When being kept in the dark matters

Country-by-country reporting in the Angolan case

Johan Nordgaard Hermstad

Written for Changemaker Norway, November 2013

[Type a quote from the

“The reality is, Africa is being ripped off big time. (…) The international community must do

its part to ensure balanced contracts, minimize tax avoidance – let alone tax evasions – and

bring light and transparency in the natural resource sector, [which is] at the moment often

very opaque.”

Donald Kaberuka, president of the African Development Bank1

“Work with me to demand more transparency from Africa’s national leaders and foreign

investors. What are they doing? How much is it worth? And how will the money be spent?”

Kofi Annan, head of the Africa Progress Panel, launching the Africa Progress Report in 20132.

1 http://www.theguardian.com/global-development/2013/jun/18/africa-ripped-off-foreign-resource-firms

2 http://www.africaprogresspanel.org/publications/policy-papers/africa-progress-report-

2013/#.UmRX3BDJKTU

Table of contents Norwegian summary ........................................................................................................................... 2

Introduction ......................................................................................................................................... 3

Country-by-country reporting ............................................................................................................. 4

Angola – status on transparency and capital flight ............................................................................. 6

Transparency challenges in Angola in a sector-by-sector perspective ............................................... 7

Norwegian business in Angola ............................................................................................................ 9

Impact of the proposed country-by-country reporting on the Angolan transparency context ........ 10

Conclusions ........................................................................................................................................ 12

Abbreviations .................................................................................................................................... 14

2

Norwegian summary Denne rapporten har som formål å vurdere

Finansdepartementets lovforslag om å innføre

obligatorisk «land-for-land-rapportering» for

norske utvinnings- og skogselskap i lys av

åpenhetssituasjonen i Angola, en av Norges

største handelspartnere og

investeringsmottakere blant

utviklingslandene.

Land-for-land-rapportering (LLR) er en

rapporteringsmal som bryter ned finansielle

nøkkeltall på landbasis, i tillegg til de

konsoliderte tallene som internasjonale

konserner allerede oppgir.

Hovedmotivasjonen da

skatterettferdighetsbevegelsen på starten av

2000-tallet foreslo dette var å avdekke

signaler om at selskap misbruker sin

konserninterne handel til å flytte ulovlig på

overskudd og snyte på skatten.

Finansdepartementet har i sin proposisjon

definert ut kampen mot ulovlig skatteflukt av

lovforslagets formål og redusert

informasjonskravene til kun å gjelde

jurisdiksjoner hvor de omfattede selskapene

driver utvinningsvirksomhet. Det er ikke lett å

si hvem som har hevd på å definere begrepet

LLR, men det kan med rette stilles

spørsmålstegn ved om Finansdepartementets

forslag faller inn under det.

Angola er et land som har opplevd eventyrlig

vekst etter borgerkrigens slutt i 2002, men

opplever store utfordringer med å omsette

veksten til forbedringer i levekårene for folk

flest. José Eduardo dos Santos har 34 år i

presidentstolen, og blir sammen med andre

parti- og militærtopper beskyldt for å utnytte

sin politiske makt til berikelse av seg selv og

sin familie. Politiske prosesser er ofte svært

lite gjennomsiktige, åpenheten om offentlige

budsjetter er svak og den markedsregulerende

rollen til store statseide selskaper som

Sonangol og Endiama skaper utfordringer for

etterretteligheten i olje- og diamantsektoren.

Videre er tjenesteleveranse til oljenæringen

ansett for å være en av de mest utsatte for

økonomisk kriminalitet.

Åpenhetsutfordringene strekker seg også inn i

sektorer som ikke har med utvinning å gjøre,

som den eksplosivt voksende byggenæringen,

bank-, telekom- og turistnæringen. Spesielt i

bygge- og banksektoren er internasjonale

aktører inne sammen med nasjonale aktører.

Det norske næringslivets tilstedeværelse i

Angola er større enn i de fleste andre

utviklingsland. Det er først og fremst

tjenesteleverandører til oljesektoren som er

etablert i landet, men også andre sektorer er

representert. Det er på nåværende tidspunkt

høyt usikkert om noen av de norske

selskapene kommer til å bli omfattet av de

nye norske rapporteringsreglene på en slik

måte at nye tall blir offentliggjort om Angola.

