Tanzania political transition: new era, new opportunity

In March, East Africa was gripped with shock upon the sudden death of Tanzania’s President John Pombe Magufuli. Over the past five years, President Magufuli towered like a political colossus, led with a nationalistic approach, and pursued reforms which sent zillion sentiments across many frontiers. He threw out Accacia, Barrick’s Mining subsidiary in Tanzania, for tax evasion and dubious practices that he descried as stealing against Tanzanians. Enacted new mining laws and renegotiated a 50/50 sharing deal with Barrick which has since been mirrored as a template in other Countries far away such as Papua New Guinea. However, his style was considered as a possible deterrent to potential investors and perhaps disruptive to the extractive sector.

The transition to the new President Ms Suluhu Samia Hassan was peaceful and lauded as a new era for a new opportunity. President Samia has promised to set Tanzania to a new path. Few days into office, President Samia observed that all was not very well as earlier perceived. New investments in the sector were low. The volume of Mineral exports had fallen. Despite the Mererani wall, Tanzanite, the precious gemstone from Mererani, was still being stolen. Negotiations for conclusion of the lucrative LNG project had stalled. The tax laws were impeding and the enforcement style by the Tax Authorities had seen many companies’ close shop. The President has since called a truce with the private sector and declared Tanzania is fully open to investment.

Despite her aspirations, President Samia has insurmountable hurdles to climb. The mining reforms were passed in law and therefore amending or uprooting these will require parliamentary approval. The amendments were so popular with the Tanzanian public and this could be touch political gamble to make.

Nonetheless, Tanzania still has an opportunity to excel. The Country’s extractive wealth lies in Minerals such as gold.  The Country has vast deposits of what are considered critical minerals such as rare-earth, lithium etc which are vital to industrial use during the energy transition. With a revived and careful political navigation Tanzania could still attract potential investors and comfortably reap more benefits from its extractive wealth.

How to curb transfer pricing , tax dodging and illicit financial flows in extractive sector

Tackling tax dodging and illicit capital flight in the extractive sector can be a challenge for tax officials and policymakers in new extractive resource-rich Countries such as Tanzania, Uganda and Kenya, whose tax and extractive governance regime is just in its formative stages and local expertise in its pupilage stage

Tax and development:  How to curb transfer pricing and illicit financial flows in the extractive sector

By Moses Kulaba, Governance and economic analysis centre, Dar es Salaam-Tanzania 

This brief highlights some of the basic strategies that can be used by tax authorities and governments to tackle aggressive tax planning and dodging in the extractive sector.  It touches on basics such as understanding corporate and financing structures synonymous with extractive MNE’s and how these are used as conduits for base erosion, tax-avoiding and illicit financial outflow. We conclude with a case scenario to facilitate discussion. The brief is in response to feedback from our readers reacting to our previous posted online article and in which we touched on the basics of understanding illicit capital flight in the extractive sector. After highlighting the problem, our readers have challenged us to also share some solutions.  The brief targets sector practitioners, policymakers and leaders, professionals, students and other stakeholders.

In recent years there have been legislative and policy reforms in Countries to ensure that governments have a firm grip and maximize their take from their extractive wealth. However, as governments celebrate these attempts, experience and practice suggest lacunas still exits and the current reforms maybe not enough in curbing the tax avoidance and illicit capital flight menace.

According to Global Financial Integrity (GFI) and the Mbeki High-Level Panel Report on IFFs latest reports, shows that IFF’s from the African continent have been increasing with losses estimated between USD50 Million and USD 80 Million over the past years. Corruption and the extractive sector has constantly provided a major conduit for tax avoidance and illicit resource outflow from Africa. Alarming evidence from leaked documents such as the Panama papers now shows, Multinational companies, have taken advantage of their titular counterparts in government to structure complex aggressive tax planning arrangements used to evade, avoid and ship out potentially taxable income, denying government and local billions of dollars in revenue and development. The arrangements can be so complex and entwined, making it a nightmare for tax authorities and governments to crack.

Even with the new negotiations and deals signed between governments and extractive MNEs, governments have to constantly up their game and mantra to ensure that the old normal does not evolve into just the new normal as the old saying goes “monkeys do not change. They only change their forests’.

