interests and similar goals. As our report states, “Building trust is harder than changing policies – yet it is the ultimate condition for successful policy reform. When we build national capacity to understand natural resource sectors better – in civil society as well as government – we also build trust between government, business and citizens”.

Better understanding will generate not only fairer deals but also more equitable national strategies. In turn, this fosters local ownership, longer lasting contracts and a better investment climate. Satisfied local communities pose less political risk. As Mr. Annan states, “Mutually beneficial agreements are the only ones that will stand the test of time”.

As this year’s report, which was launched at the World Economic Forum on Africa last month, concludes, huge opportunities exist in Africa and leaders across the globe and the continent – in government, industry and civil society – must take action now. The benefits of seizing these opportunities will not just transform the lives of Africans, but will also be felt in countries across the world.

Author: Caroline Kende-Robb, the Executive Director of the Africa Progress Panel. 

Image: Capetown business district REUTERS/Mike Hutchings