Statoil, som utvilsomt driver ressursutvinning i

Angola, rapporterer allerede og andre selskap

melder at de vil måtte bruke tid på å etablere

om de vil være pålagt rapportering eller ikke.

Informasjonsverdien av LLR for Angolas del er

altså i det blå.

Verdien av det norske forslaget til land-for-

land-rapportering kan vurderes etter to

kriterier:

- Tilgangen til meningsfull og troverdig

informasjon. Angolansk sivilsamfunn

understreker at detaljnivået må være

høyere enn foreslått om de skal kunne

anvende LLR i sitt arbeid. Videre må

informasjonen oppgis for alle land

selskapet har virksomhet i om LLR skal

ha verdi for angolanske myndigheter

og troverdigheten ville vært bedre

ivaretatt om rapporteringen inngikk

som noter til selskapets regnskap.

3

- Sektorutvalget. Det er fremdeles

knyttet stor usikkerhet til hvor mange

norske selskap i Angola som kommer

til å rapportere. Vi vet at

gjennomsiktighetsutfordringer er

knyttet til mange andre sektorer enn

bare utvinningssektoren, og om LLR

var pålagt for alle sektorer ville

informasjonstilgangen for det

angolanske sivilsamfunnet blitt

vesentlig.

På bakgrunn av rapporten kommer

Changemaker med følgende anbefalinger:

- Bekjempelsen av skatteflukt bør være

et hovedformål ved land-for-land-

rapportering.

- Land-for-land-rapporteringen bør

beskrive et bredt utvalg av finansielle

opplysninger som er tilstrekkelig

spesifisert og gjelder for alle

jurisdiksjonene et selskap er registrert

i.

- Rapporten bør komme som noter til

regnskapet til selskapene omfattet av

regelverket.

- Land-for-land-rapportering bør gjelde

for alle sektorer.

Introduction Corporate taxation and financial transparency

have made their presence known on the

international political agenda in the last

couple of years. The G20 group of sizeable

economies has time and again reiterated the

need for greater financial transparency

concerning tax information about

multinational companies1 since the famous

collapse of Lehman Brothers in 2008. With

increasing pressure on government budgets

following the crisis, governments in many

1 http://www.bbc.co.uk/news/business-23994488

developed economies have turned their

attention to multinational companies as well

as wealthy individuals and their compliance

with the social contract.

Several concrete political initiatives have been

on the agenda to ensure financial

transparency. Bilateral information exchange

agreements and unilateral legislation are

among the instruments introduced to end

bank secrecy and limit illicit tax evasive

behavior in financial secrecy jurisdictions

(commonly called tax havens).

Some of these policy tools have in varying

degree included “country-by-country

reporting” – an idea first developed by Richard

Murphy in 20022. Notably, the US Dodd Frank

legislation and the new consolidated EU

accounting directive have incorporated parts

of the country-by country reporting tool.

Based on the EU directive, the Norwegian

parliament will vote over a proposed piece of

country-by-country legislation coming into

force January 1st 2014.

Global Financial Integrity (GFI), describing

illicit financial flows from Africa as a “hidden

resource for development”, estimates the

amount of financial flows illicitly leaving the

continent to surpass $ 100 billion dollars in

the years leading up to the financial crisis3.

Notably, the GFI reports do not include the

estimates of internal mispricing within

multinational companies, and with this

methodological barrier in mind, GFI stresses

the possibility of the real scope of IFF being

“much higher”4. The African continent is not

2 Country-by-country reporting – accounting for

globalization locally, Richard Murphy for TJN, page 2 3 Global Financial Integrity, ILLICIT FINANCIAL

FLOWS FROM AFRICA: HIDDEN RESOURCE FOR DEVELOPMENT (2008) 4 Tom Cardamone, Managing director Global

Financial Integrity «Illicit Financial Flows –

4

only a continent that has experienced

formidable economic growth the last decade,

but is also facing high growth rates in the

population and challenging restrains in

government institutions and key sectors like

education and health. This means that African

governments will have to make the most of

their growing economic activity to actually

give the population the chance for a better

life. Fair taxation is a key prerequisite to

enable that.

This report will analyze the proposed

Norwegian country-by-country legislation in

light of the case of one of the most important

economic partners of Norway on the African

continent – Angola. What are the strengths

and restrains of the proposed legislation in

light of contributing to financial transparency

and accountability in Angola? Especially, the

sector selection and limited content will be

analyzed in light of the Angolan context.