So what are some of the basic measures which can be taken

The debunking of Corporate Structures

Governments can tackle tax dodging and illicit flight by debunking and constantly monitoring the corporate structure of the extractive MNE’s.  The corporate structure can determine whether an entity is a resident or non-resident entity for tax purposes. The rules applied for taxing resident and non-resident entities are different and the status of the MNE may be favourable depending on its resident status and the corporate vehicle and form that it chooses to take.

Extractive MNEs have corporate structures with their parent companies located in one Country as Headquarters and subsidiaries located in more than one country or tax jurisdictions, depending on the interests of the company and its shareholders.

The MNE’s headquarters or major subsidiary may be located in low or non-tax jurisdictions, such as Jersey, Guernsey, Isle of Man, Mauritius and in recent years Middle East Countries and Cities such as Bahrain, Dubai have been added on the infamous list of tax havens.  As these Middle East countries compete to economically diverse from Oil and develop themselves as a global investment and financial centres, they have created low or non-tax regimes as incentives for attracting foreign investment.

MNE’s whose corporate structures have footprints in these Countries need to be subjected to extra scrutiny and background checks to determine whether they are not used for aggressive tax planning measures.

Corporate restructuring, takeovers through mergers or acquisitions or buying shares or stakes in other companies (also known in the petroleum industry as farming in or farming out). Quite often this may be used to ensure that the company diversifies its investment portfolio and minimizes its risks by spreads its operations and ownership in other profit-making business. However, this presence in multiple companies creates a spaghetti of ownership structures which may be difficult for the tax authorities to trace and effectively control for tax purposes. Imagine, a nonresident entity operating in your country but with stakes in more than 20 companies and over 300 projects.

Debunking Management structures

Extractive MNE’s also structure the management in a manner which can likely reduce their tax and labour related obligations.

Governments, therefore, need to examine and understand, where the extractive MNE’s key decision is taken and how staff are recruited.  An extractive MNE with operations in Tanzania but whose majority board members are nonresident and board meetings take place outside Tanzania, would easily pass for a non-resident entity.  The income tax rules treatment and obligations for such a company would obviously be different from a fully registered resident entity.

As a channel for reducing employment tax and labour law obligations, extractive MNEs can outsource Human Resource and Employment related services to management companies. The outsourced Management companies handled staff contracts on behalf of the extractive company in return for a management fee.

Here two things can happen.

The Management Services can be handled by the company’s subsidiary located outside the Country, either at the Company’s headquarters located in low or non-tax jurisdiction or another subsidiary, whose majority shareholders could be domiciled in a low or non-tax jurisdiction.  The fees charged by the subsidiary or parent company can be overinflated to reduce the profit and tax burden in the country of operation and channelled out of the country to low tax jurisdiction.

Secondly, the Management Company can be a local entity paid to handle all Management and Human Resource services on behalf of the MNE.

The Management Company reduces the MNE’s employment tax obligations by directly recruiting and providing short term contracts or jobs to staff which are paid below the labour market in the extractive sector.  The MNE pays the Management Company a fee for this service and has no overall tax obligations thereafter on the staff it receives supplied by the Management Company.  The staff are literary employees of the management company and not the extractive MNE. Therefore, any tax obligations such as employment taxes or income taxes on services including labour rights issues such as negotiations, compensations for damage or loss are handled by the Management company. The MNE, therefore, reduces its employment tax obligation by minimizing the amount it pays to the staff through the management company.

A debunking of Financing Arrangements

Multinational Extractive Companies finance their operations through arrangements structured across multiple financial institutions.  These financing arrangements can be structured in a manner which ensures that payment of interests on the loan is too high and leaves the company with a very little taxable income. In most countries, interest payments on loans are nontaxable.  Although governments have been tightening their tax laws on thin capitalization rules by ensuring that the debt to equity ratios are within the limits, companies may also restructure the financing through a complex web of financing institutions that make ultimate taxable income in the extractive resource-rich countries is left low. Debts may be sold and restructured to take longer than earlier conceived and therefore prolong the period for the company starting to pay taxes.

Remedy for adjusted tax assessments

An adjusted assessment basically refers to a notice to reduce or increase the amount of tax imposed on an entity by the tax body. The government has the power to conduct an adjusted assessment based on new or additional information which may come in the public knowledge or purview of the tax authority, even after the Company’s accounts have been implemented. The adjustments, however, need to be fair, transparent and based on solid evidence of aggressive tax planning and evasion.

