MAC: Mines and Communities

Africa's minerals trap

Published by MAC on 2007-01-28

Africa's minerals trap

28th January 2007

African peoples don't need to be taught lessons about being ripped off by mining companies. They have well over a century's experience of such exploitation. When an economy starts crumbling - as in mineral-rich Guinea - it's little wonder that outraged citizens target the world's biggest bauxite exporter, partly owned by Alcoa.

In contrast African governments have long pursued the contrary course of welcoming foreign minerals-related investment, even where it was palpably obvious that they were only compounding the so-called "minerals curse".

Now the African Union has analysed the degree to which foreign bankers and lawyers have exploited such complacency, claiming that around US$150 billion of mineral wealth is stolen from the continent each year through tax avoidance and capital flight.

No doubt it's a welcome sign when Tanzania, previously one of the most complaisant African governments when giving away minerals concessions, says it now plans to renegotiate the contracts.

Just how this will be done is another matter.As for the notion - peddled by the mining industry at large - that DR Congo has entered a new era of sustainability since the end of the recent bloody civil conflicts, international thriller writer, John Le Carre and the International Crisis Group urge us all to "Think again!".

Africa set to strip Western giants of mining rights

Nick Mathiason, The Observer (UK)

28th January 2007

African governments are gearing up to seize back valuable mining concessions from the global extractive giants.

Angry at missing out on the unprecedented commodity boom, Tanzania is preparing to renegotiate gold mining concessions. The news will send a shiver down the collective spine of some of the world's biggest mining companies, whose profits and share prices have surged in the past five years.

The warning comes from Dr Yash Tandon, executive director of the South Centre, the inter-governmental body representing 49 developing countries.

Asked if African governments would follow the lead of Russia's President Vladimir Putin and appropriate valuable commodity assets, Tandon said:

'It's a matter of time ... within the next five years or even earlier. 'To some extent, African countries have been a victim of the myth that, if they don't open up their markets to investment, it won't come. They have been competing to give concessions to mining firms and banks. I don't believe the Tanzanians get more than 5 per cent of gold. The rest is externalised.'

In an interview with The Observer at the World Social Forum in Nairobi, Tandon criticised the Make Poverty History campaign as little more than a 'PR exercise', saying: 'Gleneagles [the G8 summit] wrote off $40bn. At the time, debt was about $400bn for poor countries. You still have $350bn debt. Just the interest rate alone by now has brought that back to $400bn - so on debt relief it hasn't made much difference, because the underlying structure that creates debt is not settled, resolved or even addressed.

'If this becomes the last step, they will have indulged themselves in some kind of public relations exercise which gives the impression they've done their job.'

He is advocating a debt audit to determine whether poor countries' debt relief had a 'meaningful impact', or whether money has been recycled. He suspects that lucrative infrastructure contracts have been linked to debt relief.

Despite Tony Blair's optimism, Tandon believes WTO trade talks are 'more or less doomed'. He says EU pressure to seal an economic partnership agreement with African, Caribbean and Pacific nations by the year's end is 'unrealistic and unfair' because the original intention was to wait until two years after the conclusion of a WTO trade deal.

Western bankers and lawyers 'rob Africa of $150bn every year'

Africa kept destitute as western firms shift cash to tax havens

Nick Mathiason in Nairobi, The Observer

21st January 2007

More than $150bn a year is looted from Africa through tax avoidance by giant corporations and capital flight using 'a pinstripe infrastructure' of western banks, lawyers and accountants, according to the African Union.

This $75bn equivalent shortfall easily eclipses pledges made by leaders of the world's richest nations to increase aid and write off debt at the G8 summit in Gleneagles in 2005.

Such is the level of capital flight, revealed in studies by the African Union, that the poverty-stricken continent is now a net creditor to the rest of the world. It is estimated that about 30 per cent of sub-Saharan Africa's annual GDP has been moved to secretive tax havens, many under the jurisdiction of the British government.

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The full scale of the plundering, in which western companies and financial firms are complicit, has come to light at the launch this weekend in Nairobi of a pan-African campaign group, the Tax Justice Network for Africa. The TJNA is to investigate multinational tax avoidance and abuses of tax havens by corrupt African politicians on a country- by-country basis, as well as lobbying global leaders to commit to a proper crackdown.