Country-by-country reporting

Objectives and definitions of country-by-

country reporting

Country-by country reporting is a concept

developed and advocated for by several NGOs

and has taken slightly different forms. Tax

Justice Network (TJN) and Publish What You

Pay (PWYP) have been driving forces in

developing the concept, both defining the

objectives and the content of the reporting.

Country-by-country reporting is intended to

provide information to a wide range of actors

in society, facilitating informed economic

decision making. Providing information about

in which countries a multinational company

(MNC) is operating and about the scale of

operations, investments, profits, taxation,

employment (and salaries) as well as intra-

Methodology, Magnitude and Mitigation» in conference paper to NCA Angola/CEIC

group trading in each country will according to

TJN contribute to clarifying the following key

issues. Is there a risk that the company is

conducting serious transfer mispricing within

the group? Are the company’s activities,

profits and taxes geographically distributed in

a manner that increases the risk and

vulnerability of the company, for example

with the change of policy in a certain

jurisdiction threating future earnings? Is the

company’s employment policy fair and lastly,

is the activity of the company sustainable?

These are questions that investors, tax

authorities, politicians, media, organizations

and the general public have an interest in

knowing the answers to when doing their

economic and political decision making, and

according to TJN, country-by-country

reporting was developed as a unique tool to

provide those answers5.

The Norwegian branch of Publish What You

Pay (PWYP) developed reporting templates for

what the organization called “extended

country-by-country reporting” in the

preparatory process for the proposed

legislation in Norway. Not differing greatly

from the TJN objectives and content, PWYP

emphasizes that information about taxation

and country adherence alone is necessary, but

not adequate for investors and other relevant

actors to take informed decisions. The

information must be put into a “meaningful

context”, hence other key figures than just tax

and other government payments must be

reported on6.

In terms of sector selection, the initiating

organizations have been skeptical of limiting

the scope from a general cross-sectorial

financial reporting standard, not least because

5 Country-by-country reporting – accounting for

globalization locally, Richard Murphy for TJN, page 7 6 EXTENDED COUNTRY-BY-COUNTRY REPORTING,

The 3-minute version, PWYP Norway, page 1

5

it poses problems in defining the sector limits,

but also because corruption, tax evasion and

financial irregularities are issues that appear in

all types of sectors. However, most attention

has been given both from legislators and

NGOs to extractive industries due to their

particular transparency challenges.

The Norwegian country-by-country

legislation proposal

The Norwegian outgoing government

presented on October 14th its proposal for

country-by-country reporting legislation. The

proposal is based on the likely new

consolidated EU accounting directive, but goes

further than the EU proposal in demanding

contextual information to ensure meaningful

reporting. The proposed legislation does,

however, differ significantly from core aspects

of the definitions of country-by-country

reporting given above. Most significantly, the

Ministry of Finance writes the following in the

explanation of the proposal:

“More transparency about payments

to governments will in itself be able to

have a preventive effect and can in

itself both stop illegal tax evasion and

“unwanted” tax planning. The ministry

means, though, that the new

Norwegian country-by-country

reporting legislation should not have

as an explicit main objective to

contribute to stop illegal tax evasion,

but that the main objective with the

rules should be to contribute to

increased transparency about the

activity of companies that are

engaged in extraction of non-

renewable natural resources, in that

way making governments accountable

for the spending of the revenues from

the land’s natural resources”7

[Translation by the author]

The proposal from the Ministry of Finance

makes reference to the EU legislation upon

which the Norwegian legislation is based,

noting that tackling tax evasion is not an

explicit core objective of these rules. As a

consequence of the objective limitation,

companies are proposed to be relieved from

reporting financial details in countries in which

they are not engaged in resource extraction.

Hence, uncovering signals of internal trade

mispricing is not possible with the proposed

legislation, somewhat contradicting the

comment given by the Finance Minister on the

publishing of his intention to propose the

legislation during the electoral campaign. The

minister commented that the legislation

would be “especially important for developing

countries with weak tax administrations”8.

Tax Justice Network makes it clear in their

detailed report on country-by-country

reporting that any legislation has to «embrace

the disclosures recommended in this report or

it is not country-by-country reporting”9.

Concretely assessing the 2012 proposal for EU

legislation the same TJN report considers it

despite providing welcome transparency

progress not to be in accordance with the

organizations definition of country-by-country

reporting.

