News Update as @ 1530 hours, Tuesday 3 June 2014Feedback: bh24admin@zimpapers.co.zwEmail: bh24feedback@zimpapers.co.zw

By Tawanda Musarurwa

The Government should set internation-ally competitive market prices for artisanal gold producers to discourage smuggling, the Governance of Africa’s Resources Pro-gramme (GARP) has said.

The move will also strengthen due dili-gence and incentivise better practices in small-scale gold production in the coun-try. "Policymakers need to ensure that fair prices are set for the gold produced by artisanal and small-scale miners, as this will incentivise better mining practices.

"Better pricing is also crucial to address the problem of gold being smuggled to bet-ter-paying markets. It is estimated that more than 15 tonnes of gold, amounting to over $400 million, were smuggled out of Zimbabwe between 2002 and 2007," said the institute in a policy briefing enti-

tled 'Revamping Artisanal Gold Mining in Zimbabwe to Catalyse Poverty Reduc-tion'. GARP (which runs under the South African Institute of Foreign Affairs) "aims to improve policies governing Africa’s abundant natural resources".

Small-scale gold mining is seen as con-tributing significantly to the country's total gold output. It has been estimated that artisanal and small-scale gold producers contribute over one tonne of gold to Zim-babwe’s monthly output.

Official estimates from the Ministry of Mines and Development suggest that small-scale miners were responsible for 30 percent of the 11,79 tonnes of gold produced in 2012. But experts believe that the contribution of the small-scale gold producers could be greater if the sec-tor's regulatory framework is improved.

According to GARP, local small-scale pro-ducers can benefit from well-defined land rights and lower licensing fees as this will help streamline registration and regula-tory oversight of the sector.

"While Zimbabwe’s Mine and Minerals Act of 2006 does make provision for the reg-istration of land holdings smaller than 2 ha, a major part of the problem is related to the absence of policies directed at the artisanal gold miners, who operate on a far smaller scale.

"This problem is exacerbated by the thin line separating registered artisanal and small-scale gold miners from the unreg-istered, illegal ones. The government has focused its policymaking initiatives on improving the governance of medium- and small-scale mining and has mostly neglected artisanal miners...

"A revamped regulatory regime will encourage artisanal gold miners to enter the formal market, thereby realising their productivity potential, strengthening envi-ronmental compliance and expanding legal marketing opportunities," reads part of the GARP policy briefing.

At a broader level, GARP suggests that Zimbabwe should forge a partnership with the Africa Mining Development Cen-tre to formulate a Country Mining Vision and improve local expertise in artisanal gold mining. •

'Internationally competitive prices will curb gold smuggling'

2 NEWS

Native Zimbabwean Mthuli Ncube is making a bid to head the African Devel-opment Bank, taking over from current President Donald Kaberuka whose sec-ond five-year term expires next May.

Ncube, who is currently the AfDB's chief economist, is lobbying South Afri-ca's finance minister and other officials for the country to nominate him for the post.

A spokeswoman in South Africa's finance ministry on Monday said only that the government will discuss suc-cession at the bank with its neighbours in the Southern African Development Community.

If South Africa agrees to nominate Ncube and convinces enough powerful African nations to back him, he would become its first president from south-ern Africa since the 1980s.

Ncube, who has been the pan-conti-nental lender's economist since 2010, said he would focus on policies to spread the benefits of Africa's rapid economic growth to the majority of its billion citizens who remain poor.

But as one of the continent's richest countries, South Africa could face a

backlash from other powerful African nations eager to secure the plumb post for themselves, said Catherine Grant, head of economic diplomacy at the South African Institute of International Affairs.

That is what happened in 2012 when Zuma campaigned to install his ex-wife in the African Union's top job.

Nkosazana Dlamini-Zuma, a popular former foreign minister, won the sup-port of enough countries to assume a four-year term as head of the bloc's executive, but not before offending the leaders of Rwanda, Nigeria and other nations who said South Africa shouldn't have breached a long-standing agree-ment to keep the coveted post with a less influential African nation. — WSJ •

Mthuli Ncube to head African Development Bank?

Mr Ncube

By Tawanda Musarurwa

Equity Researchers GECR predict that Cambria Africa Plc's financial position will turn positive in FY2017, despite the company widening its losses in the first half of its current financial year. For the first half of its financial year ended Feb-ruary 28, 2014 Cambria Africa's loss position widened as Millchem Holdings chemicals distribution unit was nega-tively affected by a difficult operating environment in the country.