Use advance tax rulings

The tax authority can issue advance tax ruling specifying how specific extractive transactions will be treated for tax purposes. Current income tax statutes and practice notes provide for this. However, the existing rulings have been too general and subject to abuse. These ruling should clear and time-bound, to ensure that the extractive MNE does not abuse them.  The government also needs to increase surveillance during this period to ensure that the MNE is not using this period to circumvent the law by either over importation or exportation, dumping overstocking or mis-invoicing aimed to reduce either current or future tax liabilities or achieving a predetermined tax benefit.

For example, if a Company receives an advance tax ruling on the importation of certain capital goods such as heavy-duty Caterpillar tires or heavy-duty mining machinery, surveillance should be put in place to ensure that the company imports and pays an amount which commensurately matches its required operation. 

Implementation of legislative reform to curb potential lacunas

There is a need for an evaluation of the legislative and fiscal reforms so far passed to seal lacunas in the Country’s fiscal and policy regimes governing the extractive sector. 

Despite being passed over the years, have remained largely unimplemented.  The Resource Governance Index released by the Natural Resources Governance Institute (NRGI) shows that Tanzania lagged behind by 26 points in the implementation of its extractive policies and legislation. Transparency and potentially tax avoidance curbing measures such as   Contract disclosure and Beneficial ownership has remained unimplemented. Smooth exchange of information for tax purposes between less developed countries where mining operations take place and the OECD countries where the Companies are headquartered has remained poor and curtailed by ridiculous international law and treaty restrictions.

Tax incentives need to be properly awarded and managed. The government has to ensure that jobs will be created and revenue will be collected from these jobs. Fiscal, legislative and policy reforms have to be predictable and applied in a non-arbitrary way to avoid uncertainty and shocks in the extractive sector. Companies have to know in advance the consequences of flouting the rules and the burden for actions such as tax avoidance, evasion and illicit outflow.

Review of Double Taxation Agreements (DTAs)

Double Tax Agreements are treaties signed between two contracting states ensuring that nationals and residents of the two states are not taxed twice. They are primarily supposed to facilitate the international flow of capital, technology, services by eliminating taxation of income and other taxes through a bilateral arrangement and occasional resolution of income. DTAs prescribe whether the income will have taxed at the source where the income is made or where the taxable entity resides (resident principle) or a combination of both. They also provide for exchange of information for tax purposes

Despite their underlying intentions, DTAs are used as conduits for tax evasion as they facilitate income to flows from less developed countries where MNEs derive it to developed countries where MNEs are resident. Since less developed countries are resource-rich and not capital-rich, essentially, income flows substantively from one directions from developing countries as a source to the developed countries as a residency country.

DTAs allows aggressive tax planning schemes such as ‘treaty shopping’ where a Company registers a subsidiary in a country with a wide treaty network and invests through it to enjoy treaty benefits. Round tripping where investments, capital, income and profits obtained in one Country are re-routed back into the Country through low tax havens as investment from abroad to enjoy tax treaty protection.

A study by the Tanzania Tax Justice Coalition in 2016[1] revealed that the current DTAs are old and contain taxation regimes that surrender Tanzania’s treaty powers in favour of economically developed partners. DTAs have capped withholding tax rates that can be levied on interests, dividends and royalties Although the current DTAs have rated higher than 10% set in Tanzania’s income tax statutes, there are potential risks for tax loss in the future.

Establish transfer pricing methods to be used in determining the arm’s length price of transactions between related extractive MNEs and training tax officials to master them.

Tax avoidance and illicit financial outflows in the extractive sector largely take place through transfer mispricing arrangements. In principle, transfer pricing is not bad in business, however, when it is used as an aggressive tax planning measure by manipulating the transfer price (mis-pricing) to achieve a tax benefit, it becomes problematic.

Transfer pricing is an accounting practice that represents the price that one division in a company charges another division for goods and services provided. Transfer pricing allows for the establishment of prices for the goods and services exchanged between a subsidiary, an affiliate, or commonly controlled companies that are part of the same larger enterprise. Transfer pricing can lead to tax savings for corporations. A transfer price is based on market prices in charging another division, subsidiary, or holding company for services rendered.