Whether or not the Norwegian proposal for

legislation is deviating too much from the

7

http://www.regjeringen.no/nb/dep/fin/dok/regpubl/prop/2013-2014/prop-1-ls-20132014/20.html?id=741280 8

http://www.regjeringen.no/nb/dokumentarkiv/stoltenberg-ii/fin/Nyheter-og-pressemeldinger/nyheter/2013/land-for-land-rapportering.html?id=735280 9 Country-by-country reporting – accounting for

globalization locally, Richard Murphy for TJN, page 6

6

defining concepts of country-by-country

reporting is not up to the author of this report

to determine. For practical reasons, the term

will be used throughout the report, but please

bear in mind that this is not necessarily a fair

use of the expression in light of the original

intentions of the reporting framework.

Angola – status on transparency

and capital flight

Political context

The Angolan political environment is a

challenging context, still significantly affected

by the almost thirty year long civil war that

followed the country’s independence from

Portugal in 1975. The post-conflict

development of the country has been called

“a pivotal example of what can be termed

illiberal peace building” by dr Ricardo Soares

de Oliviera from Oxford University10. During

the war, the communist-supported MPLA

fended off and finally won convincingly over

the opposing UNITA supported by the US and

South Africa, leaving the leading MPLA figures

and heads of the armed forces in a very strong

position after the war’s end in 200211. The

Angolan President José Eduardo dos Santos

has held the post since 1979, winning both

post-war elections with big numbers.

However, Freedom House classifies the

country as politically “not free” with reference

to among others violent repression of political

dissidents, control of media and dysfunctional

separation of powers12. Dos Santos and the

political and military elites are also very well

off economically, with the president’s oldest

10

Ricardo Soares de Oliveira, “Illiberal peacebuilding in Angola” in Journal of Modern African Studies, Cambridge University Press (2011) 11

For an account from the last phase of the war, read “An outbreak of peace” by Justin Pearce 12

http://www.freedomhouse.org/report/freedom-world/2012/angola

daughter Isabel dos Santos being the richest

Angolan and first female US dollar billionaire

in Africa13. Her half-brother José Filomeno dos

Santos has been put in charge of the recently

formed Angolan $ 5 billion sovereign wealth

fund14. According to Oliveira, “enrichment

remains dependent on access to political

power”15.

Human development

Though being a country experiencing

significant economic growth, it is facing

serious challenges connected to indicators of

human development. The country is ranked at

number 148 out of 186 in the UNDP Human

Development Index, combining economic and

social indicators16. 16 per cent of every child

born in Angola dies before the age of 5, which

leaves the country among the bottom ten in

global statistics. Life expectancy is at 51,5

years17. The educational sector is quite weak,

with secondary school (from 12 years of age)

and higher educational levels especially

suffering from low enrolment numbers.18

These indicators sound quite depressing for a

country with a higher GDP per capita than

Serbia. Not surprisingly, a Gini coefficient of

0,55 gives us a hint about serious challenges

regarding distribution of the country’s

newfound wealth19.

13

http://www.forbes.com/profile/isabel-dos-santos/ 14

http://www.reuters.com/article/2013/06/21/angola-fund-idUSL5N0EX29020130621 15

Ricardo Soares de Oliveira, “Illiberal peacebuilding in Angola” in Journal of Modern African Studies, Cambridge University Press (2011) 16

http://hdrstats.undp.org/en/countries/profiles/AGO.html 17

Same as ref. 18 18

Relatório social de Angola 2012, Universidade Católica de Angola, chapter 4 19

http://www.economist.com/node/18118935

7

Financial transparency

Angola does not perform well on indicators of

corruption, placing itself among the twenty

poorest performing countries on the

Corruption Perceptions Index (nr. 157)20.

The International Monetary Fund (IMF)

launched in 2011 an assessment of the

government’s transparency regarding public

spending, in which they found $ 32 billion (a

quarter of the GDP) unaccounted for. Later

they found that most of this was “quasi-fiscal

operations” handled by Sonangol in the

government’s stead21. Sonangol, the state-

owned oil company, is not only both operator

and regulator in the oil market. It also offers

services in areas like aviation, health and

housing, operating as a state within the state.

Increasingly, the public spending handled by

Sonangol has been integrated in the general

state budget as a consequence of among

other IMF demands for greater spending

transparency in return for liquidity loans in the

wake of the financial crisis. However, Angolan

civil society is not satisfied with the degree of

transparency in public spending. For instance,

the biggest chunk of spending on education is

under an unspecified post in the government

budget, leaving interested parties speculating

who benefits from the grant22.