For the latest half-year period, the group's total revenues from continuing operations decreased by 3 percent to $4,18 million, compared to last year's first half period figure of $4,29 million.

Overall gross profits decreased by 1 percent to $2,34 million, but margins improved by 1,28 percentage points to 56,03 percent, driven by the Payserv Africa subsidiary, which grew gross profits by 6 percent.

Operating expenses increased by 10.26 percent to $3,78 million as the group ramped up investment in long-term growth and central costs remained unchanged. Accordingly, the operating loss increased by 33 percent to $1,44 million.

Including net finance costs of $635k and taxes of $161k, the loss from con-tinuing operations increased by 49 per-cent to $2,23 million.

But GECR is maintaining a positive long-term outlook for the investment company:

"With Cambria investing in top-line growth, we remain of the belief that it may turn earnings before interest, taxes, depreciation, and amortisation (EBITDA) positive in FY17, reaching margins of circa 15 percent soon after. Additional funding will be required, but we expect that this should come from

the sale of the Leopard Rock Hotel asset," say the equity analysts.

Cambria currently disposing non-core assets so that it can focus purely on Millchem and payrolls and transactions processing company Payserv.

The group makes the substance of its revenue in Zimbabwe, but is seeking to expand into other African countries.

For the six-months period under review, Payserv revenue grew 2 per-cent to $2,2 million, while Millchem revenue contracted 7 percent to $2,0 million, while profit margin rose three percentage points to 93 percent at Payserv and fell 4 percentage points to 16 percent at Millchem.

Added GECR:

"While the decline in revenues is dis-appointing, we note that (i) the fact Cambria was able to keep revenues relatively flat despite significant issues in the operating environment provides confidence in the underlying busi-nesses; and, (ii) Cambria is currently in the midst of executing its strategic plan that will see it expand into neighbour-ing regions." •

3 NEWS

Cambria's financial position to turn in FY2017: GECR

By Lynn Murahwa

Cement manufacturer Lafarge Cement (Zimbabwe) has launched a new fast-setting cement product - Supa Set.

According to Lafarge Supa Set dries "within 15 to 20 minutes". Speaking at the launch yesterday evening Lafarge marketing manager Edith Matekaire said the new brand will result in improved workability.

“Our product is fast setting and is strong to offer less cracks and a smoother finish. It is a 42.5 ounce cement type meaning it is higher grade cement compared to traditional ones on the market,' she said. The Government has said the initiative by Lafarge Cement in producing a quick drying and stronger cement will aid in the rehabilitation of the country’s infrastruc-ture. Also speaking at launch Minister

Industry and Commerce Mike Bimha said the introduction of this new product shows innovation on the part of the pri-vate sector towards the rehabilitation of the country's infrastructure.

“To me Supa Set is indication of the pro-gress and innovation that the industry is making in meeting the changing market needs and providing solution to bridge infrastructure development gaps in this country” he said.

Bimha said Government is conscious of the strenuous economic environment facing the country and he believes that a partnership with the private sector will aid the country’s economic growth. “Government is aware of the difficult operating economic environment in the country, the tight liquidity crunch in the market, limited lines of credit, the incon-sistent power supplies among a plethora

of challenges have been some of the inhibiting factors for industrial recovery and growth. "However may I assure you as Government that we are working tirelessly to address these problems and I am confident that in partnership with the private sector we will together turn around the economy and attain sustain-able growth” he said.

The Minister acknowledged the role being played by Lafarge in contributing to the country's infrastructure developing, highlighting that Zimbabwe's economic growth is impossible without effectives services and that ZimAsset depends on the enhancement of infrastructure and accompanying services.

“The country’s economy cannot grow and develop without the provision of appropriate economic and social infra-structure. There is therefore need to improve the quality of infrastructure ser-vices in Zimbabwe in order to promote a sustainable and shared economic growth in the country... Lafarge has introduced a stronger cement product at this juncture in order to match the requirements for the construction industry in the context of new projects that are in the pipeline in this country” he said. •

4 NEWS

Lafarge unveils fast-setting, stronger cement

By Rumbidzayi Zinyuke

Diversified agricultural concern Ariston Holdings Ltd plans to increase produc-tion of potatoes and other short rota-tion crops to boost revenues in 2015.

The company’s revenues come from tea, bananas, potatoes, macadamia nuts and apples.