However, companies have used inter-company transfer pricing to reduce the tax burden of the parent company. Companies charge a higher price to divisions in high-tax countries (reducing profit) while charging a lower price (increasing profits) for divisions in low-tax countries.

Transfer prices that differ from market value will be advantageous for one entity while lowering the profits of the other entity. Multinational companies can manipulate transfer prices in order to shift profits to low tax regions.

To remedy this, regulations enforce an arm’s length transaction rule that requires pricing to be based on similar transactions done between unrelated parties. Several methods can be used by MNEs and tax authorities to determine the accurate arm’s length pricing for transactions between related MNEs.  The OECD has outlined five major methods which can be used these include; The Comparable uncontrolled price method (CUP), the resale price method, the Cost plus method, Transactional net margin method (TNMM) and the transactional profit split method. According to the OECD, the option that an organization chooses to use depends on the particular situation. It should take into account the amount of relevant comparable data that is available, the level of comparability of the uncontrolled and controlled transactions in question, and whether a method is appropriate for the nature of a particular transaction (determined through a functional analysis). We will discuss this subject in detail in another tax and development bulletin which will be released soon.

In recent years there have been legislative and policy reforms in Countries to ensure that governments have a firm grip and maximize their take from their extractive wealth. However, as governments celebrate these attempts, experience and practice suggest lacunas still exits and the current reforms maybe not enough in curbing the tax avoidance and illicit capital flight menace.

According to Global Financial Integrity (GFI) and the Mbeki High-Level Panel Report on IFFs latest reports, shows that IFF’s from the African continent have been increasing with losses estimated between USD50 Million and USD 80 Million over the past years. Corruption and the extractive sector has constantly provided a major conduit for tax avoidance and illicit resource outflow from Africa.

Even with the new negotiations and deals signed between governments and extractive MNEs, governments have to constantly up their game and mantra to ensure that the old normal does not evolve into just the new normal as the old saying goes “monkeys do not change. They only change their forests’.

We conclude with a fictitious case scenario which can be read for further discussion and reflection on the subject.

Extractive Company Corporate Structure and Tax Case Scenario

 

Indemen Resources Plc is a large mining company with interests in Mining and Petroleum.  The Company was registered with its Headquarters in Jugoland but has subsidiaries in Temboland, Caconia, Alsania and Mende Islands. One of these, Mende Islands is renowned for its secret laws to protect the identity of investors, it provides a litany of investment facilitation incentives, including o% tax on corporate income. In Mende Islands, an investor does not have to be physically present to establish a company.

In 2017, Indemen Resources acquired Mining Interests in Temboland where it started operations. It established   Shamudulio Energy Plc as a subsidiary in this country to take care of the Mining and Oil & Gas fields which been operational for the past 5 years. The Company’s subsidiary, Matecash Intl located in Mende Islands manages its accounts, banking and legal affairs on behalf of the other subsidiaries.

Most of its operations have declared losses for the past ten years.  However, the books of accounts of its subsidiary, Matecash in Mende Islands have continuously improved with large volumes of transaction emanating from engaging in business with its other related subsidiaries.

In the Year 2018 the company Shamudulilo Energy Plc in Temboland farmed into Calabash resources located in Alsania where it acquired 30% of its shares and therefore becoming the second-biggest shareholder.  Comodore Oil is a majority shareholder in Calabash resources and its Headquartered in Conundrum Iand which is also a renowned tax haven.  Comodore Oil owns 20 per cent in Conglomerate LLC which is located in Caconia.  Shamudulilo also owns 10% of Conglomerate LLC. Metcash, Idemen’s subsidiary in Mende Island owns 70% of Commodore Oil.

The board of Indemen Resources only sits and makes decisions in Jugoland and has only 1 of its directors from each of its subsidiaries sitting on the board as a non-executive board director.

Recently, it outsourced Labour Management to contract to Luguburious Consulting. Luguburious Consulting is registered and located in Conudrum Islands and has shares in Metcash Intl and Commodore Oil.