Global Financial Integrity estimates that

countries like Angola throughout the period

1980-2009 saw 10 % of the gross domestic

product (GDP) leave the country illicitly23. Bear

in mind that GFI estimates do not include illicit

capital flight resulting from transfer

mispricing.

20

http://www.transparency.org/cpi2012/results 21

http://www.reuters.com/article/2012/01/25/ozatp-imf-angola-idAFJOE80O00O20120125 22

Interview with OSISA 23

Tom Cardamone, Managing director Global Financial Integrity «Illicit Financial Flows – Methodology, Magnitude and Mitigation» in conference paper to NCA Angola/CEIC

Transparency challenges in Angola

in a sector-by-sector perspective

Petroleum

Petroleum is the dominating sector in the

Angolan formal economy, accounting for

approximately 50 % of GDP and more than 95

% of exports, making government revenue

completely dependent on the sector24. The

sector is dominated by Sonangol, the state-

owned petroleum company. The role as a

regulator means that the several taxes, of

which oil in kind is the most considerable, are

channeled through the company25. However,

there is a major lack of transparency regarding

how these funds are channeled further into

the proper government structures. Notably,

Filomeno Vieira Lopes, secretary general in

the opposition party Bloco Democrático with a

long career in Sonangol, in an interview for

this report especially underscored that

signature bonuses and contractual obligated

social contributions are very hard to find out

who actually ends up with. Concretely

considering the (almost complete) country-by-

country report by Statoil for 2012, Vieira

Lopes claimed these quite substantial sums,

for 2012 exceeding 3,4 billion Norwegian

Kroner, give no real information to Angolan

civil society and opposition unless it is

accompanied with further specifications

regarding to whom the money is paid.

Open Society Initiative for Southern Africa

(OSISA) made a report with Global Witness in

2011 assessing government transparency in oil

revenues and found that different reports

from different ministries and Sonangol were

deviating significantly. For instance, the

24

Relatório Económico de Angola 2012, Universidade Católica de Angola, pages 96 and 99 25

Doing good by doing well? Statoil in Sub-Saharan Africa, Fridtjof Nansen Institute commissioned by Norwegian Church Aid, page 20

8

Ministry of Finance reported oil exports to be

87 million barrels fewer than the Ministry of

Petroleum number in 2008. The two ministries

also reported three different average oil

prices, deviating almost US $10, and the total

deviation on reported oil tax income was

several hundred million dollars. OSISA could in

an interview made for this report confirm that

they confronted the authorities with their

findings, and to this date the government has

not given any explanation or comment on the

information revealed.

Also apart from the role of Sonangol, the

petroleum sector has serious transparency

challenges in Angola. Especially regarding the

use of local content, suspicion of corruption

and mixing of political and economic power

arises. According to OSISA, persons close to

the political elite often hide in shell

companies, subtracting revenue from joint

ventures with international companies. Statoil

has so far, as a passive co-investing partner -

not operator - on the Angolan continental

shelf, not been very active in engaging with

national actors. The company has in light of

the transparency deficiencies expressed that

risk management and anti-corruption

practices is and will be an important

integrated component of their work in the

coming years as Statoil is assuming the

operator role on the Angolan continental

shelf.

Diamonds

Diamonds is a historically important source of

revenue and the second biggest export article

of the country. During the civil war, extraction

of diamonds was the most important source

of income for UNITA for them to be able to

sustain their opposition, Angolan diamonds

gaining the nickname “conflict diamonds” or

“blood diamonds”. The diamond industry is

today no more than 1 % of the Angolan GDP,

but Angola keeps its fourth place as global

diamond exporter and the registered

employees in the sector far surpasses the oil

sector26. Although Angola is no longer in civil

war, claims about human rights violations and

informal economic activity related to the

extraction of diamonds still occur. The main

production of diamonds is far removed from

the capital Luanda, and the role of the state

owned company Endiama, Isabel dos Santos

and Israeli and Russian business contacts in

the business remains somewhat unclear27. The

investigative journalist Rafael Marques de

Morais published the book “Blood diamonds –

corruption and torture in Angola” in 2011 in

which he made allegations of slave-like

working conditions, torture and

assassinations, corruption and the post-war

involvement in the diamond industry by

military generals and high political figures with

the help of foreign capital28. Being met by

significant judicial and extra-judicial resistance

from Angolan actors, Marques has however

gained international recognition, receiving a

Transparency International integrity-prize as

recently as November 201329.

