JOHANNESBURG (miningweekly.com) – The Chamber of Mines of South Africa (CoM) on Monday noted with concern the report published by the United Nations Conference on Trade and Development (Unctad) in which it was asserted that South Africa’s commodity exports were being underinvoiced.
Prominent international news media have carried reports quoting Unctad as finding that, between 2000 and 2014, underinvoicing of gold exports from South Africa amounted to $78.2-billion, or 67% of total gold exports.
In the same period, Unctad alleged that there was $3-billion worth of underinvoicing of iron-ore exports from South Africa to China.
Released during a global commodities forum, the Unctad study used decades-wide data also covering commodities such as cocoa, copper and oil from Cote d'Ivoire, Chile, Zambia and Nigeria.
Unctad secretary-general Dr Mukhisa Kituyi was quoted as saying that the research provided new detail on the magnitude of the underinvoicing issue.
In its responding release to Creamer Media’s Mining Weekly Online, the chamber disputed the veracity of the data.
It also described as “astounding” the assumptions on which the research had been based and the conclusions drawn.
It said that a cursory review of the dataset indicated “significant gaps and errors”.
CoM members underwent regular audits in accordance with international accounting standards and South African gold export statistics reported by the companies over the past few decades matched the average rand gold prices and production numbers.
South African tax authorities applied the Organisation for Economic Cooperation and Development’s (OECD’s) transfer pricing guidelines for multinational and tax administrations as well as the United Nations' manual on transfer pricing.
The country was acknowledged to be leading implementation of the OECD transfer pricing, base erosion and profit shifting guidelines.
Last year, the chamber commissioned independent research into South Africa’s transfer pricing regime and specifically how it measured up to international standards.
The report noted that South Africa had kept pace with the best international standards since the mid-1990s with respect to its transfer pricing rules and reviews by the Davis Tax Committee reached a similar conclusion.
Earlier this year, South African Finance Minister Pravin Gordhan said in a written reply in Parliament to Opposition Shadow Finance Minister David Maynier that the Bank of England and other official sector institutions at offshore bullion centres hold a large percentage of South Africa’s gold.
At last count, these holdings totalled four-million ounces, worth nearly $5-billion.
Gordhan responded further that only “a smaller amount” of South Africa’s gold is held locally.
He gave the reason for storing most of South Africa’s gold in offshore bullion centres as the operational efficiencies it provided when gold transactions were conducted.
At the end of February, the value of South Africa’s official four-million-ounce reserve was $4.96-billion, or R75-billion at March 9’s exchange rate of R15.17 to the dollar.
In addition to the South African Reserve Bank performing reconciliations on the gold held internationally and locally, senior reserve bank officials are said to regularly conduct due diligence visits to inspect gold reserves held offshore, with the last such visit taking place in 2015.
However, these report backs are not made public on the grounds that they contain “confidential information”, and due diligence details are only made available to the executive of the South African Reserve Bank.
Gordhan declined to give Maynier details on the cost of storage, transport and transacting except to say that the storage costs were miniscule when compared with the value of the gold being stored. He also put no scale on transaction and transportation costs.
Trade misinvoicing is thought to be one of the largest drivers of illicit financial flows from developing countries, so that the countries lose precious foreign exchange earnings, tax, and income that might otherwise be spent on development.
Other findings of the Unctad report allege underinvoicing of oil exports from Nigeria to the US totalled $69.8-billion, or 24.9% of all oil exports to the US, between 1996 and 2014.
Unctad reported that between 1995 and 2014, Zambia recorded $28.9-billion of copper exports to Switzerland, more than half of all its copper exports, but that those exports did not show up in Switzerland's books. However, some commentators suggest that the copper, though possibly linked to Switzerland corporately, actually went elsewhere.
The Financial Times quotes Christine Clough of the US-based group Global Financial Integrity
as saying that on paper most of the copper was Swiss linked, but in reality the majority of it went directly to buyers in other countries.
Writing in Forbes, Tim Worstall made a similar point that copper from Zambian mines often went directly into London Metal Exchange (LME) warehouses around the world, with some of it ending up in storage at least for a time. But that storage would be in bonded, LME-approved warehouses.