Traceability, an economic, health and environmental emergency for Africa

Caught between the informal and fraud, Africa needs more than ever to build an economy that reassures in a world that sees it as a continent at risk

Traceability, an economic, health and environmental emergency for Africa

Caught between the informal and fraud, Africa needs more than ever to build an economy that reassures in a world that sees it as a continent at risk. And the challenges, many, are there and there. We know the loss of earnings of African States due to the importance of the transfer of profits from multinationals to jurisdictions with lower taxation, also due to the illicit financial flows which weigh on the continent's GDP by at least 16% according to the Cnuced in its 2015 report. We know less how much the informal sector and especially fraud cost them dearly.

In the report led by its scientific director Philippe Gillet on the challenges of traceability in supporting food, health and energy transitions in Africa, the Swiss company SICPA, world leader in authentication solutions and services, secure identification and traceability, reveals several realities that governments and companies would be inspired to integrate into their software for reasons of food safety, public health and the preservation of our environments. To be closer to African economic and political actors, SICPA created in March 2020 SICPA West-Africa, housed in Casablanca Finance City in the economic capital of Morocco. Objective: "To promote the transfer of expertise, technological innovation and the creation of value in Morocco and beyond in the countries of sub-Saharan Africa", confides Éric Besson, its president. What about fraud in Africa today? Whether in the areas of food, health or energy, it should first be noted that the situation in Africa must be read in the light of what is happening in other heavens.

As for the food industry, it should be noted that, each year, fraud deprives this sector worldwide of 30 to 40 billion dollars. In the European Union between 2016 and 2019, fraud affecting it increased by 85%. In Africa, palm oil, fish, plantains, honey, rice, sugar and alcohol, among others, are among the products most affected by fraud, through breaches of various kinds such as counterfeiting, dilution, substitution, mislabeling, etc. Beyond those mentioned above, there is a product on which international and mafia fraud is particularly relentless: it is olive oil.

Emblematic of the Mediterranean diet, it has seen its market grow exceptionally for both northern and southern Mediterranean countries. "Production by member countries of the International Olive Council, of which Morocco is a member, has reached 3 million tons," said Philippe Gillet, scientific director of SICPA and former interim president of the Ecole Polytechnique Fédérale de Lausanne (EPFL). ). Outside the countries of the European Union, the Cherifian kingdom is carving out a substantial share with its 200,000 tonnes expected for the 2021-2022 season. "Boosted by the vast program of development and support for agricultural activities "Maroc Vert", Moroccan olive oil finds itself in a market whose level of fraud has accompanied the increase in economic value", explains Éric Besson. , President of SICPA-West Africa. Thus, acts of counterfeiting have multiplied: substitution of olive oil by other oils, mislabelling, false geographical origin, distribution of counterfeit products, dilution of olive oil with lower quality oils or other oils and vol.

"To realize the level of the threat on this market, it is necessary to know that in Europe it is estimated at 1.5 billion euros the loss of profit on a market of 3 billion euros, that in Italy, 50% of olive oils on supermarket shelves would present unregulated counterfeits, finally that 60% of European olive oils exported are not what they claim to be”, continues Éric Besson, citing the SICPA report.

On the health side, whose global market is estimated at between 6,500 and 7,000 billion dollars, or about 9% of global GDP, "there are 2 billion people who do not have access to medicines, vaccines and other medical devices,” the SICPA report states. And the most concerned of all the continents by this situation is Africa.

Citing the World Health Organization, he points to this statistic that 42% of all fake drugs reported to him between 2013 and 2017 came from the continent. "Drug fraud there is estimated at $200 billion a year and it is estimated that nearly 200,000 African children die each year from taking falsified or substandard drugs [antibiotics, antimalarials, vaccines]", adds Philippe Gillet , reporting that the number of zoonotic epidemics, i.e. diseases passing from animals to humans, increased in Africa by 63% in the decade 2012-2022 compared to 2001-2011 . So many elements whose consequences are both health and economic.