Construction

The construction sector is one of the most

frequently mentioned by the civil society as

sectors with transparency challenges in

Angola. These challenges are also

systematically addressed by a joint Chr.

Michelsen Institute (CMI) and CEIC study on

public sector transparency. The study resulted

in the identification of ten core transparency

challenges in the rapidly expanding

construction sector – both in infrastructure

26

Relatório Económico de Angola 2012, Universidade Católica de Angola, pages 107 and 99 27

http://www.forbes.com/sites/kerryadolan/2013/08/14/how-isabel-dos-santos-took-the-short-route-to-become-africas-richest-woman/2/ 28

Diamantes de sangue – corrupção e tortura em Angola, Rafael Marques de Morais, Tinta-da-china (2011) 29

http://mg.co.za/article/2013-11-07-journo-recognised-for-anti-corruption-fight

9

and housing. Notably, CMI/CEIC comments

that many projects are poorly planned and

lack cost estimates and budget restraints.

There is little or no competition in awarding of

contracts, ownership is elusive in different

parts of the value chain, quality of

construction is varying and political players

have a tendency of interfering in

administrative processes30.

The construction sector in Angola is highly

international, with Brazilian, Chinese and

Portuguese firms dominating the market.

Thus, international transparency regimes

could contribute to increased accountability in

the Angolan construction sector.

Banking, tourism and telecom

In addition to the above mentioned sectors,

banking, tourism and telecommunications are

among the sectors in Angolan economy where

transparency challenges are mentioned. In

these sectors, the market actors are largely

national. The main transparency concerns

raised regarding these sectors are regarding

how the owners of these firms got in that

position. For instance, Forbes magazine in a

recent edition asks many questions about the

executive role of president dos Santos and his

daughters’ very strategic and somewhat

unclear path to ownership over the nation’s

biggest telecom company and a leading

bank31.

Norwegian business in Angola Angola is one of the biggest trade partners

and receiver of Norwegian investments in

Africa. This is despite the 179th place in the

30

Ten challenges in Public Construction, CMI Angola Brief November 2011, Volume 1 No. 19 31

http://www.forbes.com/sites/kerryadolan/2013/08/14/how-isabel-dos-santos-took-the-short-route-to-become-africas-richest-woman/2/

Ease of Doing Business Index32 and first and

foremost due to a high level of cooperation on

extraction of oil. Notably, the biggest

contribution to Statoil’s oil production outside

Norway hails from the Angolan continental

shelf, but there are also quite a few other

Norwegian companies operating in Angola.

According to the Norwegian Council for Africa

company database, there are currently 23

Norwegian companies operating in Angola,

applying a broad definition of the term

“Norwegian companies”. These companies are

either registered in Norway or they have

Norwegian owners, head office of board of

directors. Also, companies taxing to Norway or

having a strong historic link to Norway are

included in the data base33.

It is worth noting that several of the

companies considered Norwegian by the

Norwegian Council for Africa are actually

registered in Bermuda and Cyprus,

jurisdictions commonly regarded as secrecy

jurisdictions. This does not in itself mean that

these companies are engaging in illicit

financial activities. There are legitimate

reasons for establishing in secrecy

jurisdictions, but it poses a considerable

challenge in actually verifying that the

company is complying with all its obligations.

Subjects to the Norwegian country-by

country reporting in Angola

Most Norwegian companies in Angola are

delivering different kinds of services to the

petroleum sector, of which Aker Solutions,

Seadrill and FMC Technologies are among the

most well-known to the general public. The

types of services differ from seismic surveys

32

http://www.doingbusiness.org/data/exploreeconomies/angola/ 33

http://www.afrika.no/Landinformasjon/Bedriftsdatabasen/Countries/Angola

10

and drilling to transport and maintenance.

None of these service deliveries companies

have confirmed to the author of this report

that they expect to be subject to the new

legislation, some underscoring that they will

have to engage in legal consultations to clarify

this. Also, the Norwegian Ministry of Finance

has yet to publish a specified list of companies

that will be affected. The ministry though

expects that the legislation will cover

approximately 80 companies registered in

Norway, a number that will diminish as the

consolidated EU accounting directive is

implemented by the members. From this

number, it would be reasonable to expect that

some – but far from all – service delivery

companies within the petroleum sector will

have to produce reports, depending on the

kind of services they deliver.

