.Zitto Kabwe
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Overcoming ‘The Danger of a Single Story’ to Africa’s development discourse
By Zitto Kabwe
A young influential African writer, Chimamanda Adichie, warns about
the ‘The Danger of a Single Story’. Although she writes from literature
perspective, this warning is valid to our development discourse in
Africa. For more than five decades now, Africa development discourse has
been dominated by a single story titled – Foreign Aid. Both proponents
and critics of foreign aid revolve around this same story. The
proponents argue for increased aid and the positive role of aid, while
critics argue on the weaknesses of foreign aid and/or against foreign
aid. The positive and/or negative roles of foreign aid to Africa’s
development are part of only one story- the single dominating story! But
there are other stories to Africa’s development. In fact these other
stories are more appealing as they have better explanatory power to our
paradox situation. This brief article is not about whether foreign aid
works or not, it is about another story- the story of illicit financial
flows from Africa.
This story is not rosy and many do not like it. Data of illicit
financial flow out of Africa are kept secret. Efforts to address the
situation are often discouraged to maintain the status quo. Revelations
of the data shows that the amount of illicit money flowing out of Africa
doubles the amount of foreign aid earnings. Global Financial Integrity
estimates that up to 1.4 trillions USD was transferred from Africa over a
period of three decades (from 1970 to 2009). During the same period of
time, Africa’s foreign debts were less than illicitly transferred
money. This makes Africa a net creditor to the world. It is estimated
that each year Africa losses USD 50 Billions through tax avoidance. In
connection to that, Nicholous Shaxson wrote in his book “Treasure
Islands” that: you cannot understand poverty in Africa without understanding the role of offshore (Tax Havens).
The case of Tanzania further clarifies this story. Between
2001 and 2011 Tanzanian economy grew by an average of 7% per annum but
poverty was cut by only 2%. The high growth is explained by growing
extractive (mining) sector and service industry. Unfortunately the
growth has not been pro-poor- i.e. it has not benefitted the poor
population. Findings revealed that tax revenues from investors were
minimal and local jobs such as small-scale miners were suppressed for
the benefit of Multinational Companies. While Tanzania exported minerals
valuing 11.3 billions USD between 2001 and 2011, government revenues
were 440m millions USD, just below 4% of the total value of minerals
exported. IMF delegation visiting Tanzania in early 2011 remarked, “the
growing mining sector has little net fiscal impact due to significant
losses contributed by tax incentives abuse and structure”.
The country collects just 19% of GDP as domestic revenue while an
industrialized country collects around 35% of its GDP as tax revenues.
With such figures, it is not a surprise that Tanzania is forced to kneel
down for aid in order to finance its development plans including the
most basic public services – education and health. Of course there are
other challenges that hamper our country development such as corruption
and the domination of informal economy sector, which accounts for
estimated 53% of its GDP. However, illicit financial flow through tax
evasion and avoidance is a powerful explanation to development setbacks
in Tanzania.
The country loses 5% of its GDP to tax avoidance, 4% to tax
exemptions given to multinationals and almost 3% to tax evasion at
Customs department. A number of well-to-do Tanzanians evade tax in by
shifting their undeclared assets abroad. These assets are sometimes
legally obtained, but most of the time the assets are illegally acquired
through corruption. In 2012 Switzerland National Bank issued a report
showing that Tanzanians held USD 197m in Swiss Banks. Other unpublished
reports, unfortunately inaccessible to the public, show that this figure
could be higher. Last week, as I was on an official fact finding
trip about Tanzanian money in Switzerland, a Swiss Banker complained to
me that Tanzania is making so much noises about Switzerland while much
more money owned by Tanzanians is in London, Jersey, British Virgin
Islands and Cayman Islands. These are mostly British offshore
territories. Secrecy and lack of transparency denies us an opportunity
even to know the amounts held in these other jurisdictions.
Much more money is lost from Africa through tax avoidance by MNCs
investing in Africa. They use legal channels to transfer their profits
to low-tax areas such as Switzerland, City of London, Cayman Islands and
the likes. It is estimated that Tanzania losses average of USD 560
million each year.
Even with all those losses, we are still blinded by the single
narrative of foreign aid. African governments are still suffering from
‘The Danger of a Single Story’. They are being forced to agree to some
conditionality for them to get aid on various matters. Talking only
about foreign aid and foreign direct investment is the dangerous single
story that Africa is suffering from. The danger of this single story is
that we don’t see other stories. Now we must see Africa holistically.
Africa is a victim of illicit flow.
African countries are far from the only victims of tax fraud and tax
avoidance. The developed world is losing resources through the same tax
haven-mechanisms that are damaging Africa. Consequently, the US and EU
countries have now increased the pressure on tax havens to share
information about the fortunes hidden within their jurisdictions, and
not without result. Several of the most central secrecy jurisdictions,
including Switzerland, are gearing up to increase their transparency and
share information.
However, my recent fact-finding trip to Switzerland revealed a very
serious problem: The increased transparency and cooperation is currently
happening between and to the benefit of developed countries, and
meanwhile developing countries are at the risk of being left in the dark
with no access to the information about the financial resources taken
from our countries.
We need to change to the benefit of developed as well as developing countries, and this is how we can start:
* The developed world needs to agree to an automatic and
unconditional exchange of information about tax matters with developing
countries.
* Global rules on tax to ensure country-by-country reporting by
Multinational Companies so that they pay the right amount of taxes to
the right places.
* African governments must renounce all double taxation treaties,
which make them surrender tax revenues to developed countries and
instead insist on global convention on tax matters. The UN experts
committee on tax matters is currently discussing new rules on Model
Double Taxation Treaty between developing countries and developed ones.
We do not only need an expert committee but a real inter- governmental
body to deal with this matter and a global convention on taxation rather
than having bilateral treaties amongst countries.
Commitment from the UK and other OGP participant countries to create
public registries of the beneficial owners of companies, trusts and
foundations.
We cannot talk of open government without opening offshore
jurisdictions. We cannot insist on opening data by government without
opening up these tax havens, which impoverish Africa. Africa shall not
continue to be a beggar of its own resources illicitly transferred and
coming back as aid with strings. Aid to Africa is a single story.
Illicit flow is the other story explaining Africa’s poverty.
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