Former UN Secretary-General Kofi Annan.

Cape Town - African countries need to pass laws compelling foreign mining companies to be more honest in their dealings on the continent, former UN secretary-general Kofi Annan said on Friday.

Launching the Africa Progress Report in Cape Town on the final day of the World Economic Forum, he said revenue from mining was not contributing towards reducing the gap between Africa's rich and poor.

Annan said some companies were using “unethical tax avoidance, transfer pricing and anonymous company ownership to maximise their profits”.

Such revenue was quickly moved out of the continent through tax evasion, corruption and weak governance.

The report - compiled by the African Progress Panel (APP), which Annan chairs - highlights concerns about “foreign investors extensive use of offshore companies, shell companies and offshore jurisdictions”.

Annan said the European Union and the United States were taking steps to curb this, and suggested Africa should follow suit.

“This is the first time the US government passed the Dodd-Frank legislation. This is the first time the EU is coming up with similar legislation, demanding that companies report any payments of EU100,000 or more,” he said.

While the past decade had brought growth to several African countries, some crucial interventions were needed to improve the continent's lot.

These should include African countries putting in place bold policies to promote transparency and accountability.

“The APP finds it unconscionable that some companies, often supported by dishonest officials, are using unethical tax avoidance, transfer pricing and anonymous company ownership to maximise their profits, while millions of Africans go without adequate nutrition, health and education.”

Annan said African countries needed strategies that would dictate to investors the terms under which natural resources should be developed.

These strategies should include fiscal arrangements and tax regimes. They should also be linked to creating more jobs.

“Processing natural resources before exporting them brings extra value to a country's natural resource sector,” he said.

According to the report, “much of Africa remains trapped in a pattern of exporting raw materials, with few countries successfully breaking into manufacturing and processing”. - Sapa