Countering tax avoidance in Africa’s mining sector

Sub-Saharan Africa is estimated to possess 30 percent of global mineral reserves, presenting a major opportunity for the region. However, despite the significant private investment in this sector, a recent analysis has found that many multinational companies are evading taxes. Giorgia Albertin, Deputy Division Chief in the International Monetary Fund’s African Department, discussed the issue in an interview with CNBC Africa. According to Albertin, the IMF's recent paper highlights the importance of mobilizing domestic revenue in sub-Saharan African countries post-pandemic to finance urgent needs and long-term development goals. The analysis focuses on profit shifting by multinational companies operating in the mining sector. Profit shifting, the process through which these companies reduce taxes by shifting profits to low-tax jurisdictions, is a significant challenge in the region. Sub-Saharan Africa, with its abundant mineral resources, relies heavily on the mining sector for economic growth and foreign direct investment. However, tax revenues from this sector remain relatively low, indicating a need to curb profit shifting and enhance revenue mobilization. The IMF supports global initiatives like a minimum global corporate tax rate to combat profit shifting. In addition to policy advice, the IMF assists developing countries in sub-Saharan Africa by providing technical assistance to strengthen tax regulations and build capacity to address profit shifting effectively. The IMF's efforts are based on real-life examples and analyses from countries like the Democratic Republic of Congo, Central African Republic, and Nigeria, where the benefits of natural resources have not reached the people due to multinational companies' questionable practices. Albertin emphasizes the importance of implementing transfer pricing rules and limiting interest deductions between affiliates of multinational companies to reduce profit shifting and increase tax revenues. These measures, tailored to address the specific channels of profit shifting in the region, can help sub-Saharan African countries harness the full potential of their mining sector for sustainable development.