Luguburious Consulting is responsible for the recruitment and placement of staff in all Indemene’s subsidiaries. The staff are recruited on a 6 months’ contract, only renewable upon satisfactory assessment and passing of a regular test. Luguburious also provides copyrighted hi-tech technology to Indemene’s subsidiaries, including Shumudulilo Energy Plc in return for a fee. It also sells water purification equipment to conglomerate LLC.

Jugoland, where Indemene Resources comes from, has a Double Taxation Agreement with Temboland and under which Income taxation on dividends, interests, royalties are capped. Management or expert director fees from these Countries are exempt. Also, 100% of income repatriation from these Countries is allowed and exempt from Taxation.

In 2011, Jugoland, as a sign of reassurance of the bilateral cooperation between the two countries and has committed 100 bln dollars to support the Country’s fiscal reforms for the next five years.

Indemene Resources has been declaring losses in your Country, Temboland and in Jugoland. But recently, you have heard that Conglomerate LLC has intentions to buy Indemene Resources through either a Merger or Acquisition which will make it the biggest Company in the region. The deal valued at 890 billion dollars is the largest ever recorded in recent history.

As a Tax justice campaigner, a Tax Administration Officer or Policymaker, you have been asked to examine and brief the President on this entire scenario

What are the key issues would you bring to the attention of the President? What are the potential legal and taxation issues do you see?  What would be the appropriate transfer pricing methods you could apply in determining the arm’s length price of transactions between these companies. What policy, legislative and actions would you recommend for the government to take without necessarily being exposed to litigation and sparking of accusations of the government as being against foreign investors?

 

 

[1] Moses Kulaba:  Double Taxation Agreements: Gain or Loss to Tanzania? A study by Tanzania Tax Justice Coalition, May 2016

 

One in four people in Africa pay bribes to access services, TI survey says

According to Transparency International (TI) survey report, more than 1 in 4 people in Africa who accessed public services, such as health care and education, paid a bribe in the previous year. This is equivalent to approximately 130 million people.

The tenth edition of Global Corruption Barometer (GCB) – Africa, released on African Anti-Corruption Day by Transparency International in partnership with Afrobarometer, reveals that more than half of all citizens surveyed in 35 African countries think corruption is getting worse in their country. Fifty-nine per cent of people think their government is doing badly at tackling corruption.

The largest and most detailed survey of citizens’ views on bribery and other forms of corruption in Africa, the survey asked 47,000 citizens in 35 countries about their perceptions of corruption and direct experiences of bribery.

The report also highlights that corruption disproportionately affects the most vulnerable, with the poorest paying bribes twice as often as the richest. Young people pay more bribes than those over 55 years old.

“Corruption is hindering Africa’s economic, political and social development. It is a major barrier to economic growth, good governance and basic freedoms, like freedom of speech or citizens’ right to hold governments to account,” said Patricia Moreira, Managing Director of Transparency International. “While governments have a long way to go in regaining citizens’ trust and reducing corruption, these things don’t exist in a vacuum. Foreign bribery and money laundering divert critical resources away from public services, and ordinary citizens suffer most.”

The police is considered the most corrupt institution, with 47 per cent of people believing that most or all police are corrupt. Many citizens also think government officials and parliamentarians are highly corrupt, at 39 per cent and 36 per cent respectively.

As in the previous edition of the GCB for Africa, the police consistently earn the highest bribery rate across the continent. This may be one of the reasons that two-thirds of those surveyed fear retaliation for reporting corruption. On a positive note, more than half of citizens believe that ordinary people can make a difference in the fight against corruption.

“To reduce the heavy burden of corruption on ordinary people, African states that have not done so should ratify and effectively implement the African Union Convention to Prevent and Combat Corruption,” said Paul Banoba, Regional Advisor for East Africa at Transparency International. “Africans believe they can make a difference. Governments must allow them the space to do so.”

Transparency International urges governments to put anti-corruption commitments into practice and to:

  • investigate, prosecute and sanction all reported cases of corruption in both the public and the private sector, with no exception;
  • develop minimum standards and guidelines for ethical procurement and build strong procurement practice throughout the continent with training, monitoring and research;
  • adopt open contracting practices, which make data and documentation clearer and easier to analyse and ensure transparency in hiring procedures;
  • create mechanisms to collect citizens’ complaints and strengthen whistleblower protection to ensure that citizens can report instances of corruption without fear of reprisal;
  • enable media and civil society to hold governments accountable;
  • support political party funding transparency;
  • allow cross border cooperation to combat corruption.

