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