A couple of weeks ago, I wrote an article titled Africa and the West: Revising the Rules of Engagement. It tackled what in my opinion was uncivil and derogatory treatment of Uganda and Nigeria (and by extension the entire sub-Saharan African people) by some developed countries. These countries attempted to use development assistance as a control mechanism to force these states to abrogate an anti-gay bill arrived at democratically through parliamentary and executive arms of governments.
I wondered why African leaders had not yet spoken up for their citizens and beliefs. In addition to withdrawing aid, the European Union had gone as far as tabling the EU Parliament resolution of 13 March 2014 on launching consultations to suspend Uganda and Nigeria from the Cotonou Agreement in view of recent legislation further criminalising homosexuality (2014/2634(RSP)).
Today I was very pleased to chance upon a response to the EU Parliament from the African, Caribbean and Pacific Group of States (ACP)—79 member nations, all signatories to the Cotonou Agreement save Cuba. .
It is good to see Africans and other developing nations speaking up for what they believe in and not cowering at intimidatory control measures from the West. Hopefully this is a sign that Africans, Caribbeans and the people of the pacific are ready to take up the mantle of responsible [independent vis-à-vis controlled] leadership required to forge a better future for their peoples.
The Global Financial Integrity (GFI) report estimates that sub-Saharan Africa loses more than twice as much in illicit financial outflows than it receives in aid. According to Kevin Watkins, executive director of the Overseas Development Institute (ODI), transfer or trade mispricing is a practice that facilitates the shifting of profits to low-tax jurisdictions. He explains this practice costs less-developed countries “in excess of $550 billion annually: more than five times annual aid flows.” The lack of transparency in the global financial system facilitates such behavior among multi- and transnational corporations. Tax havens are the favorite destinations for such illicit transfers, which otherwise could have been used to boost economic and industrial development.
According to another GFI report, a conservative estimate for overall illicit outflows from Africa, exempting all other flows in illegal activities from 1970 to 2008, total $1.8 trillion. The 2013 Africa Progress Report, citing the GFI investigation, also puts the average annual loss to Africa from 2008 to 2010 at $38 billion — higher than development aid to this region in the same timeframe. Furthermore…
Ukraine’s former president Viktor Fedorovych Yanukovych was removed from office on 22 February 2014. Since then, U.S., E.U. and Russian diplomats have been working to influence the future of Ukraine.
After Yanukovych’s removal, Ukraine’s parliament took the decision to cancel a law that gives legal status to the Russian language in Ukraine. This would have potentially disadvantaged the Russian speaking population in Ukraine. Additionally, Russia recognizes the removal of Yanukovych as illegal and unconstitutional making some arguments based on Ukrainian law during a press conference with Putin.
With the escalation of Western efforts in Ukraine, Russia deployed troops to the Crimea region. The West demanded Russia to pull its troops out under the threat of sanctions which the West imposed on 6 March. The U.S. expanded visa bans on Russian officials and hopes to get E.U. support in imposing further sanctions aimed at Russia’s financial infrastructure and foreign property holdings.
Though the beneficiary of many development programs, sub-Saharan Africa still hosts some of the world’s poorest UNDP Human Development Indicies (HDIs). Qustion is why?
One answer may lie in the fact that Sub-Saharan Africa looses more than double what it gains through development assistance because of illicit financial outflows from the continent via multinational and trans-national entities. That’s the info to be gleaned from the GFI infographic.
The amount of money developing countries loose through transfer mispricing which is one form of tax avoidance that entails shifting profits to low-tax jurisdictions is in excess of US$550bn annually according to Kevin Watkins, Executive Director of ODI. This is five times more what is received in aid. It was estimated by the AU that 30 per cent of sub-Saharan Africa’s annual GDP is siphoned to tax havens. Between 1970 and 2008 the continent lost US$1.8 trillion through illicit outflows according to Global Financial Integrity report.
The G8 and G20 have it in their power to stop this massive injustice but time and again they have not shown the political will to do so. Why? Because many of them are themselves homes to the flourishing tax haven industry plus some of their current leaders have their political campaigns sponsored by big business using such dubious funds.
How much longer can the globe stand by and watch this injustice take place? It is true that illicit outflows occur in almost all nations on earth but truth is developing nations such as are found in Africa feel its bite the most because they are bled of the very little capital they could have had to make ends meet. It’s easy to point fingers at petty corruption by petty politicians in Africa but it can be argued that the type of corruption being discussed here has done way more harm to Africa and most developing regions than any petty corruption ever has.
Having been bled of such colossal sums of capital, is it any wonder that development aid alone has not been able to make a dent in the drive to spur development on the African continent? The globe must rectify this injustice.