Group chief executive Anxious Masuka said the company would focus on short rotation crops which would spur its

‘exponential growth’. “The productivity is not as it should be and our objective is to ensure that we lower the cost of

production as quickly as possible and lower the margins. Short rotation crops will help us achieve this.

“Potato consumption is going up so we are increasing our production. We started potato production recently with a yield as low as 500 tonnes per year but we expect them to grow to 13 000 tonnes in 2015,” he said.

The company produced 2,154 tonnes of potatoes last year. The local market produces approximately 5000 tonnes of potatoes but demand has been pegged at 35 000 tonnes per year.

Masuka said production growth would be anchored on access to superior vari-eties of seed potato.

He also said the group would also expand the macadamia plantation

from 500 to 600 hectares while apples will also be increased by 100 percent.

He said the production of macada-mia nuts, which are in high demand in China and Europe, would increase exports. Last year macadamia produc-tion stood at 1,173 tonnes.

“We are working on making sure you get better quality nuts. The total recov-ery for macadamia nuts in Southern Africa is somewhere in the region of 35 percent and if you are ranging at about 28 percent as we are targeting then you are almost there,” he said.

He said 80 percent of the macadamia nuts are exported with China receiving the bulk of the produce. He said the group had planted more than 1000 hectares of tea. •

NEWS5

Ariston set to increase potato production

By Rumbidzayi Zinyuke

Zimplats has become the one of the largest nickel producers in the country as the company is getting more than 5000 tonnes of nickel in addition to 10 other minerals from its ore.

Chief operating officer Stanely Segula said in addition to platinum, Zimplats produces significant quantities of palla-dium, rhodium, gold, nickel and copper among others.

“We are one of the largest producers of nickel despite the fact that it is not our core business and there are other players in that field,” he said.

At full production Zimplats produces 6,4 million tonnes of platinum ore which passes through the concentrator and smelter to produce 7 000 tonnes of matte. During refinery, the minerals are then separated to produce different quantities of the minerals.

Segula said the company’s production includes 220 000 tonnes of palladium, 30 000 ounces of gold, 20 000 ounces of Rhodium, 5000 tonnes of nickel and 3 800 tonnes of copper.

He said in the half year to Decem-ber 2012, nickel had contributed 11 percent to Zimplats’ revenue and 10 percent in 2013 while palladium con-tributed 18 percent and 21 percent in 2012 and 2013 respectiely.

Among the base metals exploited in Zimbabwe, nickel dominates in terms of value. National production only peaked at 12 000 tonnes annually in

1999, but production fell significantly in the past decade largely due the adverse prices as well as the effects of the difficult operating environment for the companies.

Production comes from several mines located on the greenstone belt and from PGM mining operations as a by-product. Nickel yields cobalt as a by-product.

Zimbabwe’s nickel production is dom-inated by Bindura Nickel Corporation which runs Trojan mine and RioZim which owns Empress Nickel mine in Kadoma. •

AGRICULTURE6

BH24 Reporter

Prevailing lower prices for tobacco has meant that Zimbabwe will not fully ben-efit from the last year's increased output.

Latest Tobacco Industry marketing Board (TIMB) figures show that the average price for a kilogramme of tobacco stands

at $3,18, which is 14 percent lower than the $3,71 for the same period last year.

This means that although the initially set target of 180 million kgs will be met - even as early as the close of this week, the financial benefit will be lower than would have resulted if prices were higher, or at least remained at last year's levels.

TIMB figures show that 177,4 million kgs have been sold to the value of $564 mil-lion kgs. In terms of mass, this is a 31,6 percent positive variant from the 134,7 million kgs sold in 2013.

But the growth in terms of monetary value is only 13 percent higher from the $499,4 million achieved last year

prior comparable period. Meanwhile the percentage of rejected bales is lower this year to date at 5,6 percent from 7 percent same time last year, which is possibly indicative of increased farmer education in handling and transporting of the crop to the floors. •

Lower prices compromising tobacco revenues

Zimplats: a leading nickel producerMINING

BH24

The equities market continues on a bullish streak, today further bumping 0.68 percent. The Industrials Index gained 1.19 points to close at 176.10 points following gains in selected heav-yweight counters.

Giant telecoms Econet rose 0.93 cents to 67.03 cents, while conglomerate Innscor advanced a cent to settle at 72 cents.

Also gaining a cent was TSL which bumped to trade at 30 cents.