Authorities should also establish public registers that name the owners of shell companies and adopt and enforce laws that address stolen assets.

Additionally, business leaders and boards of companies, including multinational companies operating in Africa, should effectively and transparently implement the highest international anti-corruption and anti-money laundering standards.

The full report can be accessed via: https://www.transparency.org/gcb10/africa

 

 

A British tax haven, Jersey Island, is returning a Nigerian dictator’s $270 million to his country

As  Africans celebrate the Africa  Anti-Corruption day on 12th July 2019,  the good news for Nigeria in a longtime is that a famous British Overseas territory , Jersey Island, known for its secrecy jurisdiction, as a tax haven,  has announced to return billions of dollars stashed in its offshore banks by late Nigerian Leader, Sani Abacha as reported by Article below by Max de Haldevang, of Quartz online newsletter.

By Max de Haldevang, June 25, 2019

A trio of secretive British tax havens beloved of kleptocrats and money-launderers are facing unprecedented pressure to open their books.

Two influential backbench MPs, Labour’s Margaret Hodge and the Conservatives’ Andrew Mitchell, have been pushing an amendment that would force Jersey, Guernsey, and the Isle of Man to publish a public register revealing who actually owns the roughly 80,000 companies registered on them.

Anti-corruption activists allege that the three jurisdictions dotted around Britain’s coastline, known as the Crown Dependencies, are hotbeds for financial crime and tax evasion. They point to the family of Azerbaijan’s dictator Ilham Aliyev allegedly owning a $25 million house through an Isle of Man shell company, and the notorious wife of a jailed Azeri state banker holding a $28 million golf course through a Guernsey firm.

Last month, after a five-year court saga Jersey announced it was putting $268 million, which had been stashed in a Deutsche Bank account on the island by former Nigerian military dictator Sani Abacha, into an asset recovery fund that will eventually return the cash to Nigeria. The island’s solicitor general said the move showed “Jersey’s determination to deal with international financial crime more generally.”

The announcement was one of several actions taken by various actors seemingly in response to international scrutiny over the Crown Dependencies and other tax havens. The Abacha case dates back to US enforcement efforts under the Obama administration, but the Crown Dependencies only need look at Britain’s Caribbean tax havens—known as the Overseas Territories—to understand the threat posed by Hodge and Mitchell. Last year, the two former government ministers pushed through an amendment forcing the territories, which include the British Virgin Islands and Cayman Islands, to set up a public register by 2020.

Last week (June 19), all three Crown Dependencies promised of their own accord to set up corporate ownership registries. While transparency advocates say the islands aren’t moving as fast or comprehensively as they should, the move in itself is a win for Hodge and Mitchell. “This is [the Crown Dependencies] acting before Margaret Hodge attempted to do anything before Parliament,” says Ben Cowdock, a senior research officer at anti-corruption NGO Transparency International UK. “Rather than face some constant battle with the UK Parliament, they’ve decided to go of their own accord with this announcement.”

Banks have also stepped up their monitoring of accounts in the Crown Dependencies and other European tax havens. At the end of 2018, Lloyds Bank shuttered 8,000 accounts in Jersey, after their owners spent three years ignoring the bank’s questions about their identity, the Financial Times reported in June (paywall). HSBC, Barclays, and Royal Bank of Scotland have also tightened their questioning of customers on the island, according to the FT. Deutsche, which banked Abacha’s money, has warned (paywall) 1,000 of its customers that they may also lose their accounts.

 

‘The Corruption Tree’, using innovative local ways to sensitize communities about corruption and local governance-Lessons from EU-KAS ‘Tungane Pamoja’ Project in Tanzania

 

This project demonstrated that community education about corruption should not be an expensive endeavour after all. While governments spend millions of shillings on experts to languish in lavish anti-corruption conferences and to present glossy papers about anti-corruption strategies,  this project’s approach showed  that a culture of corruption and impunity in local village governments can be fought by just having communities sitting under a tree to discuss about corruption in their communities and thereafter planting or adopting a tree to symbolise their eternal rejection of corruption and fleece of public resources by those entrusted to lead

United for Our Rights (also known in its Kiswahili name as Tungane pamoja kutetea haki) Project was anti-corruption and strengthening local governance program executed by the German political foundation, Konrad Adenauer Stiftung (KAS) in collaboration with the European Union (EU) in Tanzania and two local organisations Actions for Democracy and Local Governance and Civic Education Teachers Association (CETA). The project implementation started in February 2017 and completed in May, 2019.

