Tanzania's mining revenues are touted as a key way to reduce
reliance on foreign aid and pull people out of poverty, but experts argue companies
are swindling the government out of at least $248 million a year.
The East African nation topped the worst of a list of nations across the continent
examined by the watchdog group Global Financial Integrity (GFI), with nearly $19
billion (14 billion euros) in illicit flows over the past decade, the equivalent to over
seven percent of the country's total government revenue.
"There’s a narrative in the development community that there’s something wrong
with developing countries, because we keep pumping money in, and they’re not
developing as quickly as we'd like them to," said GFI economist Brian LeBlanc.
"The reality is that we’re draining money out, and we’re doing it at an increasing
The Washington-based GFI's examination of trade mis-invoicing reveals stark
Mis-invoicing occurs when businesses deliberately lie about the value of the goods
they're importing or exporting. There are a lot of illegal reasons to do this,
including tax evasion and money laundering.
Globally, trade mis-invoicing is a $424 billion a year problem, and makes up about
80 percent of all the money that flows out of developing countries illegally, GFI
Numbers like this, when compared to aid, mean there’s far more money draining out
of Africa than going in.
Much attention has been given to transfer pricing, when multinational companies
employ accounting tricks to shift profits into countries where they’ll pay less tax.
Trade mis-invoicing is different. It involves tangible goods that are shipped across
borders, and the activity is therefore a lot easier to spot.
- 'Critical' resources lost -
The researchers simply looked at the value of goods sent to or received from
developed countries -- where customs officials tend to be more rigorous -- and
compared it to the values declared in developing countries.
In Tanzania, the report discovered that, rather than undervaluing imports,
corporations were overvaluing them.
In the case of fuel imports, overvaluing allows companies exempt from paying fuel
taxes -- such as mining companies -- to reduce on paper the profits they will be taxed
on, with GFI calculating as much as $248 million a year in revenue was lost.
In total, at least $8 billion was illegally drained out of the Tanzanian economy over
just 10 years, said LeBlanc.
"These critical resources could have helped to create more jobs, to fund greater
access to social services to improve the lives of average Tanzanians, and to improve
infrastructure that is vital to additional economic development," he said.
But it wasn’t all money going out. The report identified nearly 11 billion in export
over-invoicing, which may be a sign of money-laundering and payments for illicit
The port of Dar es Salaam is a major hub for the illegal export of wildlife products
like rhino horn and ivory, as well as drugs and gold.
Stronger and more specific laws can help tackle the problem, the report added.
They also suggest that customs officials have access to up-to-date pricing data, to
allow them to flag questionable exports and imports.
"Every international organisation in the world is basically telling them promote
exports and trade facilitation, and then we come along and say that perhaps these
things have unintended consequences that need to be addressed," said LeBlanc.
"For years and years this problem has been known by the World Bank and IMF, but
it’s been viewed as an intrinsic problem with the African countries, not looking at
the other side of the equation -- the overall financial system, which is a system
largely created by Western nations," he added. "It’s a much larger, more intricate