Since last week’s stinging observation by United Nations (UN) Special Raportuer on the Right to Food Olivier De Schutter regarding Malawi’s Kayelekera Uranium Mine deal, two elusive culprits remain pretty much intact in their hard shells. It is as if the country’s most guarded contract between government and Australian company, Paladin Africa Ltd has not been unravelled as the worst possible swindle.
De Schutter’s rebuke of the Kayelekera agreement might have further dismantled the whole concept of ‘tax incentives’ to foreign investors in poor countries, but, there is one thing still buried – suspected bribes. We all know that for decades, the extraction of Africa’s precious resources has become a hideous lucrative business flourishing on the corruption of Africa’s political elite by western investors.
Just recently, you just had to look at the stubborn faces and dodgy speak of government officials when asked about the Kayelekera uranium deal and listen to the jumpy rhetoric from Paladin officials to appreciate the existence of black spots in the pact.
According to Paladin, ‘the original request for the Development Agreement to be kept confidential was made by Government.’ The two have evaded transparency and used secrecy and misinformation – a mentality that might not be subdued by the UN Raportuer’s damaging criticism.
Despite growing public dissatisfaction purporting to the full-terms and conditions of the Kayelekera mining contract, Paladin angrily reiterated that Kayelekera is a done deal at the beginning of this year. It cannot be renegotiated until the expiry of the 10 year period of the current contract. Of course, to poor Malawians the only thing that explains such savage attitude of greed and exploitation is the parasitic motivation enshrined in ‘bad capitalism’ that it doesn’t matter whether one is milking the thinnest hungry cow.
The company’s General Manager (International Affairs), Greg Walker, good at his job has often walked out of the Kayelekera labyrinth waving this or that piece of information, explaining a jargon and technical processes or putting across a strong declaration that anyone listening would have thought his aggrieved audience must be residents of a fire-lit cave of the Dark Ages. In the past, Walker was quoted in the media as saying:
‘The fact that Malawians think they got a raw deal doesn’t necessarily mean they did get a raw deal.’
Until De Schutter’s remarks, opposition politicians and civil society activists who have ceaselessly highlighted Kayelekera as a raw deal were being mocked as a bunch of noise-makers seeking undue attention and lacking the intellect to understand the economics of mining. By the way, Kayelekera has been operating on massive losses due to low world uranium prices!
When in 2011, former Reserve Bank Governor Perks Ligoya lambasted the Kayelekera deal and outlined that Malawi gave out ‘a lot of concessions and funny conditions’ to Paladin, the company responded putting up its usual card. Kayelekera was a ‘high risk investment’ and concessions to the company, which the Government of Malawi voluntarily granted, reflected the company’s role as a ‘pathfinder.’
Now, Government and Paladin, the two evasive culprits who have long played hide and seek in front of poverty-stricken Malawians have been thoroughly undressed and forcefully given bitter tablets of shame to swallow. And who is the first to partly pull his head out of the sand? The Minister of Mining, John Bande, of course.
Bande has already jumped to the rescue and in his attempt to wipe government’s embarrassment revealed last Wednesday that actually, ‘ignorance’ is the major reason why the country signed bad contracts. He has further underlined that efforts are underway to tighten laws to curb ‘mineral robbery’ and ensure proper handling of mining deals.
But Bande seems to deliberately confuse ignorance, lack of mining expertise, poor negotiation skills with negligence and corruption. Hand on heart, didn’t kickbacks loosen the bolts and nuts of the Kayelekera contract? Possibly following De Schutter’s frank talk one ruling party ‘village idiot’ might reveal how he was flown to Sydney on the sidelines of the Kayelekera deal where his promised suitcase stashed with US dollars was never given to him. Does government really care about negotiating a fair win-win deal for its people? Of course, not.
When confronted by exploitative western negotiators who talk through their noses government representative find themselves giving away the bargain more so when they have been palm oiled with foreign-currency denominated tokens. It does not occur to our leaders that they need to maximise the return on our resources by signing fair deals because their personal interests matter most. The Keyelekera scam has shown that lack of national interest in our leaders is the underlying reason why Malawi remains poor.
Thus, De Schutter’s is right to condemn Malawi for failing to collect maximum remittances from Kayelekera because of ‘too favourable’ incentives to Paladin. Why is Government pampering foreign investors with incentives and intrinsic loopholes which are aiding tax evasion and illicit financial flows? All of that leading to loss of funds which could have been allocated to critical national programmes, for instance, food security in poor households who at the moment are vulnerable due to rocketing maize prices and looming hunger.
Little wonder, with the begging bowl out and about, government has failed to allocate K18.3 billion to the National Food Reserve Agency (NFRA) to purchase the requisite 80, 000 metric tonnes of maize in the 2013/2014 national budget, and instead only assigned a meagre K1.3 billion. This, against the loss of revenue from special tax incentives to Paladin estimated at almost K67 billion (US$205 million) since the installation of the mine.