The overall objective of this project was to contribute towards lowering corruptive behaviour of actors in Tanzania on the local level and to foster the cooperation between CSOs and local Authorities in advocating for transparency and accountable political systems.

The project was conceived on the basis of concern that corruption in Tanzania has been a nemesis affecting systems and the ordinary citizens and retarding national development[1].  The fight against corruption in Tanzania was at infant stage and has been largely state driven by government anti-corruption agencies such as the Prevention of Combating of Corruption Bureau (PCCB) and the police.

The population and civil society generally lack the understanding of the demand accountability from authorities with regards to use and allocation of public funds. Public sector corruption was reported to go beyond missing of tax payer funds as reported by the annual Controller and Auditor General (CAG) reports to weak institutions and corrupt civil servants fuelling corruption, inequality and exploitation of their citizens.

Local Authorities especially in rural areas were largely neglected by the central government in effective supervisory terms. The ineffective central government management facilitated corruption as those entrusted with management of public resources and well politically connected, espoused dominant power, by passed the established systems of governance and public administration, created parallel structures to siphon public resources. Bribery thrived, tendering processes were abused and public resources diverted towards private gain.

Local authorities showed lack of capacity, knowledge, resources and demonstrable measures to tackle corruption. Demonstrated commitment and resources were evidently lacking and where it existed, it was haphazard or truncated and ineffective.

CSOs had poor monitoring skills and mechanisms to track public revenues and expenditures, which exacerbated the situation. Systemic corrupt practices existed at different levels of government while CSOs and other non-state actors remained speechless, untrained and incapable of fulfilling their oversight watchdog roles

The project identified a specific objective of strengthening CSOs to lead meaningful dialogues with and between local communities and Local Government Authorities. The project targeted 25 CSOs in 7 regions, covering 40 districts and 85 local elected councilors and technocrats together with local communities in 1055 wards.

Over the two-year period over 800 Community dialogues were conducted in 800 wards reaching close to 500,000 people. The topics ranged from learning about the local government structure, its functions and corruption to the role of citizens in fighting corruption and building stronger local systems.  The citizens’ concerns ranged from lack of regular village meetings to scarcity of vital medicines and quality health services at the local level. Citizens expressed concerns over lack of accountability, transparency and local participation. Other concerns included interruption, influence peddling and corruption in livelihood systems such as local cashew nut auctions

In contrast to other project, ‘Tungane Pamoja’ adopted a unique approach in where by communities either adopted or planted a tree to symbolize their fight against corruption. In total over 2000 trees were planted. Thereafter communities would sit under the adopted tree or next to the planted tree to discuss about corruption in their village and how to deal with it. Corrupt officials were exposed and accountability demanded. Communities also identified priority areas such as education or health deficits which needed their support so as to develop their village.

Corruption was rife at the health centre. We chose to plant the tree in the health centres compound as a reminder to every citizen and staff that corruption was not welcome. Every day they will see it and no doubt change their behaviours.

 The project implementation and monitoring reports enumerated many results of successes but the following could be drawn for future learning.

First, onboarding of partnership with government and relevant government officials before the project starts is vital in successful implementation of accountability projects of this nature. So far, the onboarding the line Ministry for Regional administration and Local Government proved helpful in ensuring that the project was implemented seamlessly

Anti-corruption and accountability projects or interventions such as those implemented under United of our rights project seek to challenge and alter the existing power dynamics in favour of the ordinary citizens. This strategic shift in the axis of power can be uncomfortable in certain instances for corrupt local public officials who as duty bearers nourish on the weak local government accountability systems and ignorant citizens to divert public resources for private gain. In some instances, these corrupt officials will fight back and can frustrate citizens’ efforts. Citizens therefore need constant accompaniment and support to constantly push for accountability

The use of local structures, resources such as conducting meetings under trees and locally available spaces in local language can be helpful in transferring complex concepts such as accountability, corruption to ordinary citizens. The concept of planting and adopting a tree was revolutionary in a way as it helped the local citizens relate corruption with a common item that they see and use on a daily basis.