Other gainers included Hippo which gained 5 cents to trade at 55 cents, Meikles which went up 1.49 cents to settle at 17.99 cents, and SeedCo which pushed up 0.30 cents to 72.50 cents.

On the downside, Turnall eased a cent to 2 cents and CBZ shed 0.01 cents to close at 14.99 cents.

The Mining Index was however weaker, shedding 0.17 points (or 0.50 percent) to close at 33.54 points due to Hwange which lost 0.29 points to 4.51 cents. Bindura was up 0.02 cents to trade at 2.20 cents.

But Falgold and RioZim both main-tained previous trading levels.

— BH24 Reporter •

8 ZSE REVIEW

Equities continue on bullish run

Zimbabwe can no longer afford to remain a primary commodity exporter.

The International Monetary Fund in its report following a Staff Monitoring Programme visitation to Zimbabwe in March, warned that "downside risks to the outlook include the pos-sibility of further weakening of export prices".

The reality and the impact of this warning is borne out this year's tobacco marketing season which has seen the local tobacco being sold at lower prices compared to the prior marketing season.

Figures from the Tobacco Industry Marketing Board show that the aver-age price for a kilogramme of tobacco stands at $3,18, which is 14 percent lower than the $3,71 for the same period last year.

This means that despite the signif-icantly higher output of the golden leaf last year will not result in much monetary gain for Zimbabwe.

This highlights a key point: so long as the country largely remains an exporter of primary goods it will con-

tinue depending on uncontrollable external factors for its gains.

As long as we remain an exporter of primary goods we will remain at the mercy of the vagaries of global trade.

And this does not just apply to tobacco, but also to most if not all of the minerals that the country pro-duces.

A brief survey of international prices of various metals since the beginning of the year show that the prices have largely remained flat or are dipping.

As recently as yesterday Reuters reported that gold slid for a fifth straight session in its longest los-ing streak since November, hurt by stronger global equities and weak physical demand in China.

Continuous dependence on raw material exports will prove ruinous to the country in the long-run.

It therefore places a premium on the need for Zimbabwe to enhance its industrial capacity.

In such a way, a large portion - if not all - of the raw material output, whether it comes from mining or agriculture (as the key base sectors) will be value-added.

Value addition increases the value of the country's exports, which places it in a better position to control the prices of the commodities that it is selling.

Additionally, if Zimbabwe becomes a net exporter of value added products there are other direct benefits that

accrue to the country, for instance, increased formal employment as industries are revived.

Another key issue that will be addressed is the re-establishment of forward and backward linkages between the primary sectors (mining and agriculture) and the manufactur-ing sector.

These linkages are key, and are per-haps why these sectors have not been performing up to par in recent years.

ZimAsset acknowledges the impor-tance of value addition and/or benefi-ciation to the Zimbabwean economy.

It is time policy is turned into practical action. •

9 BH24 COMMENT

Zimbabwe needs to shift from raw exports

Platinum producers Anglo American Platinum (Amplats) and Impala Plati-num (Implats) on Monday announced that the Labour Court had dismissed the Association of Mineworkers and Con-struction Union’s (AMCU’s) application against the companies, relating to their direct-communication campaigns.

AMCU last month brought the appli-cation on an urgent basis seeking to prevent the employers from communi-cating wage settlement offers directly to AMCU workers and to prevent Implats from conducting surveys to determine whether its employees wanted to return to work.

Labour Court judge Rob le Grange ruled against AMCU and the matter was struck off the roll as it lacked urgency, the platinum producers said in a state-ment.

“The employers believe that any means available should be used to ensure that employees are fully informed of the position of the companies and the offer that has been made, and that employ-ees should be allowed to make an elec-tion whether or not they wish to return to work. The companies have been inundated by calls from employees

seeking information, and will now con-tinue to communicate with employees on a regular basis,” the companies said.

Meanwhile, AMCU’s application relating to this matter against Lonmin had been postponed.

AMCU members were still striking at Lonmin, Implats and Amplats demand-ing an entry-level basic wage of R12 500 over a four-year period, while the platinum producers’ latest offer would

see workers earn a minimum cash remuneration – comprising basic wages and holiday, living-out and other allow-ances – of R12 500 a month by 2017.

