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Tax evasion isn’t just for the west: it conspires to keep Africa poor too

Guest content
31 May 2018

A new report reveals how western banks and governments turn a blind eye to billions of pounds’ worth of wealth, generated across west Africa, that is squirrelled away offshore, often out of sight of the tax authorities. By Phillip Inman.

There is a comforting mainstream narrative which tells us that African nations, like the rest of the developing world, are doing just fine. Look past the terrorist incidents, the latest Ebola outbreak and areas of drought, and you will find that poverty is being alleviated and diseases confined to isolated pockets. A combination of western aid, Chinese investment and the rejuvenating application of neoliberal economic medicine in the guise of free trade has come to the rescue, this narrative runs, improving matters by measurable degrees.

This draws on figures from the World Bank showing that in 1981 around 42% of the world’s population was extremely poor, using $1.90 a day in 2011 prices as a yardstick. By 2013, that figure had fallen to 10.7%. An estimate by the bank suggests it fell further, to 9.1%, in 2016. Likewise, polio and other major diseases are in full retreat.

But most of these gains have benefited the poor in Asia and Latin and South America, where governments of varying levels of stability have sought to raise living standards. In sub-Saharan Africa, the story is one of terrible and debilitating decline, such that in 2013 there were 389 million people living on less than $1.90 a day, which the World Bank says amounts to “more than all the other regions combined”.

Fast-rising populations across the region are one reason governments struggle to combat poverty. The other reason can be found in the pernicious activities of western companies, western governments and the Chinese state, which want to maintain access to important minerals and to make sure they stay as cheap as possible.

The devious nature of the conspiracy to keep Africa poor has most recently been exposed by the work of journalists who have banded together as the Norbert Zongo Cell for Investigative Reporting in West Africa (Cenozo), named after the Burkinabé newspaper editor murdered in 1998.

In a report last week, it revealed how western banks and governments turn a blind eye to billions of pounds’ worth of wealth, generated across west Africa, that is squirrelled away offshore, often out of sight of the tax authorities. Working with the International Consortium of Investigative Journalists (ICIJ), which was behind the Panama Papers leaks, it details how Nigerian billionaire Sayyu Dantata bought six subsidiaries across the region from US oil firm Chevron. The $1bn deal would have been subject to multiple tax regimes depending on the laws of the countries involved. Tax experts working with the ICIJ say the transaction, at the very least, “skilfully avoided the withholding tax regime”. There is no suggestion Chevron or Dantata engaged in tax evasion or corrupt practices in relation to the transaction.

But tax evasion on the continent is a colossal problem. The Organisation for Economic Co-operation and Development (OECD) has said, the extent of tax evasion in the region is dramatic, with more than $50bn per year funnelled out through illicit flows – a sum more than all the aid the continent receives from individual countries and agencies.

The head of the International Monetary Fund, Christine Lagarde, recently said that, after several years in the job, she had concluded that interventions by her agency should come with more strings attached, and one of the strings should be a demand for anti-corruption drives.

Jason Hickel, in his new book The Divide, not only argues against what we might call the “Niall Ferguson view” that colonialisation, or at least the British empire, improved the lives of those it affected: he also rails against more recent attempts to show that trade and liberalisation are benefiting the poor.

He uses research by the US-based campaign group Global Financial Integrity (GFI) and the Centre for Applied Research at the Norwegian School of Economics which shows that in 2012, the last year of recorded data, $3.3tn flowed out of developing-world countries. This contrasts with the $1.3tn – including all aid, investment and income from abroad – that flowed in.

Totting up the net outflow of funds since 1980 delivers the alarming figure of $16.3tn, says Hickel, an anthropologist based at the London School of Economics. To get a sense of the scale, $16.3tn is only a couple of trillion short of total US GDP.

Hickel, who will be discussing his book at the Also festival of ideas in Warwickshire next month, joins a growing number of academics who have argued that aid and investment, especially in Africa, is far outweighed by what is stolen.

Unfortunately, economics teaching avoids discussing how the financial system operates with stolen money. It focuses instead on legitimate flows from trade. Hopefully these latest efforts will show that tax evasion is a huge issue beyond Europe and America’s shores – and that agencies and governments have barely begun to tackle it.

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Original source: The Guardian