8 February 2007 Edition

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International: Flight of capital from Africa ends up in Western bank accounts

West continues to plunder world’s poorest countries

 

Development is more of a dream than a possibility for many people in Africa, Asia, Latin America and even Eastern Europe who often struggle not only to make ends meet, but to survive.

The plight of the poor loomed large at the G8 summit in Gleneagles, Scotland, in 2005 and promises were made about the debt faced by 18 of the poorest countries in the World, most of them in Africa. But the actions of the deveoped world are mere sticking palsters when it comes to the endless haemorrhage of money and resources from South to North.

Oil, minerals, gold, diamonds, nurses, doctors, even policemen, and most importantly, money come to our countries from those who have none, and while activists can hold their governments to account, can we do the same with banks and lawyers? In January, the African Union reported that corporations are looting more than €100bn using ‘a pinstripe infrastructure’ of western banks, lawyers and accountants. It is estimated that about 30% of sub-Saharan Africa’s annual GDP has been moved to secretive tax havens, many under the jurisdiction of the British government,  putting in perspective the pledges of the G8 leaders at Gleneagles to increase aid and write off debt.

In 2005, a report by the NGO Christian Aid, The Shirts Off Their Backs: How Tax Policies Fleece the Poor, exposed how in the developed world, government revenue from taxation between 1990 and 2000 averaged 30% of GDP while in sub-Saharan Africa, the average over the same period was 17.9% of GDP, in Latin America 15.1% and in south Asia 10.5%.

“This low tax yield in poorer regions of the world limits the domestically - generated resources available to governments for essential public services, such as healthcare and education. It also hampers wealth redistribution, which is perhaps one of the reasons why developing countries are increasingly unequal. The shortfall is partly met by aid payments from the rich world, but these have proved volatile and have often come with harmful economic strings attached”, Christian Aid said.

These acts of plunder, in which western companies and financial firms are complicit, were again highlighted at the recent launch in Nairobi of a pan-African campaign group, the Tax Justice Network for Africa (TJNA). The TJNA is to investigate multinational tax avoidance and abuses of tax havens by corrupt African politicians on a country-by-country basis, as well as lobby global leaders to commit to a proper crackdown.

Alvin Mosioma, the TJNA’s first coordinator, said: “It is astonishing that the World Bank and International Monetary Fund have not researched capital flight and tax. Until now these issues have not been included within the debate on poverty alleviation. We will publish precise information about tax avoidance in African countries and focus on the role of multinationals. Our message is that tax justice will improve democracy.”

A possible reason the World Bank and IMF fund has not investigated the flight of capital is because that flight usually comes to an end in bank accounts in Western countries.

So, despite the global commodity boom over the past three years, African governments are missing out in increasing tax and royalties, and in some cases are actually receiving less revenue from mining companies than before. As production of copper, gold, nickel and platinum soars, research from Christian Aid shows that the Tanzanian government’s revenue from gold fell by nearly a third, once the rise in prices is factored in. Zambia saw revenues from copper halve.

Pressure from the IMF to privatise industries on advantageous terms to mining firms is responsible for the shortfall, say campaigners: “The myth that tax rates have to be slashed to attract overseas investment needs to be challenged,” said Anna Thomas, Christian Aid’s policy manager.

However, only days after the launch of the reports into tax avoidance and mining practices, African governments decided to seize back valuable mining concesions from corporations in a move that echoes decisions taken on the other side of the Atlantic, in Bolivia, by president Evo Morales who has decided to nationalise the gas industry and to renegotiate contracts with foreign corporations.

Now, Tanzania seems to be gearing towards renegotiating gold mining concessions. The news will send a shiver down the collective spine of some of the world’s biggest mining companies, whose profits and share prices have surged in the past five years.

In an interview with The Observer at the World Social Forum in Nairobi, Dr Yash Tandon, executive director of the South Centre, the inter-governmental body representing 49 developing countries said that the G8 summit at Gleneagles wrote off $40bn.

“At the time, debt was about $400bn for poor countries. You still have $350bn debt. Just the interest rate alone by now has brought that back to $400bn - so on debt relief it hasn’t made much difference, because the underlying structure that creates debt is not settled, resolved or even addressed”, Yash Tandon said.

There is also concern at how so-called transfer pricing techniques, otherwise known as profit-laundering, are deployed by giant firms in extractive industries to massage down their profits.

 

The language of debt

Unpayable debt is a term used to describe external debt where the interest on the debt exceeds the amount that the country produces, thus preventing the debt ever being paid back. It is considered by some to be a method of oppression or control by first world countries.

Odious debt is debt incurred by undemocratic countries and misspent (for example, on armaments or repression of the population) or misappropriated. The debt campaign organization, Jubilee USA notes that, “Odious debt is an established legal principle. Legally, odious debt is debt that resulted from loans to an illegitimate or dictatorial government that used the money to oppress the people or for personal purposes. Moreover, in cases where borrowed money was used in ways contrary to the people’s interest, with the knowledge of the creditors, the creditors may be said to have committed a hostile act against the people. They cannot legitimately expect repayment of such debts.” (PDF)

Much of the current levels of debt were amassed following the 1973 oil crisis when the western members of OPEC pushed the price of oil up making the Arab nations very wealthy. They decided to deposit this money in large Western banks. The banks didn’t want all of this money lying around so it was lent to the third world countries. Banks lent large amounts of money to developing countries without much attention to where the money would be spent or whether countries would be capable of repaying the amount. While some of this money went towards trying to improve the living standards for those in the poore countries, most of the loans never reached the poor of the country either going towards large-scale development projects, some of which proved of little value, or to the private bank accounts of dictators. Overall, about one-fifth of loans went to arms.

 One argument that exists states that “odious debt” should be cancelled at the expense of the creditors, according to the argument that those who suffer from the consequences of spending should not have to repay the money they never controlled. Additional arguments against creditors state that these funds were loaned irresponsibly in the first place. However major recent examples, such as with the Apartheid government of South Africa and the Mobutu dictatorship in Zaire (now the Democratic Republic of Congo) have not been recognized by creditors as “odious”.

Wikipedia http://en.wikipedia.org/wiki/Third_World_debt


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