The strike, which was now in its fifth month, had cost employers and employ-ees about R20.6-billion and R9.2-billion in earnings respectively. AMCU could not immediately be reached for com-ment. — MiningWeekly •

10 REGIONAL NEWS

Labour Court rules against AMCU

11 DIARY OF EVENTS

The black arrow indicate level of load shedding across the country.

POWER GENERATION STATSGen Station

3 June 2014

Energy

(Megawatts)

Hwange 598 MW

Kariba 750 MW

Harare 34 MW

Munyati 16 MW

Bulawayo 20 MW

Imports 30 MW

Total 1448 MW

3 June - First Mutual Life eleventh Annual General Meeting of the shareholders Place: Ground Floor, First Mutual Park, 100 Borrowdale Road, Borrowdale, Time: 14:30

3 June - ABC Holdings Annual General Meeting of share-holders Place: Boardroom, ABC House, BancABC Botswana, Plot 62433, Fairground Office Park,

Gaborone, Botswana, Time: 09:30

11 June - Rainbow Tourism Group 15th Annual General Meeting of the Shareholders, Place: Jacaranda Rooms 2 and 3 at the Rainbow Towers Hotel and Conference Centre, 1 Pen-nefather Avenue, Harare, Time: 12:00

26 June - Masimba Holdings Limited Thirty-Ninth Annual General Meeting of Mem-bers for the period ended 31 December 2013, Place: 44 Til-bury Road, Willowvale, Harare, Zimbabwe, Time: 12:00

THE BH24 DIARY

BH24

13 ZSE

ZSEMOvERS CHANGE TODAY PRICE USC SHAKERS CHANGE TODAY PRICE USC

HIPPO 10.00% 55.00 TURNALL -33.33% 2.00

MEIKLES 9.03% 17.99 HWANGE -6.04% 4.51

TSL 3.45% 30.00 EDGARS -1.64% 12.00

ECONET 1.41% 67.03 CBZ -0.07% 14.99

INNSCOR 1.41% 72.00

BNC 0.92% 2.20

SEEDCO 0.42% 72.50

Indices

INDEx PREvIOUS TODAY MovE CHANGE

INDUSTRIAL 173.46 174.06 +0.60 POINTS +0.35%

MINING 29.39 33.89 +4.50 POINTS +15.31%

Stocks Exchange

14 AFRICA STOCkS

Botswana 8,664.65 -11.96 -0.14% 12July

Cote dIvoire 246.37 +2.18 +0.89% 07Mar

Egypt 7,949.60 -75.68 -0.94% 06Mar

Ghana 2,324.35 +5.23 +0.23% 02June

Kenya 4,881.56 -13.57 -0.28% 30May

Malawi 12,662.47 +0.00 +0.00% 07Mar

Mauritius 2,074.51 -3.51 -0.17% 07Mar

Morocco 9,544.10 +21.01 +0.22% 07Mar

Nigeria 41,502.00 +27.60 +0.07% 02June

Rwanda 131.27 +0.00 +0.00% 24Oct

Tanzania 2,018.97 +25.40 +1.27% 07Mar

Tunisia 4,624.39 -39.32 -0.84% 07Mar

Uganda 1,503.90 +0.81 +0.05% 10Sep

Zambia 4,242.74 +14.95 +0.35% 10April

Zimbabwe 174.91 +0.02 +0.01% 02June

African stock round up Commodity Prices

Name Price

Crude oil 1,300.91 -0.21%

Spot Gold USD/oz 1,292.63 -0.26%

Spot Silver USD/oz 19.38 -0.46%

Spot Platinum USD/oz 1,421.25 -0.33%

Spot Palladium USD/oz 798.50 -0.64%

LME Copper USD/t 6,770 -0.18%

LME Aluminium USD/t 1,780 -1.17%

LME Nickel USD/t 18,230 -1.73%

LME Lead USD/t 2,095 -1.41%

Quote of the day —"The meriT in acTion lies in finishing iT To The end." - genghis Khan

Globalshareholder.com

European Energy Commissioner Günther Oettinger emerged from the negotiations held in Brussels on Mon-day to announce that the heads of Russia's Gazprom and Ukraine's Nafto-gaz had agreed to consider an EU-pro-posed plan to resolve the dispute.

Oettinger said the proposal foresaw Ukraine paying a lower price than Russia is currently charging it for gas, while at the same time setting out a repayment schedule for Kyiv to pay of millions of dollars in debt for supplies it has already taken delivery of.