Alvin Mosioma, the TJNA's first coordinator, said : 'It is astonishing that the World Bank and International Monetary Fund have not researched capital flight and tax. Until now these issues have not been included within the debate on poverty alleviation. We will publish precise information about tax avoidance in African countries and focus on the role of multinationals. Our message is that tax justice will improve democracy.'

As multinationals' dubious tax practices come into focus at the World Economic Forum at Davos this week a report will reveal that, despite the global commodity boom over the past three years, African governments are missing out in increasing tax and royalties, and in some cases actually receiving less revenue from mining companies than before.

As production of copper, gold, nickel and platinum soars, research from Christian Aid will show that the Tanzanian government's revenue from gold fell by nearly a third once the rise in prices has been factored in. Zambia saw revenues from copper halve. Pressure from the IMF to privatise industries on advantageous terms to mining firms is responsible for the shortfall, say campaigners: 'The myth that tax rates have to be slashed to attract overseas investment needs to be challenged,' said Anna Thomas, Christian Aid's policy manager.

There is also concern at how socalled transfer pricing techniques - otherwise known as profit-laundering - are deployed by giant firms in extractive industries to massage down their profits.

While Britain's government has been praised for putting poverty alleviation at the top of the agenda, it faces criticism that it has done little to stamp out overseas tax abuses involving UK firms and for being the destination for money siphoned out of Africa by corrupt officials. Cross-border dirty money flows are conservatively estimated at $1 trillion annually.

But the Treasury said: 'The government has effectively tackled both corporate and personal tax avoidance structures time and again. The UK is driving efforts to reach international consensus to overcome problems with capital flight and tax evasion.

'The UK's extensive network of tax treaties with other countries assists revenue authorities in the detection and countering of tax evasion. The UK is committed to engage with other jurisdictions to strengthen international cooperation on this issue.'

The African Union estimates that more than 80 per cent of the annual $150bn looted from Africa finds its way to offshore financial centres. The Observer revealed in 2005 that the total stock of private wealth held in low-tax havens is $11.5 trillion. Meanwhile, compelling evidence from Ghana and Nigeria is emerging that pressure on these countries from the IMF and World Bank to reduce corporate taxes has forced many African countries to levy VAT on fuel, which is increasing desertification and global warming by forcing millions of people in poverty to abandon gas stoves and chop down forests for wood burning.

Nigerian academic NA Adebayo said: 'Imposing VAT on petrol and gas products has sparked infl ation in many countries as transport costs rise and is also leading to desert encroachment.'

Bauxite shipments stopped as violence in Guinea grows

Northern Miner

22nd January 2007

As the general strike in Guinea escalates in size and violence shipments of bauxite from Compagnie des Bauxites de Guinea (CBG) - the world's largest bauxite exporter - have been stopped.

CBG is operated by Pittsburgh-based Alcoa through its interest in Halco - a joint venture company that owns 51% of CBG. Montreal-based Alcan is a shareholder in Halco as is privately held Dadco.

News of halt on shipping comes as at least 20 people have been reported shot, and 11 dead in the capital of Conakry after the military opened fire on unarmed protestors according to the UN.

Ongoing shooting in other towns was said to be preventing an official tally on the total number of injured and dead.

The general strike began on Jan. 10, after the countries powerful labour unions insisted on the end of President Lansana Conte' tenure.

But on Jan. 22 union leaders said they had lost control of the protest as discontent spread rapidly across the country and throughout Guinean's of varying walks of life.

The protests have been spurred by a crumbling economy, depreciating living standards and the growing perception that Conte's sickliness has left him as an incompetent leader. Conte has made some concessions to the union leaders but has refused to step down.

The stopping of bauxite shipments comes after CGB officials said stockpiles would ensure continued shipping for another week.

"If you can't ... get the bauxite from the mine to the port, it doesn't matter how much stockpiles you have, you need to be getting the bauxite," Alcoa spokesman Kevin Lowery told news agencies.

Workers at the project went on strike at the end of last week stopping all bauxite mining, drying, rail transportation and ship loading operations.

Guinea is the world's second largest producer of bauxite, but the largest exporter of the ore, as Australia -- the largest producer -- refines much of its bauxite within its own borders.

