Man-made poverty, trade rules, tax evasion and chronic corruption in Africa

An African Beggar 67 A file photo of a beggar on the street

Thu, 3 Jun 2021 Source: Joel Savage

It’s time for people to stop saying that Africa is poor. Poverty in Africa is man-made which can be avoided because the continent is very rich and full of possibilities, from natural resources to a substantial young labor force, from the wide biodiversity to the potential of a vast internal market.

The continent's economy should grow at double-digit annual rates, rather than at 5 percent today, yet most of the inhabitants still live in poverty.

This contradiction clearly states that Africa is impoverished, that there has been a systematic subtraction of wealth from the industrialized countries, mostly former colonial empires, to which are added invasive tax evasion, penalizing commercial policies, corruption, and environmental costs of a development model to which Africa has never participated.

A new report published by Global Justice Now and by a group of European and African NGOs, analyzes the economic and financial flows of 47 states, to understand their limits and growth potential. "The point says the authors of the report is that African countries are in a position of credit towards the rest of the world, with a net balance of about 41.3 billion dollars in 2015."

In 2015, the African continent received a total of $ 161.6 billion such as loans, remittances from migrants, and aid. What Africa has lost, however, amounts to about 203 billion, either directly in the case of multinationals that exploit its resources but then send profits to tax havens and indirectly, in the form of costs imposed by others, such as for adaptation to climate change.

If you look in detail at these figures, we see that African countries have arrived about 19 billion in aid and various funds, but over three times as much, 68 billion, came out with taxes evaded by multinationals, accounting for 6 percent of the Gross domestic product of the entire continent.

Obviously, widespread corruption plays a decisive role in facilitating evasion by preventing governments and tax authorities from intervening in a truly effective manner. Corruption fuels the concentration of wealth in the hands of very few. There is a group of about 165 thousand super-rich with total assets of 860 billion dollars, obviously offshore or in large British or Swiss banks.

Estimates speak of about 500 billion in tax havens, that is, 30 percent of all African financial wealth, a patrimony taken away from the most important public services for development, such as education and health. It is no wonder that controls and fiscal rigor are discouraged, in a policy that also tends to offer generous incentives to foreign companies to attract investments,

"International trade policies have created a system that takes raw materials from Africa to work elsewhere, making it lose the margin of greater gain, in the oil sector as in the agricultural sector."

As for remittances from abroad, in 2015, they amounted to 31 billion, but many offset by the 32 billion profits exported by large foreign companies. Governments have received 32.8 billion in funding but have paid 18 in interest and ever-increasing debt.

Not to mention the 29 billion that disappear every year with the illegal trade in various natural goods, such as fish, animals, and vegetation. International trade policies have created a system that takes raw materials from Africa to work elsewhere, making it lose the margin of greater gain, in the oil sector as in the agricultural sector.

Finally, there is the damage of global warming, caused elsewhere, as is known. The cost of adaptation, to prevent the impact on the economy and people's daily lives, is estimated at 10.6 billion a year. The loss of young people who migrate due to natural disasters and conflicts, taking away the workforce and skills, the so-called brain drain, is estimated at around 6 billion dollars.

Accounts researchers say they don't just make accusations, but also they make a series of proposals for concrete solutions. In general, it would require greater involvement of African civil society so that the many imbalances, corruption, and certain privileges are denounced and eliminated.

Even the civil society of the other countries should be mobilized, however, especially those who benefit from the wealth of Africa. "Global elites have no interest in changing a system from which they only benefit, so it's up to organizations and movements to create transnational coalitions to stop the various forms of tax evasion and subtraction of additional resources," explains the report's authors. precisely some policies to follow.

For example, support the local economy with greater public investment, which for decades, international institutions have promoted privatizations and market openings to foreign companies and international trade, dismantling the few existing public services without starting a strong market economy.

As that has already happened in East Asia, where poverty rates have been drastically reduced in the last few decades, more state intervention would facilitate the creation and development of local industries, perhaps strengthening the internal market with temporary protectionist measures.

The report advises African governments to differentiate investment from growth based not only on mineral wealth, fossil fuels, and other non-renewable resources, among others, the cause of conflicts and corruption.

Instead, they should encourage those sectors that allow sustainable and inclusive growth, which has more prospects in relation to technology evolution and the transformation of skills, as recommended by the World Bank.

With regard to aid from the industrialized countries, these should be rethought as a form of compensation for the damage suffered, rather than as voluntary donations.

A similar process involves a thorough analysis of relations with every other economy, calculating how many resources leave the continent each year and also estimating the damage that others have caused, as in the case of global warming.

From a financial point of view, it would take a determined effort to stop the tax evasion of multinationals making profits in Africa.

According to researchers, even national financial institutions, such as stock exchanges, should prevent certain companies from being listed if they use tax havens and contribute to depleting countries in making profits.

In addition, the study suggests a serious program to monitor loans granted through the Monetary Fund, the World Bank, and other international institutions or governments, so that there is greater transparency in use and that interests become sustainable in the medium and long term.

Basically, these are the measures necessary to limit the damage of so-called "vulture funds" that strangle the economy of developing countries, preventing any real progress. On this path, since 2015, the United Nations had started a process for debt restructuring.

The resolution was voted by 136 nations, with the opposition of the United States, United Kingdom, Germany, Japan, Canada, and Israel.

Columnist: Joel Savage