As far as the energy sector is concerned, the problem of fraud concerns both fossil fuels and renewable energies which have already been mastered or are in the process of being mastered. Every year, the SICPA report says, $133 billion worth of fuel is stolen, adulterated or defrauded from a global market of $7 trillion.

The cost of illicit fuels is all the higher when it is linked to organized crime, insurgent military activities or terrorism. "Their pipeline is multiple, from illegal importation from neighboring countries with lower prices, to theft from pipelines and depots for sale at gas stations, to adulterated fuels with cheap solvent, misreporting or under-declaration of produced or imported fuel, illegal refining of crude oil, and diversion of subsidized fuel,” says Omar Messlem, Director of Fuel Marking Market Segment at SICPA.

On this front, Africa is paying a heavy price. In Nigeria, for example, massive oil thefts cost some $5.256 billion in 2021. In Libya, between 30% and 40% of the fuels produced locally or imported each year are stolen or smuggled into neighboring countries as well as Europe. In Ghana, $295 million was lost in 2019 due to tax evasion. Finally, Cameroon loses $98.4 million per year due to fuel smuggling. So many indicators of the acuteness of the question of fraud on fossil fuels.

For renewables, given that approximately 10% of the world's primary energy in 2019 came from renewable technologies (hydraulic, solar, wind), we can measure the importance for everyone, including for counterfeit specialists, of the new market low-carbon energies, not the least of which is hydrogen. "What is at stake in this field is the "green" origin of energy, materials and devices of lesser quality [electrolysers, batteries...], but also the illegal extraction of raw materials or the impacts hidden environmental [waste management and circular economy of materials used],” the report continues. "The case of hydrogen is instructive," says Philippe Gillet, its author. “Standards and certifications are being put in place to control production and distribution systems. We want to produce clean hydrogen, but also use it to make polluting and energy-consuming chemical production such as ammonia sustainable. Like the "Farm to Fork" concept developed by the European Union, that of "Water to Hydrogen to Chemistry", he specifies, which confirms the strong environmental challenge around the traceability of energy sources .

Faced with so many constraints to ward off economic, health and environmental threats, it is necessary to study the means of responding by changing the paradigm of approach to the ecosystems in which African economies are called upon to bathe in a world in geopolitical recomposition. and geoeconomics.

More than ever, Africa needs to lift the clouds of suspicion, corruption, counterfeiting and the informal that cost it so much financially, but also in terms of image. And the key word for which the continent must fight is trust, as Mo Ibrahim, the well-known Anglo-Sudanese billionaire, entrepreneur in the field of telecommunications who became an internationally renowned philanthropist with the Mo Ibrahim Foundation, says. This, on the one hand, awards the Mo-Ibrahim Prize worth 5 million US dollars paid over ten years in recognition of excellence in leadership in Africa, and on the other hand, publishes the Mo-Ibrahim Index of Governance in Africa. This need for trust is valid for all actors, States on the one hand, companies on the other.

First, the states. They must create the legal frameworks that make it possible to build this trust in order to establish them in the virtuous environments of international trade. This would improve the tax revenue to GDP ratio in developing countries, a majority of which are on the African continent. As a reminder, it is around 19% compared to 26% in the economies of developed countries.

For taxes to be applied in Africa when the activities that create wealth and profit are domiciled there, it is necessary to find legal bridges but also adherence to international agreements.

Thus in the BEPS plan which enrolls African States in a process for more sovereignty. Initiated in 2015 by countries from the G20, the OECD and a group of 20 countries, including South Africa, it established in 2018 an inclusive framework of countries that worked on two points: that of the distribution taxing rights between jurisdictions and between countries, and designing a system to ensure that multinationals pay a minimum of tax. We will understand. Joining the BEPS Action Plan has several political, legislative and administrative benefits: first, to counter base erosion and profit shifting, joining helps to assert political will of the government ; second, tax legislation can be improved by drawing on the experiences of other countries; finally, the sharing of knowledge training and best practices is a real bonus for tax administrations, which can thus improve their tools and processes.

Another international agreement that can add to the virtues of the ecosystem to be built: the Common Reporting Standard (NCD) convention, better known by its English acronym of CRS, that is to say Common Reporting Standard.

