(STICKY) We are not benefitting from foreign investment because of corruption

We are not benefitting from foreign investment because of corruption
By The Post
Tue 15 Feb. 2011, 04:00 CAT

Zambia, like any other country in the world, needs foreign investment. Foreign investment is a form of financing that we cannot afford to ignore. And it comes with great benefits. But, like any other form of financing, it comes with challenges of its own. And these need to be weighed and balanced or reconciled.

But, like any other form of financing, there has to be a benefit in it for us. Like it is with debt flows and other forms of financing, we should only engage it when it’s of benefit to us. And this is the point old Aaron Milner is trying to make when he says, “Zambians must benefit from the investment that western and eastern nations are deriving from the country.”

It is not foreign investment for the sake of it. It is foreign investment for the benefit of our people. We say this because foreign investors don’t only bring their money and technology here, they also come to take something more valuable and much bigger than their investment. And they should not be allowed to take all that without consideration to the Zambian people. For every tonne of copper or other minerals they take, there must be an appropriate return to the Zambian people.

For every benefit an investor derives from the resources of our people and from simply doing business here, there must be a reasonable return to our people. If this is not so, there is nothing our people will benefit from foreign investment. In fact, we will be doing the future generations a great injustice because they will find all the valuable minerals depleted or totally finished without anything to show for it. If this generation that governs our country today is not able, for one reason or another, to engage foreign investors profitably, then there is no need to bring them here at all. We will be better off leaving the natural resources of our country unexploited so that the future generations can have something to lean on.

We have continued to give away the resources of our country for nothing. Colonial conquest and plunder left us with very little benefit from the resources of our country, if not nothing. This practice cannot continue forever if we are to survive and develop as a people. We cannot continue to allow transnational corporations to plunder our resources for no benefit to our people like they did during the colonial days. There has to be a new approach to foreign investment. Other nations are benefiting from foreign investment, they are getting better deals from transnational corporations. Why can’t we do the same? One simple explanation for this is the incompetence and corruption of our representatives. It is not a favour to us for any transnational corporation to come here and exploit our natural resources. They will only come here if there is something in it for them. We should also allow them to come here if there is something in it for us. We should reach fair deals with transnational corporations where we both benefit – it should be a win-win situation where we both benefit something. If it is only the transnational corporations that are benefiting from the investments in our country, then we cannot say these are fair deals. But, like any other negotiated deal, the competence and uprightness of the negotiators is important. We cannot say with confidence that we have been well-represented in these deals. And we don’t want to believe that the poor deals we have gotten from foreign investors are simply a result of incompetence on the part of our representatives and nothing else. We are much more inclined to believe that we have gotten these poor deals as a result of corruption on the part of our representatives. Our representatives are invariably recipients of all sorts of favours from investors.

When one looks at the corruption crimes of Frederick Chiluba and his tandem of thieves, it is clear that they were receiving kickbacks, bribes and all sorts of favours from foreign investors who they had even gone to the extent of thinking were their personal friends. And in this belief, they thought money could flow from foreign investors into their pockets without any legal or moral issues being raised. We saw in the case of Gen Wilford Funjika how that rat Rathi was bribing him, paying school fees for his children and extending all sorts of favours to him in return for the business that Zambia National Service was offering him. Clearly, Zambia National Service was poorly represented in its dealings with Rathi – the deals benefitted Rathi and Gen Funjika, and not Zambia National Service. This is the same for most of the deals our representatives are cutting on our behalf. When they go to the Chinese, they give them everything they want at very little benefit to the nation but at much greater benefit to themselves.

The Chinese investors, like other investors in our country, become their personal financiers, fundraisers for their election campaigns, suppliers of automobiles and other campaign materials for them to be reelected so that the deals continue unabated. This is where we lose out. Nations with less corrupt political leaders and other public servants benefit more from their dealings with foreign investors. As a result of this, it will be unwise for us to turn our hatred towards foreign investors.i Yes, it is foreign investors who are corrupting our representatives.

But our representatives wouldn’t be corrupted if they did not want to be corrupted, if they were incorruptible.