The Commissioner declined to divulge what the proposed price was, beyond saying that it was lower than the $485 (357 euros) that Russia cur-rently charges Ukraine per 1,000 cubic meters and higher than the discounted $268 it once charged Kyiv.

Oettinger said the two CEOs had asked for time to evaluate the legal, financial and economic aspects of the proposal, in consultation with their respective governments.

He added that he hoped the deal could be wrapped up in further talks in the

next few days and that the two sides had agreed that there would be no interruption to supplies while the pro-posal was under consideration.

"My request and my expectation is that we (will) come up with a package that covers the period until June next year," Oettinger said. First installment received

Earlier on Monday, Russia confirmed that it had received a Ukranian pay-ment of $786.4 million dollars, a first installment on what Moscow says is the $5.2 billion owed to it by Kyiv.

Russia had threatened to cut off the flow of gas to Kyiv on Tuesday if no payment had been received.

The latest gas dispute between Mos-cow and Kyiv began after Ukraine's pro-Kremlin President Viktor Yanuk-ovych was toppled and fled to Russia back in February. Moscow responded by imposing a sharp increase on the price of gas it charges Ukraine.

The European Union is keen to help resolve the dispute, as Ukraine is a key transit country for Russian gas imports to the EU. — DW •

15 INTERNATIONAL NEWS

Russia, Ukraine considering EU proposal to resolve gas dispute

By Carlos Lopes

(This is the second of a two-part series on the effects of illicit activ-ities on peace and security in sub Saharan Africa by United Nations Economic Commission for Africa (UNECA) executive secretary Car-los Lopes, published on his blog 'Africa Cheetah Run')

Internal and external factors

Not all conflicts are motivated or caused solely by economic imperatives. In some countries conflicts have been fueled by political or social exclusion. The Rwanda genocide for example, was fomented by the Tutsi alienation and exclusion for decades.

In Uganda, Kony’s Lord’s Resistance Army rebellion was fuelled by ethnic retribution sentiment. The rise of the SPLM/A in 1983 was a result of mar-ginalization of South Sudan.

Some conflicts have been sparked by a mix of factors. The conflict in Somalia for instance, was caused by a combi-nation of internal power disputes and also economic stress provoked by the pillaging of its coast. The conflict in the Democratic Republic of Congo involved

seven neighbouring nations fighting for influence and geo-strategic concerns.

In North Africa, the ousting of govern-ments in Tunisia, Egypt and Libya, that precipitated other conflicts in the Arab world, clearly demonstrates the ripple effects of social unrest snowballed by

youth frustrations. Lack of employment opportunities can undermine social cohesion and political stability.

Causes of conflict can be a complex mixture of issues affecting different stakeholders. The magnifying of ten-sion points contributes to entrench conflict.

Funding belligerent becomes attractive to many, provided the logic of the dis-pute brings economic gains.

Illicit financial flows and weak state capacity are symbiotic; and tend to reinforce each other. Transnational cartels operating as net-warriors are a threat to state sovereignty.

In Mexico, criminal networks have influenced change at the local and transnational levels imposing a recon-

figuration of power structures. Criminal enclaves have proliferated in Myanmar, Afghanistan and Colombia.

There are networks operating a global value chain of a criminal nature. The drivers both in terms of scope and need are international. Addressing trans-bor-der organized crime requires a conti-nental and international response.

Many individual countries in Africa vic-tims of transnational criminal activities, such as Guinea-Bissau or Mali, do not have the adequate capacity to respond to illicit activities.

As a result, there is a need for col-lective focus on drivers which can help establish regional and national security enforcement strategies and mechanisms. Inflation of domestic cur-

16 ANALYSIS

Illicit activities impact on peace and security (PART 2)

rencies caused by the inflow of illegal drugs, contraband, under-invoicing of imports or outright smuggling, stimu-late booms in certain economic sectors, such as construction or real estate.

Overvalued local currencies have other devastating economic effects such as discouraging the production of legal exports by making imports cheaper, forcing local producers to compete against cheap imports. Illicit flows can have the same effects as the so-called Dutch disease.

Actually, quite often, the natural resources richness is married to crim-inal activity, reinforcing the negative consequences of a “Dutch like disease”, impeding real economic transformation and socially inclusive policies.

Gangs, terrorist and criminal agents like an environment where they can move financial assets to profitable investments that hide their wealth. The money laundering operations of organized crime groups pose a seri-ous and growing threat to peace and security. Ransoms collected by Somali pirates are reportedly being laundered through Khat exports or real estate business in neighboring metropolis.