More obscene is the projected loss of almost K92 billion (US$281 million) which Malawi will incur over the company’s 13-year tenure. In contrast, the country is presently still experiencing drug shortage in hospitals including serious lack of crucial clinical equipment, medical supplies as well as school blocks, teaching and learning materials. Over the past six months, government has accrued K1.3 billion of un-paid salaries for 7 849 newly recruited primary school teachers.
Of course, after swindling poor countries like Malawi, western companies bank their profits in global capitals and off-shore tax havens. They buoy their shares, making a fortune as their listed firms stand perched on the guild of stock exchanges. Then, western governments concomitantly apportion proceeds from their financial systems lubricated by revenue from poor countries and patent ‘aid packages’ back to the so-called poor countries.
Tax incentives which have been part of an unfair economic paradigm promoted by western fiscal pillars IMF and World Bank, have helped the west control business and own capital in poor countries. But, with western economies in turmoil and surviving on cut-throat austerity budgets, aid dependency is no longer a viable option for Malawi. Tax revenue matters more than ever before.
The Kayelekera fiasco speaks volumes of domestic negligence and international exploitation. At one point, it was reported the Malawi Government did not know the quantity of uranium which was being exported by Paladin. In fact, Paladin bought vital geological information regarding the Kayelekera Uranium Mine from a USA firm, PRI at a cost of US $10, 0000 (K3, 973, 583. 63). This, after government’s failure to provide the key geological information for Kayelekera through the Department of Mines, a situation which led to loss of revenue including inability to further collect 15% withholding tax.
Did it surprise anyone that two western companies: Paladin and PRI sold each other sensitive information which should be owned by the Malawi government. No! Because government was sleepy enough and the rest is the normal modus operandi called ‘reaping off poor countries.’ To cleanse its image off mounting bad press, Paladin in April this year announced that it was to unveil to the public details of the ‘confidential agreement’ that it signed with the Malawi government. Lo and behold! Paladin had been instructed by the Ministry of Mining to do so in a bid to prove that Malawi did not get a ‘raw deal.’
Besides environmental concerns, Paladin has been dodged with reports of salary disparity between local workers and expatriates. One would speculate that though employees have resorted to striking before, they have also feared aggressively demanding better working conditions because if they did, they would either be fired or if they vehemently protested, find themselves facing a similar fate like South Africa’s 2012 Marikana mineworkers shot randomly by police. That is the story of how African governments continue to neglect the very needs of their people in favour of satisfying the gluttonous desires of foreign investors.
In this respect, one cannot underestimate the ‘politicking’ surrounding foreign investment. There is the brainwashing and fear that African leaders endure in their struggle to appease donors who are sometimes capable of clamping on aid or trade deals if a poor country like Malawi is ‘hostile’ to western investors. In the un-coded diplomatic language of foreign investment it means, treat business clients from the west well and we will handle your aid and loan cheques accordingly.
Western leaders have continued to hypocritically talk about fair trade and dealings with Africa whilst winking an eye to their investors. And, tightening the shackles of neo-colonialism on their behalf has been IMF – convincing poor countries to lure foreign investor with a portfolio of incentives. Just last year, IMF advised poor Gambia to reform its tax system so that the country avoids discouraging foreign investors with many taxes. Resident Representative, Meshack Tunee, noted:
‘Our assessment through the technical assistance of IMF in The Gambia [has] indicated that the tax system is a little bit outdated. There are so many taxes that don’t even yield enough revenue to warrant collecting them’.
In De Schutter’s observation, customs and excise duty exemptions, value added tax on mining equipment and special deals on the rate of royalty owed to government have proved to be fiscally absurd. With growing ridicule over western-imposed economic policies, some poor countries have started to abandon incentives to foreign investment. It has been an inevitable shift with the entrance of the aggressive Chinese dragon into global trade. Equally exploitative but offering a new approach to trade and investment China might, however, like the west be wantonly reaping off Africa.
On his recent African tour, US President Barack Obama tried to dampen suspicion that his country is threatened by China’s growing trade and investments on the continent and instead advised that Africa should strive to get a fair deal, of course, as if his government would have said the same 20 years ago.
Interestingly, with increasing mobility of investors and fading barriers to global capital flows rich countries are assertively reforming their tax infrastructure to ensure maximum collection of revenue from foreign companies. Speaking on 15th June this year at the pre G8-Summit, British Prime Minister David Cameron openly advocated for ‘proper companies, proper taxes and proper global rules’ that guarantee transparency so that both rich and poor countries equally benefit.
In his ‘Open for Growth – Trade, Tax and Transparency’ speech attended by some African leaders, Cameron emphasised that the issue of tax matters because when companies don’t pay their taxes we all suffer as a result. But lacking similar seriousness are poor African countries like Malawi.
In the wake of the Kayelekera scam, Malawi needs to realise that tax is a governance issue. Aid has failed to develop poor countries. It never will. The cost of tax incentives given to Paladin is enormous. We can’t sustain it. Everyone agrees, our tax framework should be completely overhauled to stop existing revenue drainage.
Instead of a haphazard ‘mining policy’ we need a robust ‘mining code’ that offers transparency, accountability and is in tandem with development goals. The demand from poor Malawians to Government and Paladin is clear now: act on the Kayelekera raw deal accordingly. It is a matter of urgency.
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