As Jeffery Sachs put it, it’s about “stopping the abuse itself by letting very-very rich people from the US or Europe or mega companies like Apple or Google take their profits, and instead of paying the taxes that they should pay as decent citizens, put them tax free into these tax havens with the approval of the politicians of course, who use this to pay campaign contributions.”
Africa is poised to becoming the most populated continent in a few decades with its current population forecasted to double in a mere 36years by the United Nations. The current leaders of the continent have a responsibly to present and future generations to act sagaciously to leave behind a self sustaining, strong continent which can sustain the projected demographic change. They can do this owing to the convergence of many factors to the continents advantage at this point in its development history. For the past decade, economic development in sub-Saharan Africa has been phenomenal thanks to high global commodity prices, improved macroeconomic policies, increased investment in infrastructure, institutional development, the deepening of financial systems, and rising productivity.
Governments in this region must take advantage of the economic growth along with other factors listed in the article below to push for massive industrial development i.e. switching from a mentality of being solely primary producers to a mentality that works to add value to its primary products thereby providing jobs and foreign exchange for its massive populations. This value addition process is the focus of industrialization.
This and much more is discussed in my editorial that can be accessed H E R E.
The article was originally published on the Fair Observer Website. The author Solomon Appiah is a native of Ghana and ardent advocate for strategic public policies that advance the development of sub-Saharan Africa.
I wrote a blog piece for the Africa Progress Panel website published 03.09.2013 leading to the G20 meetings. It discussed how the G20 could fare with regards to filling the global leadership vacuum in the area of ensuring transparency in tax and trade issues. They did not disappoint. The meetings ended up being one big talk shop. But why? Why could the G20 not bring the much needed corrective measures to the global economic system in the area of tax integrity? One of the answers is regulatory capture. I wrote this phenomenon in this article on the fair observer platform.
Regulatory capture is the reason why both the G8 and G20 in 2013 could not take meaningful action against the gross injustice that is currently taking place in the global family where a developing region like Africa gets bled in excess of US$550 billion annually: more than five times what they receive in aid flows annually according to Kevin Watkins, Executive Director of the Overseas Development Institute (ODI). For more on regulatory capture, read THIS. The leakage of US$550 billion annually occurs through a practice that facilitates the shifting of profits to low-tax jurisdictions known as Trade mispricing—one form of tax avoidance. Trade mispricing is simply one of the many leakages in the global economic system that greatly impacts the developing world adversely…and these leakages persist in large part because of the opacity that is tolerated in the current global economic system.
G8 and G20 leaders are aware of this lack of transparency, yet they do nothing significant to combat this by way of strong regulation because they (the regulators) have been captured by those who they are supposed to be regulating (Big business which invariably finances elections etc.). Furthermore members of the G8 and G20 are themselves part of the problem because they host tax havens within their jurisdictions. When the USA and UK host tax havens within their own jurisdictions, how can the globe expect them to speak up or clamp down on the global problem that these havens pose? If some politicians are busy accepting monetary contributions from tax criminals, businesses etc. who engage in tax practices that make the poor poorer, how can we expect these same politicians to regulate these actors?
As shown from the cover graphic, Africa is not the only jurisdiction hurting from tax fraud and avoidance. The EU looses billions of Euros from tax fraud and evasion with much of these illegal sums parked in tax havens.
Since the 2008 global economic downturn, some tax havens have been forced to open up to the EU and the USA but this same largesse has not yet been extended to Africa. Why? As one national parliamentarian from one tax haven told me, you guys (Africans) are not big or united enough to leverage such a move from us whereas the USA and EU are.
Please do not misunderstand me. There are scenarios where a tax haven might be okay or beneficial to an economy but in the absence of strong global regulation, by and large, these havens have been used for more negative than positive it seems by transnational corporations seeking to hide profits from their home countries or from countries within which they operate. An interesting article by the Economist on tax havens can be found here.
The world is in dire need of better global leadership. We cannot progress much longer using the current uneven scales in an opaque and unjust global financial system.
The tiny infographic to the left is courtesy of Tax Justice Network. These guys have done some amazing research on tax havens and how they are used to facilitate tax evasion and avoidance and the impact of the resulting financial drain on the poorest members of the global family.
Click on the infog twice to enlarge and read the history of this modern cancer that is draining the developing nations of US$550 billion annually via one form of tax avoidance called trade mispricing which involves “the shifting of profits to low-tax jurisdictions”. This drain of in excess of US$550 billion annually is tantamount to more than five times annual aid flows” by one estimated.
By another estimate, the Global financial Integrity report tells us that the amount of money that the developing nations lost through illicit financial flows in 2006 was about approximately $1.06 trillion. Illicit financial flows as used in this report include “the proceeds of crime, corruption and tax evasion”. Think how many lives could have been saved with this money.
If this financial drain and the tax havens that facilitate them is not a crime against humanity or at least a crime against the poorest folks of this world that such activities affect the most, then what is?