Firearms trans-Saharan trafficking to rebel movements is allegedly being mixed with other trafficking, such as human and drugs related, that find their way into nice villas or quasi legit-imate activities. Illegal ivory trade is rampant in many parts of Africa. In fact, African countries are prone to criminal supply chains that are resourc-ing conflicts.

For instance, according to UNODC, some $1.25bn in cocaine is trafficked from South America to West Africa and on to Europe. A policy response to these threats is very complex. A West Africa Commission on Drugs, headed by President Obasanjo is busy looking into the intricacies of such operations.

Bad economic governance

Africa’s recent commodities boom has been a major source of public revenue, contributing to economic growth. Ide-ally natural resources wealth should enable Africa to power its economies and determine the quality, pace and extent of its transformations. Natural resources have traditionally been one of the main driving forces behind our continent’s economic fortunes but also a contributor to some of our most vio-

lent conflicts.

The highest illicit financial flows were recorded in African countries that are resource and mineral rich mainly in oil, precious metals and minerals. The policy and legal frameworks for the mining sector have traditionally been designed to attract investment, and raise resources for rent-seeking or un-strategic spending rather than to encourage transformation.

Moreover, the share of resource rents retained by African countries has often been limited on the account of over-generous concessions that are always made in the race to the bottom for mining investment, as well as to the information asymmetries which typi-cally characterize the mining sector.

It has also not worked in the light of tax leakages through transfer pricing and trade mispricing. It is estimated that between 1970 and 2008, illicit financial flows linked to trade mispricing alone cost the continent $854 billion.

The lost resources on the African con-tinent are a clear indication that now, more than ever, Governments need to enforce and implement principles and standard operating procedures which

17 ANALYSIS

could reduce the amount of leakages that incur through illicit financial flows. They also need to negotiate better! For starters, the setting up of financial intel-ligence units to curtail, track and repat-riate illicit financial flows will be crucial in ensuring that resources lost can be tracked and eventually returned. The implementation of the Extractive Industries Transparency International (EITI) guidelines will ensure that nego-tiations between companies working in the extractive industry and Govern-ments are transparent.

Frameworks such as the Kimberley process will see to it that diamonds are not illegally traded, while initiatives such as “publish what you pay” will enforce more transparency in the industry. The blood diamonds syndrome still exists. Actually what happens with Coltan or logging is no different.

Despite slow global recovery, African countries continue to record impres-sive economic growth. However, this growth has been unequal. It could also have been higher if the high levels of illicit financial flows leaving the conti-nent had been invested in the conti-nent.

While the abundance of natural resources is considered the golden

avenue to poverty alleviation and eco-nomic growth, the business environ-ment in many African countries has produced a conducive environment for multinational companies and local companies alike to illicitly transfer funds to offshore safe havens with little or no repercussions.

When revenue which should be paid to governments is illicitly diverted to other sources abroad, social protection and welfare programmes suffer. Unemploy-ment and lack of opportunities often drive the bulging youth to possible alternatives of survival that include criminal entrepreneurship.

Improved governance and leadership are vital in addressing these important findings. We need to re-evaluate our governance in order to discern whether or not we are adequately equipped to provide stability, while being flexible

enough to address the variety of issues relating to illicit financial flows.

Interestingly, promoting a develop-mental state provides both opportuni-ties and limitations in pursuing these goals. A developmental state facilitates coherence, drive and better allocation of resources. But, it also has the poten-tial to limit dissent if proper organic forms of inclusion are not taken into account, as we can learn from Asia.

For a developmental state, addressing illicit financial flows and strengthening regulatory and governance institu-tions is important. But a more effective approach is needed in order to address these flows root causes. Long-term development visions and strategies can promote better resources manage-ment and less corruption.

They will succeed when providing social

cohesion and respect for diversity. However, national efforts alone will not suffice. Given the trans-national ingre-dients of both illicit flows and conflict, it is necessary to take care of peace and security in the neighbourhood.

A holistic regional pact for security could unite African countries around their common interests in security and development. Such a pact would lock in or lock out any actor responding or not to the collective imperatives.

An African-owned agenda, devised and implemented by Africans, tantamount to the principle of African solutions to African problems, is a good start. Africa has already made strong commit-ments for its security, architecture in order to achieve the stated objective of silencing the guns by 2020. The time to act is now! •

18 ANALYSIS