Communities are motivated and interested to discuss issues which affect their ordinary life situations and problems such as health and education. Linking these directly to corruption can be helpful in explaining the causal and effect relationship between lack of accountability, corruption, exploitation, inequality and poor social service delivery

The Governance and Economic Policy provided the technical support undertaking internal monitoring and results harvesting for this project. The results of this assessment showed and demonstrate that corruption in local governments and at village level can only be addressed when new innovative techniques and strategies directly targeting the ordinary citizens are used.

[1] KAS; Report on the proceedings of the project launch, 24th November, 2017, held at the KAS office, Makuti Hall

What is state capture and its impacts on political governance in Tanzania

What is state capture and its impacts on political governance in Tanzania

By Moses Kulaba, Governance and economic analysis centre, Dar es Salaam-Tanzania

State capture can be simply defined as a way in which individuals, corporations, organizations or groups of organizations and interest groups such as political elites, business interests, cartels and criminal gangs influence government decisions, structures and processes through political or quasi political systems and structures with an intention of promoting, protecting and achieving their own interests.

There are two major types of state capture: These are spectrum state capture, which involves individuals having undue influence on decision making processes in government and Oligarchy, which involves organized cartels, organized groups of individuals and syndicates controlling and influencing government decisions and processes. Examples of oligarchies include the famous Russian Oligarchies and cartels include the South American (Colombia and Mexican) drug cartels such as Sinaola drug cartel under the leadership of Joaquin Guzman, famously known as ‘El Chapo’

The impact of state capture on the proper functioning of the state is enormous in a sense that state capture affects government’s ability to function and make proper decisions. State capture has also been with the famous term called kleptocracy, which is essentially stealing from the state coffers for private gain.

State capture leads to creation of a rent seeking state, where corruption shrives, becomes systemic and entrenched in government and public service. In a rent seeking state, key public services such as health, jobs are only received after paying bribes and ‘back shisi’ to government officials and those entrusted to serve the public.

It causes bad public spending as the corrupt secure lucrative public tenders for procurement and supply of essential goods and services to government. The procured supplies or goods may be over priced, of poor quality or never supplied at all.

It creates an unfavorable business environment where the politically connected businesses with influence on the national leadership and state organs manipulate, influence and secure government decisions, regulatory frameworks and protection in favour of their business interests.  Small legitimate businesses either seek protection of the big corrupt businesses or collapse under the weight of unfair competition.

It significantly affects the rules of justice, law and order where by individuals, corporations or groups ‘capture’ institutions of justice and influence judges and high ranking officials of the judiciary, law and order sector through bribes to protect or make decisions in favour of their private interests.

It also affects national security as the corrupt individuals, corporations or groups use their influence to infiltrate the system by ensuring their collaborators secure jobs in the government security apparatus. Through these connections and influence, top national secrets may be shared with these individuals, businesses or cartels for private gain. They are also able to use the government security apparatus and resources such as police, military and arms for protection.

Through illicit political party financing, election fraud and intimidation, state capture may lead to ascension to power of bad leadership.  This is achieved through financing political of political parties and sponsorship of candidates whom they deem to be in their favour. Once in power, the elected political leaders are influenced to make corruption deals, award tenders and protection as reciprocal gesture to their political god fathers.

Governance, Corruption and State Capture

There is still corruption and corruptive behaviour in public service structures and as a consequence corruption is still recognised as one of the major governances and development obstacle to poverty eradication. Corruption has affected both the quality of social service delivery and business development. According to the World Bank doing business index report of 2012 Tanzania was ranked as 127th position out of 183 Countries. Corruption is ranked as a major impediment to doing business. The level of unpredictable political and economic policy regimes in the region have increased the level of risk to doing business and trade in the country and the region. Regional Political instability and uncertainties of regime change have created social anxiety, economic stagnation, political distress and conflicts.

In a nutshell key government institution like the electoral management, Judiciary and law enforcement are under ‘capture’ by acts of corruption and bribery which have seen these institutions ranked consistently as the most corrupt in the region for the past years