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AfricaMoney | August 20, 2017

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Africa loses oil money as governments strike shadowy deals with Swiss traders

Africa loses oil money as governments strike shadowy deals with Swiss traders

Governments in Sub-Saharan African countries sold from 2011 to 2013 over 2.3 billion barrels of oil amounting to more than $250 billion, equal a staggering 56% of their combined government revenues, according to the Big Spenders report. (Image: Frontier Market Network)

Sub-Saharan Africa is bleeding money as governments are selling crude petroleum in shadowy deals worth hundreds of billions of dollars without publicly accounting for the money, according to a new report.

According to the report, the amounts paid by Swiss traders to the ten African governments equal 12% of the governments’ revenues, and are double what they received in foreign aid.

For countries that have millions of people living in utter poverty, lack of transparency for state deals involving staggering amounts of oil revenues forms a subject matter of concern, said the Natural Resource Governance Institute.

Governments in Sub-Saharan African countries sold from 2011 to 2013 over 2.3 billion barrels of oil amounting to more than $250 billion, equal a staggering 56% of their combined government revenues, according to the Big Spenders report.

This report is the first detailed examination of those sales, and focuses on the top ten oil exporting countries in sub-Saharan Africa and is built on gathered information on 1,500 individual oil sales made by National Oil Corporations (NOCs) in Sub-Saharan Africa in the 2011–2013 period.

Between 2011 to 2013, Republic of Congo realised a 68% increase on its sales, Angola 67%, Nigeria 61%, Equatorial Guinea 56%, South Sudan 36%, Gabon 22%, Cameroon 18%, Cote d’Ivoire 10% (based on data collected in 2011), and both Chad and Ghana 7%.

“Among sub-Saharan Africa’s resource-rich countries, rents from oil and mining average 28 percent of GDP and make up over 77 percent of export earnings,” the report outlined.

Despite high oil prices and high revenues, many of those countries faced challenges such as the so-called “resource curse,” exhibiting higher poverty rates, lower-quality governance and less democracy than their non-resource rich counterparts.

Transparency, accountability and effective governance across the various functions involved in managing an oil sector are requirements to fight the negative impacts of the resource curse.

Hence, a global movement for more transparency in the extractive industries has emerged with focus on transparency of payments from extractive companies to governments in producing countries.

Extractive Industries Transparency Initiative (EITI) has been implemented in 45 countries and has been successful.

Swiss giants Vitol, Glencore and Trafigura each bring in annual revenues of over $100 billion, placing them on the scale of companies like Apple and Chevron.

“Swiss trading companies are the largest buyers of oil from the governments of Cameroon, Chad, Equatorial Guinea, Gabon and Nigeria,” the report stated.

Swiss traders bought over 40 percent of the identified volumes sold by Equatorial Guinea’s GEPetrol in 2011, 2012 and 2013, which equals to 28 percent of the country’s total government revenues in 2011, and 36 percent in 2012.

Nigeria sold $37 billion, an amount equal to more than 18 percent of the national government’s revenues, over the three years to Swiss companies.

So far global regulations for resource extraction payments have focused on publicly traded companies. They do not cover all aspects of resource agreements with a government, including oil provided to a national company for future sale.

Switzerland is considering new regulations on extractives disclosure for natural resource companies, but the regulations are modelled after similar rules in the European Union and the United States and would not cover commodity trading firms and their deals with national oil companies.

“Switzerland should accept its responsibility as the world’s leading commodity trading hub and pass regulation that requires Swiss companies producing or trading in natural resources to disclose all payments made to government and state-owned companies, including payments associated with trading activities,” the report concluded.

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