What is it about ? The backbone of the CRS convention lies in the automatic exchange of information between financial institutions on non-resident customers. Concretely, when a financial institution opens an account for a non-resident client, it notifies the administration of its country of tax residence, to which it gives information on the identity of the person, the account number as well as the financial income generated by the operations of this account. It is therefore a convention with regulatory obligations to be respected by all signatory or adhering countries. Signed by 55 so-called "first-time adopters", it has also been implemented under the leadership of the G20 and the OECD. It would be relevant for many African countries to follow in the footsteps of the first to join in 2017, namely South Africa, Mauritius and Seychelles, joined in 2018 by Ghana.

Today, for many African countries, the common reporting standard convention is a distant horizon. Fifteen countries, however, come close to it through their presence in the global forum on transparency and the exchange of information set up with the OECD. Founded in 2000 to develop banking and tax law standards "on terms that are fair and allow for fair competition among all jurisdictions, small and large, developed and developing", the forum today has today about fifteen African countries: Botswana, Burkina Faso, Cameroon, Ivory Coast, Gabon, Kenya, Lesotho, Liberia, Morocco, Mauritania, Niger, Nigeria, Senegal, Tunisia and Uganda.

After the States, the companies that want to be their partners must work to support them in building economies where transparency and fairness hold the upper hand in terms of value. These are savings organized to reduce fraud and the uncertainties associated with it as much as possible. Already noted for its report on the challenges of traceability in the food, health and energy transitions, the Swiss company SICPA has subscribed to the logic of promoting what it describes as the "economy of trust". What is it really ?

"In a world where physical and digital elements intertwine, it's about making transactions, interactions and products based on data that is protected, tamper-proof and verifiable," said Dr. Catherine Fankhauser, Head of Identities Division material and digital products of SICPA. "For the States, it is a question of offering unique marking solutions for the secure authentication, identification and traceability of products, in particular those subject to excise taxes such as tobacco, alcohol, but also soft drinks, medicines, cosmetics and others…to raise millions in terms of additional tax revenue,” says Ruggero Milanese. And SICPA's Head of Revenue Mobilization and Compliance knows what he's talking about. By implementing this approach with a number of African countries, it has enabled them to increase their revenues, reduce the informal economy, increase the efficiency of public administration, improve the quality of products, promote innovation and growth, and finally improve the quality of life of many consumer citizens. For example, the following countries recorded an increase in tax revenue: Kenya (45%), Uganda (40%), Tanzania (128%). These have seen their number of registered operators increase: Togo (90%), Morocco (20%), Uganda (262%).

Backed by its trusted partnership with governments, central banks and security printers, SICPA has long protected the majority of banknotes in circulation around the world, including the euro, US dollar and Swiss franc. For companies, it offers similar solutions for the protection of brands against counterfeits and products resulting from illicit trade.

So a company all the more to follow since it has joined forces with the Innovation Park of the École Polytechnique Fédérale de Lausanne and the Canton of Vaud to build the first center of excellence in the world dedicated to " economy of trust". She called it Campus Unlimited. “Around a community of start-ups, companies, investors and academics who will foster new ideas, partnerships and trusted technology developments,” says Prilly, at the headquarters of SICPA, "this Campus will be based on three pillars: Trusted Supply Chains, from sustainable production to final consumption, Health around secure health systems and data, Public or private official Online Services around services for the digital economy". To promote the concept of "Economy of Trust" to the international community of thought leaders and innovators, a dedicated Foundation is planned called The Foundation for the Economy of Trust. Inauguration planned for the summer of 2023. This will further strengthen business conduct throughout the world with increased integrity, as required by the Banknote Ethics Initiative (BnEI), of which SICPA is a founding member. Certified ISO 37001: 2016 for the quality of its anti-corruption management system, the Swiss company can certainly be integrated into Africa's compass for better product traceability in the service of increased food safety, health and energy, in compliance with a requirement for strong environmental sustainability as well as a proven awareness of social responsibility in line with the United Nations Sustainable Development Goals.