[Here comes the 'good fellow hypothesis'. There has to be strict oversight, monitoring and transparancy, from as many different bodies as possible - the ZRA, parliament, the press, the public, if not more. There is corruption everywhere, and hoping for uncorruptable individuals is amateur hour. I don't want to sound harsh, because I agree with most of this editorial. It is just that is no surprise that corruption remains unchecked when there are no checks. - MrK]

They are being corrupted by foreign investors because they are corrupt – foreign investors are simply cashing in on their greed, selfishness and vanity.

[And perhaps by something more sinister too - the belief that there are too many people in the world. - MrK]

Today, even the most useless, a clear conman calling himself a foreign investor with a few thousands of dollars in his pocket will meet the President, the ministers of finance, commerce and industry, mines and so on and so forth without much ado. They are falling over each other to befriend foreign investors so that they can help them in their businesses, their farms and other ventures. That’s how our representatives are making money by selling the resources of our country to foreign investors for nothing, for peanuts, for a song.

This is the case with the mining companies. There is no need for us to turn our anger on Mopani over its tax issues. Mopani may not be straight in its dealings with us but this company is allowed and helped by our representatives to behave in this way. When it comes to their dealings with foreign investors, our representatives stop thinking, they are blinded by their corruption and as such cannot pay attention to detail. Mopani may not be involved in tax evasion.

[It certainly is. Selling copper to itself at basically breakeven price and then selling it on the international market at market price is a clear case of fraud. It is tax evasion, not tax avoidance. Also, when it looks like Mopani has made no profits, it is also under no obligation to pay dividends to it's shareholders. Again, a clear case of fraud on a massive scale. Remember that it is not only the Zambian government that holds Mopani shares through ZCCM-IH, but ZCCM-IH is also floated on international stock exchanges - shareholders there are being defrauded too. And underdeclaring profits to avoid dividend payouts may be in violation of exchange rules. - MrK]

Theirs may end up being a case of tax avoidance. Tax evasion is illegal but tax avoidance is legal. Tax avoidance is simply a process of arranging one’s tax affairs in such a way that he can, within the law, reduce the amount of tax payable.

[No bloody way. Underdeclaring a company's profits is fraud, not 'tax avoidance'. Tax avoidance is setting up a corporation in the Cayman Islands, for instance. - MrK]

It differs from evasion which is knowingly breaking the law to reduce a tax liability by the deliberate concealing of income or the false claiming of allowances and so on and so forth. We don’t know what the investigations will tell us about Mopani on this score. Every person is entitled, if he can, to arrange his affairs so that the tax attaching is less than it otherwise would be. If he succeeds in ordering them so as to secure that result, then however unappreciative we may be of his ingenuity, he cannot be compelled to pay an increased tax. No one in this country is under the smallest obligation, moral or other, to arrange his legal relation to his business in such a manner as to enable the Zambia Revenue Authority to put the largest possible shovel into his stores. Of course, this is not to say such ingenuity should be regarded as a commendable exercise or as a discharge of the duties of a good person.

Those in authority have a duty to seal the loopholes in what is found to be unacceptable tax avoidance. It’s clear to us that the case of Mopani, if it is not one of tax evasion, is certainly one of unacceptable tax avoidance. There is no way transactions between Mopani and Glencore AG can be said to be independent or at arm’s length. These are transactions between associated entities. Glencore is not an independent trader buying copper cheaply from Mopani and selling it at a higher price elsewhere. Where either the buyer or the seller is controlled by the other party to the contract, or both are controlled by a third person, a sale at a price other than market price should result in adjustment by the Zambia Revenue Authority of that price to the open market price and taxed accordingly. Our tax laws have to be very clear on this score. If they are not clear, companies like Mopani will get away with it because where there is doubt as to the meaning of a statutory provision, the taxpayer must be given the benefit of the doubt. There is no equity in taxation.

Until we remove corruption from government business, things like these will continue to be the order of the day. And no amount of foreign investment will benefit our country and remove the anguish of poverty from the faces of our people.