Statoil has already for some time been

publishing an almost complete country-by-

country breakdown of their activities and

government payments as part of their annual

sustainability reports, Angola being included in

the reports since 2001. Notably, the Angolan

authorities expressed their disapproval of the

disclosure, but no official reprimands were put

in place34. Statoil is not likely to be obliged to

disclose more information than they already

do if the proposed legislation is enacted.

Norsk Hydro, another company active in

Angola, will be subject to the legislation due to

its bauxite mining in Brazil. However, the

company does not expect to be reporting on

payments and activities in Angola as the Hydro

does not extract natural resources in the

country.

Apart from the already mentioned sectors,

there is only a handful Norwegian companies

registered in Angola. These are basically

34

Doing good by doing well? Statoil in Sub-Saharan Africa, Fridtjof Nansen Institute commissioned by Norwegian Church Aid, page 17

shipping companies as well as the paint and

coating producer Jotun and the fertilizer

producer Yara. Worth noting in the case of

Yara is that the company has been attracting a

considerable amount of unwanted media

attention in the form of corruption

accusations, speculations and investigations35.

None of these media cases have been related

to the company’s activities in Angola, but it

would perhaps be for the company’s own

good to disclose its payments to the Angolan

government to rid itself of speculation about

its dealings with one of the most corruption

associated governments in the world.

Impact of the proposed country-

by-country reporting on the

Angolan transparency context Whether or not the proposed country-by-

country reporting legislation will bring any

new information about the activities of

Norwegian companies in Angola at all remains

elusive. That is a quite surprising situation,

especially taking into account that the

legislation supposedly is aimed at making an

impact in developing countries and Angola is

one of the most important Norwegian

investment recipients in the developing world.

The usefulness of the Norwegian legislation on

country-by-country reporting in the Angolan

context can be assessed with two main

criterions: (1) the access to meaningful and

credible information and (2) the sector

selection.

Access to meaningful and credible

information

Country-by-country reporting must be

meaningful to have an effect, both for civil

35

http://www.na24.no/article3464751.ece http://www.aftenposten.no/okonomi/Yara-rapport-bekrefter-korrupsjon-6931704.html http://www.hegnar.no/bors/article745006.ece

11

society actors and government tax authorities.

The proposed Norwegian legislation offers

next to no interesting information for Angolan

tax authorities as long as the multinational

companies do not have to report from

countries in which they are not performing

natural resource extraction. This means that

there is no way for Angolan tax authorities to

use the report to discover figures that indicate

internal transfer mispricing, on which they can

launch an investigation into the realities of the

matter. The only sort of use Angolan tax

authorities can get from these numbers is

comparing the tax burden in Angola to other

resource exporting countries – serving as a

basis for taxation decision making.

It should be added that the Angolan Ministry

of Foreign affairs have been invited to

comment on the proposed legislation and on

general transparency and taxation, but have

refrained from this.

For civil society actors and the opposition in

Angola, the proposed Norwegian legislation

bears more meaning. Also a report limited to

Angola and other resource extraction

countries will give the civil society new

information and greater opportunities to hold

the Angolan government accountable for its

public spending. However, like earlier

mentioned, the level of details must be higher

than already proposed to be able to trace the

entry point of the government payments. This

is especially concerning signature bonuses and

social investments and contribution.

Further on, some civil society actors mistrust

the will of the Angolan government to address

tax evasion and transfer mispricing. As the

people is suffering from the lack of public

revenues, it should be every man’s right to

gain access to information about Norwegian

companies’ activities in all jurisdictions,

including tax havens. This must be public as

providing that information to the tax

authorities alone might not be enough to deal

with the problem36.

Finally, for the figures reported to give

meaning, they must be credible. The fact that

including the country-by-country report in the

financial statement of the company will be the

cheapest way of reporting is of minor

importance applying the Angolan perspective.

More importantly, such a format to the report

will quality assure the numbers, and create a

solid basis for both the Angolan government,

opposition and civil society to engage in

informed debate.

Sector selection

Like pointed out on several occasions both by

the government working group for country-

by-country reporting and NGOs contributing

to the development process of the Norwegian

legislation, tax evasion and corruption is far

from a unique concept for the extractive

industries. As accounted for in earlier, this

holds true also for Angola, with sectors like

construction, banking and telecommunication

facing very serious transparency challenges.

