Wining the fight against fuel smuggling in Southern and Eastern Africa
The Zimbabwe Anti-Corruption Commission (ZACC) has called in no less than forty-two local fuel companies as part of an investigation into the smuggling of fuel from Zimbabwe to South Africa, Zambia and the Democratic Republic of Congo (DRC). Now, the firms in question have until 24 January to submit all papers relating to petrol and diesel imports between 2018 and 2019.
This may not be ground-shaking news for East Africa – but it demonstrates the pervasiveness of the problem of fuel smuggling. And Zimbabwe’s ongoing crackdown has gone a long way to exposing how shamelessly not only large companies but small business, private individuals – and even state officials are involved in years-long criminal rackets.
A gigantic business
Indeed, fuel smuggling is no small-scale misdemeanour. Experts estimate the illicit fuel trade to cost the global economy US$133 billion each year in theft, adulteration, fraud, subsidy abuse and tax evasion. These proceeds from the trade are often funnelled into other organised criminal activities, including the trafficking of narcotics, weapons and humans throughout East Africa and beyond. Not to mention that fuel smuggling is depriving governments of precious revenues for investment in infrastructure and other public goods.
A hotspot for fuel smuggling activity lies in the Maputo Corridor between South Africa, Swaziland and Mozambique, where authorities attempted to tackle criminal networks in a coordinated manner via the Maputo Corridor Logistics Initiative (MCLI) of 2004. With a mandate to ensure a cost-effective and law-abiding logistics route in the Corridor, MCLI was on the frontlines of governance efforts to advance trade and curb criminal activity for more than a decade.
The Initiative’s closure last year due to budget cuts, then, was a substantial blow to regional law enforcement. “The twin challenges of capacity and funding…have plagued the organisation since the outset,” MCLI head Barbara Mommen lamented at the time, “The financial risk has been considerable, and far too much time has been spent in the pursuit of funding rather than effectively fulfilling the actual mandate of the organisation.”
Chemical fuel markers
However, the initiative’s end doesn’t mean that regional authorities have given up on the fight against fuel smuggling and adulteration. In Zimbabwe, this has translated to ZIMRA enforcing through-country escorts to fuel tankers in a bid to end the practice of offloading petrol without paying duties; in South Africa and Botswana, sting operations have been used to root out channels to the local black market.
They have also shifted to a new, more sophisticated means to reduce the amount of illicit fuel in circulation and clamp down on tax evasion. Indeed, in addition to efforts to heighten security, customs and tax authorities have also been tackling the issue from a slightly more novel angle: adding chemical markers to fuel so as to verify its authenticity.
In Mozambique, for example, the national tax authority has been rolling out a fuel marking initiative over the past few years, after Swiss firm Sicpa won a contract to supply the marker in 2017. As part of the initiative, an invisible chemical supplied by Sicpa is being added to fuels destined for the domestic market, such as gasoline, diesel and light oil, since 2018. Fuel marking in Mozambique so far takes place in five distribution terminals in the cities of Matola, Beira, Nacala, Pemba and Quelimane.
Each marker is used to identify fuels for retail, public works, construction and dredging, agriculture, and other megaprojects. Mobile laboratories conduct on-the-spot inspections of filling stations and tanker trucks to ensure imported fuel is authentic and unadulterated.
Better fuel, more money in the public coffers
The results so far have been promising: Mozambique’s tax revenues have been increasing since fuel marking started in August 2018, as more fuel has been traded on the books than before markers were added. In the first quarter of the initiative’s implementation, an average of 305 million litres were sold. In the previous quarter, before fuel marking was used, only 296 million litres were declared along the same routes.
Results in other East African countries employing the same Sicpa-marker, Tanzania and Uganda, mirror the experience of the fiscus in Mozambique. Tanzania launched the fuel-marking program as early as 2010 and by 2013 a study conducted by the Energy and Water Regulatory Authority (EWURA) and the University of Dar es Salaam concluded that government revenue collection had risen by almost 470 billion shillings.
Meanwhile in Uganda, the government has been able to identify numerous fuel pumps selling adulterated petrol using the markers, which means that the quality of petrol sold in the country has been improving at the same time. The fuel marking scheme – along with greater regulatory oversight and a clearer legal environment – has been so successful as to have caused a drop in the rate of fuel adulteration to below 1 percent.
Still, while such initiatives represent vital steps in the right direction, much more action on tax avoidance is needed, especially as long as annual losses of in Africa through tax evasion exceeded development aid flows to the continent. As such, tax avoidance is, and always has been, a fundamental issue of public justice. This means that the so conspicuously absent oil producers active in East Africa need to be forced to the table as well.
After all, they too play a large part in the fuel smuggling epidemic and regional authorities need to take a hard line. International oil and gas producers operating in the region must be more stringently controlled and compelled to act as responsible stakeholders – a duty they have thus far skirted.
Image credit: Andrew Ashton/Flickr