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African Continent Loses Up to U.S.$400 Billion Annually in Capital Flight

Published on Saturday 8th May 2010 African Continent Loses Up to U.S.$400 Billion Annually in Capital Flight

THE African continent which many international investors describe as too risky to invest in, loses between US$200 billion and US$400 billion annually in capital flight by firms which make super profits through evading or cheating the taxman.

South African Finance Minister Pravin Gordhan said in Dar es Salaam today during a plenary at World Economic Forum on Africa that the continent remains the most competitive in terms of returns on investment, but cautioned on capital flows.

Mr Gordhan dismissed some international investors who describe Africa as a risky place to do business as people who were out of touch with the reality. He also expressed concern over businesses that made super profit, but refused to execute statutory obligation of paying taxes to governments.

"Businesses have the responsibility to pay taxes to pay fair taxes," noted Mr Gordhan, who came under fire from ArcelorMittal South Africa's Chief Executive Officer, Ms Nku Nyembezi-Heita.

Ms Heita criticized most African governments especially Pretoria for what she described as inconsistent in fiscal policies. She said inconsistence in policies made it difficult to decide on investment plans, where one could not easily predict returns.

She singled out Pretoria's recent change in mining tax, saying it sent negative messages to investors who already view the continent whose population has hit a one billion mark, as too risky to invest.

"I find the Minister of Finance views on taxation really strange," argued Ms Heita whose UK-based multinational steel maker, ArcelorMittal, is the world's largest steel company.

She argued that apart from unreliable regulations which change overnight, the continent has numerous problems including shortage of reliable and affordable power supply.

But Minister Gordhan, seconded by Mozambican President Armando Guebuza and African Development Bank President Donald Kaberuka, argued that Africa lagged way behind other parts of the world in revenue collection as a ratio of gross domestic product.

"We know what we want.., we know how to get it," said President Guebuza who stressed that Africa can no longer rely on foreign aid alone to develop.

He said in Mozambique, agriculture and tourism were two major sectors which the government wants foreign investors to come in.

"Tax to GDP percentage in Africa is still the lowest at only 7 per cent," said Dr Kaberuka.

The former Rwandan Finance Minister pointed out that although Africa needed to attract more foreign investments to boost its economies, revenue collection remained an important area for governments to finance its operations and development programmes.

Currently, there has been growing resistance against government policies and regulatory reforms by multinational mining and telecommunication companies which have made super-profits in the two sectors over the past decade.

In Tanzania, for example, miners through the Chamber of Mines, are contesting a proposed law passed by Parliament recently that seeks to give the country more benefits including taxes, from its mineral resources.

In the mobile telecommunications sector, foreign owned companies which are listed at their home country stock exchange markets, are opposing mandatory listing at the Dar es Salaam Stock Exchange after three years of operations in the country.

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