In Angola, the extractive industries dominate

the economy in terms of volume, and there is

no doubt that increased transparency

standards in extractives will have a major

impact on a national level. However, like

previously mentioned, the boundaries of the

term extractive industry remains elusive, and

if all Norwegian service delivery companies to

the petroleum sector in Angola were to fall

outside the definition, the Norwegian

legislation on country-by-country reporting

will have no effect whatsoever in the Angolan

context. If, on the other hand, all service

delivery companies to the petroleum sector

were to be included in the legislation, the

quantity of new and valuable information for

36

These are views fronted in both the meeting with Bloco Democrático and OSISA

12

the Angolan government and civil society

would be considerable.

Companies like Hydro, Jotun and Yara are

among the proudest representatives of

Norwegian business outside the petroleum

sector, and these companies could gain much

recognition from being at the forefront in

questions of financial disclosure. The own-

interest in dismissing suspicions of dubious

financial activity should be especially obvious

to Yara, in the light of recent allegations.

The cost for Norwegian companies is not the

primary concern of this report, but there is no

doubt companies will spend more energy and

money clarifying whether or not they are

obliged to report under the proposed regime

than they would be if the legislation were to

concern all sectors.

Conclusions Angola is a textbook example of the kind of

development challenge the world is facing.

The number of poor nations decreases, but

poverty itself does not decrease at the same

rate. Increasingly, governments in developing

countries have the means to eradicate

poverty. However, they lack political will. Will

to challenge multinational companies hiding

fortunes in secrecy jurisdictions. Will to apply

government funds where it makes a

difference and empowers their country

fellows to rise from poverty.

There is a considerable need for increased

transparency in Angolan society to enable

mechanisms of political participation, inclusive

growth and fair taxation. The need for

transparency is only strengthened by the

challenging concentration of political and

economic power in a several important

sectors. Increases in transparency are without

doubt most needed and would have greatest

effect in the extractive petroleum and

diamond sectors, but also big sectors like

construction, banking and

telecommunications would benefit greatly

from greater scrutiny.

The special interlinked relationship between

political and economic power in Angola

implies a special obligation for Norwegian and

other multinational companies operating in

the country to emancipate the Angolan civil

society so it can challenge unhealthy power

relations. Not only is meaningful information

about the government payments in Angola

needed. Indicators of abusive transfer

mispricing must be public to mobilize the

Angolan government into challenging secrecy

jurisdiction and global tax evasion practices.

Angola is a country in great need of human

development, a country heavily relying on

extractive industries, a country in great need

of increased financial transparency and one of

the developing countries in the world with the

highest level of Norwegian investments.

The proposal for Norwegian country-by-

country reporting legislation has had the

explicit target of assisting countries to reach

greater financial transparency in its extractive

industries towards the end of facilitating

human development.

Given these conditions, the proposed country-

by-country reports should mean a lot for

Angola, as one of the most relevant cases for

the applicability of the legislation. However,

the findings of this report are that the

proposal, as is stands today, will have a

questionable or marginal impact according to

these objectives in Angola. This means that

the Norwegian parliament is about to adopt

legislation that is watered down in a way that

not only gives relatively bad value, it also

demands higher compliance costs than

necessary.

13

More value for less money means adopting

the following recommendations Changemaker

and several other NGOs make:

- The objective of combating illicit tax

evasion should be at the core of

country-by-country reporting

legislation.

- Country-by-country reporting should

be on an extended amount of key

financial figures sufficiently specified

and for all jurisdictions the MNC is

registered in.

- The report should be included in the

financial statement of the company.

- Country-by-country reporting should

apply to all sectors.

14

Abbreviations

CEIC - Centre for scientific studies and investigation at the Catholic University of Angola

CMI - Chr. Michelsen Institute

GFI - Global Financial Integrity

IFF - Illicit Financial Flows

IMF - International Monetary Fund

MNCs - Multinational Companies

MPLA - Movimento Popular de Libertação de Angola

NCA - Norwegian Church Aid

NGO - Non-governmental organization

OSISA - Open Society Initiative for Southern Africa

PWYP - Publish What You Pay

TJN - Tax Justice Network

UCAN - Catholic University of Angola

UNITA - União National para a Independência Total de Angola