Bauxite is refined to make alumina which is then smelted to make aluminum.

CBG exports roughly 13 million tonnes of bauxite per year.

Alumina prices are currently trading between US$260 and US$275 per tonne, some experts were already predicting higher alumina prices in the coming year as demand in China and India continues to trend upwards.

The latest block in the supply chain has acted as a catalyst to such increases traders in London told Reuters.

Le Carré points to looting of Congo by mining corporations

By John Farmer and Chris Talbot

World Socialist Web Site

27th January 2007

In December, the writer John Le Carré along with Jason Stearns, analyst with the International Crisis Group think tank, wrote about the current situation in the Democratic Republic of Congo. They noted that the recent swearing in of Joseph Kabila as president of the Democratic Republic ended a peace process that had followed seven years of war. Close to 4 million people have died and even now, on average, 1,200 people a day are dying from disease and malnutrition that are the result of the war and logistical collapse.*

“But,” they write, “dubious mining deals between the Congolese government and international corporations may be threatening the nation’s chances of rising from the ashes.” They point out that 10 years ago the Congo ranked high among the world’s producers of cobalt, copper, coltan and industrial diamonds. However, now three quarters of the population live on less than a dollar a day. One quarter—15 million people—must survive on a single meal a day.

As part of the peace process, the World Bank has organised the privatisation of the Congo’s state-owned mining company, Gecamines. It paid out $45 million to retire 10,000 mining workers. While the bank was overseeing this transition, the Kabila-led government negotiated mining contracts in 2005 with three corporations: Phelps Dodge (recently bought by Freeport McMoran to form the world’s largest publicly traded copper company), ** Global Enterprises Company and Kinross-Forrest. The deals are said to amount to 75 percent of Gecamines’ mineral assets.

According to Le Carré and Stearns, two of these deals have been examined by the Canadian law firm, Fasken, Martineau and DuMoulin. They concluded that the share of the profits going to the Congolese government would be “minimal, if any.” They found that no competitive bidding process took place and that the price of the mining property sold was “guesswork.” Le Carré notes that for “a minimal return” the Congo regime has “signed away millions—if not billions—of dollars’ worth of copper and cobalt for 35 years.”

An internal memo dated September 2005, written by the World Bank’s mining expert Craig Andrews and sent to Pedro Alba, the bank’s director for the Congo, is quoted by both the Financial Times and Africa Confidential. It states that the deals had not been through a “thorough analysis, appraisal and evaluation” before being approved and that the assets transferred to the companies exceeded the “norms for rational and highest use of the mineral assets.” Andrews wrote that the World Bank could be seen as risking “perceived complicity and/or tacit approval” of the deals.

One of the NGOs that have followed the deals is Rights and Accountability in Development. Its director told the Financial Times that “those now in control of the process are the very same people who nodded through some of the most controversial deals of the last three years.”

Africa Confidential points out that a similar process to the sale of Gecamines has taken place with regard to the state diamond company, Société Minière de Bakwanga (MIBA). Several deals, they note, “have given politicians and managers kickbacks or stakes in private firms.” They state that many of the natural resource projects of the Congo are financed through the London Alternative Investments Market, where “inexperienced” companies “have reaped huge rewards.”

According to the Financial Times, the Congo government is set to review the contracts, but “in spite of the reviews, no substantial changes are expected.” The deal was in fact part of the peace process as warring factions of the Congo elite helped themselves to handouts derived from the sales. The Financial Times explains that the government “was seen by western diplomats as deeply corrupt, but necessary to put an end to war in a country central to the region’s stability.”

Last year’s presidential elections were closely supervised by the Western powers in order to prepare the way for the more extensive exploitation of this mineral rich country. The voting, with 50,000 ballot stations across an area two thirds the size of Europe, but with only 300 miles of paved road, was financed by the European Union and the United States to the tune of $500 million.

In order to prevent conflict between the rival factions of Congo’s elite, the 17,000-strong UN military force was supplemented by a European rapid reaction force, EUFOR, for the duration of the elections.

The second round of voting was concluded on November 19 with the incumbent president, Joseph Kabila, winning 58 percent, and with Jean Pierre Bemba, his main opponent, winning 42 percent. Bemba has apparently accepted defeat despite all the previous indications that this would not happen and that war could easily resume.

Bemba had accused Kabila of rigging the ballot and in August, after the first round of voting, EUFOR had to intervene in Congo’s capital Kinshasa to end a shootout between Kabila and Bemba’s militias that left 23 dead.

Bemba has a personal militia of more than 1,000 men and Kabila heads a 15,000-strong presidential guard. These militias have so far not been disarmed by the UN force.

Some fighting continued during the election period in the eastern Kivu region, notorious for the presence of a number of militias, including the remnants of the Interahamwe that carried out the killings in Rwanda in 1994. A group led by Tutsi warlord Laurent Nkunda clashed with government army forces in December, killing 19 people. Although a Rwandan-backed peace deal is now being negotiated with Nkunda, there are reports of thousands of refugees fleeing into Rwanda.

There have also been reports of incidents in which the Congolese army has looted and attacked the local population after not being paid. The army is underfinanced and unstable, being made up of former militia members whose loyalty to the central government is often lacking.

Yet these outbreaks have been relatively low key and commentators have expressed surprise that the election process has gone relatively smoothly, despite complaints of ballot-rigging.

BBC reporter Mark Doyle commented that “a miracle appears to have taken place” when no further conflict took place after Kabila’s victory. Doyle pointed to the UN troops backed by the German-led European force as a key factor in stopping further hostilities, together with “intense diplomatic pressure” from the US and other Western powers.

What seems to have been most influential is the “money and patronage” to which Doyle also refers. Both Bemba and Kabila have extensive business interests and even in opposition Bemba is likely to gain control of several provincial administrations.

Bemba was the government’s top finance official, so will have benefited like Kabila from the mining deals. But according to Africa Confidential not only these sell-offs, but also several multimillion-dollar credits were made available to the government over the last four years.

The International Monetary Fund suspended its lending programme at the beginning of 2006 as the government “deliberately breached the reforms it promised to implement.” Yet although the government agreed in March to accept the IMF demands, they were not carried out. “The period of pre-election interim government has been marked not only by non-implementation of reforms, but also by massive theft and fraud,” comment Africa Confidential.

Government spending in July during the first election round was nearly 50 percent higher than in June, and then shot up again in September and October before the second round. Africa Confidential note that with the parliamentary elections, “In Kinshasa, there is now talk of the ‘third election’—rewarding the parties and politicians that supported the winning coalition.”

After this spending spree, bribing former warlords and politicians left over from the Cold War Mobutu era, the Kabila government could now default on the repayments of its $10 billion external debt. The IMF will undoubtedly demand a return to financial probity. Africa Confidential suggest that Kabila’s “most enthusiastic backers—the US, France and Belgium—will try to find a formula to bail him out, arguing that he will begin to work on the necessary reforms as the economy is boosted by big new investments in mining.”

However the details of the mining deals that have now been exposed mean that there will be little income to repay debts. Le Carré is asking the World Bank to insist on renegotiating the mining deals, as if it is an honest broker with the best interests of the Congolese at heart. But the sole concern of the World Bank is to ensure that the optimal conditions are created for the exploitation of the Congo’s resources. Even if it did intervene in this instance, it would be because the deals undermine the ability of the Congo to pay off its debt to the West and run counter to the interests of other corporations. The bottom line of any demand by the IMF for financial stringency and economic “reforms” is that debt repayments will be made at the expense of state welfare spending, as is the case throughout sub-Saharan Africa.

The elections, writes Le Carré, were supposed to enable the vast mineral wealth to “put an end to this sort of crippling economic injustice,” referring to the devastating conditions faced by the majority of the population. But given that his recent novel The Mission Song on the Kivu region brilliantly reveals Western politicians and businesses in a race to grab the Congo’s resources, he is naïve to imagine that the US and Europe financed the elections for any other purpose than expediting capitalist exploitation and boosting their chosen stooge, Joseph Kabila.

* <> “Getting Congo’s Wealth To Its People,” John le Carre and Jason Stearns, Boston Globe, 22 December 2006

** At the time of writing (January 28 2007) Freeport was still negotiating to acquire Phelps Dodge (editor)

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