Africa’s tax avoidance crackdown nets US$260m as continent loses billions to “illicit financial flows”

by: Obert Madondo |  | Published Jan 17, 2017, by The Zimbabwean Progressive

A billboard in Zambia calls on the public to “Just say NO to corruption”. Photo credit: Lars Plougmann / Flickr (CC BY-SA 2.0)

In December, the Guardian (UK) reported that Africa’s “crackdown” on tax avoidance had netted US$260 million “to boost development”. The money was recovered through the so-called Tax Inspectors Without Borders (TIWB) project, launched in July 2015 by the Organisation for Economic Co-operation and Development (OECD) and the United Nations Development Programme (UNDP). The OECD website calls TIWB “an innovative attempt to address widespread tax avoidance by multinational enterprises in developing countries and as a contribution towards financing the UN’s Sustainable Development Goals.”

There is nothing to celebrate here. The recovered US$260 million figure pales in comparison to the billions Africa losses to “illicit financial flows” every year thanks to corporate tax avoidance by multinational corporations, corruption by African officials, and African countries’ weak audit capacities.

US$1.4 trillion “drained out of Africa”

The Tax Inspectors Without Borders website states: “Domestic resources are the largest and most important source of financing for development. They are country-owned and are more stable than external sources of finance. Domestic resources are the best way to support long-term economic growth and poverty reduction.”

For a good long while now, multinational corporations have been bleeding African economies, depriving them of the resources needed to support economic growth, education, and poverty reduction efforts. In 2013, the African Development Bank Group stated: “For over 30 years (1980-2009), close to US$1.4 trillion were drained out of Africa. Most of those capital flights were illegal in nature and were due to corruption, kickbacks, tax evasion, criminal activities, transactions of certain contraband goods, and other illicit business activities across borders.”

“Illicit Financial Flows”

The report, “Illicit Financial Flows from Developing Countries: 2004-2013,” released by the Washington, D.C.-based Global Financial Integrity in December 2015, reveals that Sub-Saharan Africa lost a staggering US$675 billion to “illicit financial flows” between 2004 and 2013. The figure is “highly conservative” as it excludes the “movements of bulk cash, the mispricing of services, or many types of money laundering.”

Where did money go? According to GFI: “Illicit financial outflows from developing countries ultimately end up in banks in developed countries like the United States and United Kingdom, as well as in tax havens like Switzerland, the British Virgin Islands, or Singapore. The organization’s researchsuggests that about 45% of illicit flows end up in offshore financial centers, and 55% in developed countries.”

Neoliberalism

You barely encounter analysis based on emerging evidence such as GFI’s “Illicit Financial Flows” report in leading global publications. On the other hand, corrupt African officials must always be blamed for the failure of Africa’s vast mineral resources to benefit Africans.

In the book, “How Europe Underdeveloped Africa,” Guyanese academic-activist Walter Rodney debunked the European fairy tale of saving Africa. Instead, Rodney suggested, Africa’s famed problems are the result of deliberate policies of exploitation by colonial powers.

In the past three decades, many African countries have adopted neoliberal policies dictated by the World Bank, International Monetary Fund and other international financial institutions. The policies forced African countries to drastically reduce public expenditure. African governments were forced to adjust their economies to accommodate foreign capital, which is partly responsible for illicit financial flows out of Africa, as well as “corruption, kickbacks, tax evasion, criminal activities, transactions of certain contraband goods, and other illicit business activities across borders.”

In April 2016, Canada’s authoritative Globe & Mail newspaper reported that Acacia Mining, an African subsidiary of the Canadian mining giant Barrick Gold Corp., “engaged in a “sophisticated scheme of tax evasion” to dodge more than $40-million (U.S.) in corporate taxes” in Tanzania. According to the Globe, a tribunal headed by a High Court judge “said the subsidiary of the Toronto-based company had failed to pay any corporate taxes in Tanzania from 2010 to 2013 while still paying more than $400-million in dividends to its shareholders from its gold-mining profits in the East African country.”

In the meantime, using corruption in Africa and the need to improve aid effectiveness as justification, aid giving countries have reduced foreign aid flowing into the coffers of African governments. Most of the aid now flows through International non-governmental organisations (NGOs) and private companies.

A significant portion of the UK’s £12bn foreign aid budget is spent through the government’s private equity arm, the CDC Group. That’s the same entity recently criticised for “pouring money into gated communities, shopping centres and luxury property in poor countries,” and for “using companies established in tax havens to make investments.” As reported by The Independent in December, Priti Patel, the UK’s International Development Secretary, recently “sparked controversy when she suggested some of the aid budget will be switched to help win post-Brexit trade deals.”

Canada is one of the key beneficiaries of the billions of dollars being stolen from Africa every year through heavy resource extraction and illicit financial outflows. Natural Resources Canada recently confirmed through its “Information Bulletin, December 2016” document that Canada’s mining assets in Africa were worth $31.3 billion in 2015.

Meanwhile, Canadian foreign aid is no longer about poverty reduction in poor countries. In recent years, Ottawa has tied its foreign aid for Africa to private companies involved in extractive activities on the continent. An internal analysis of Canada’s bilateral aid programs, which was produced by the former Canadian International Development Agency (CIDA) before the agency’s merge with the Department of Foreign Affairs and International Trade (now Global Affair Canada) in 2014, confirmed that “commercial motives” now drive Ottawa’s foreign aid policy, according to the Globe & Mail.

“Donations from west mask “$60bn looting” of Africa

While NGOs play a central role in Africa’s development efforts, emerging inconvenient truths confirm that some advance the neoliberal agenda proposed by western governments and international financial institutions. Some are even facilitating the bleeding of African economies by foreign corporations from certain vocal aid giving countries.

In 2014, the Guardian reported that donations from western countries mask the “$60 billion looting” of Africa by foreign multinational companies. The publication’s report, “Aid to Africa: Donations from west mask ‘$60bn looting’ of continent,” stated:

Western countries are using aid to Africa as a smokescreen to hide the “sustained looting” of the continent as it loses nearly $60bn a year through tax evasion, climate change mitigation, and the flight of profits earned by foreign multinational companies, a group of NGOs has claimed.

Although sub-Saharan Africa receives $134bn each year in loans, foreign investment and development aid, research released on Tuesday by a group of UK and Africa-based NGOs suggests that $192bn leaves the region, leaving a $58bn shortfall.

The report says that while western countries send about $30bn in development aid to Africa every year, more than six times that amount leaves the continent, “mainly to the same countries providing that aid”.

The inconvenient truth is: For at least three decades now, Africans have been giving to the west more than they’ve been receiving through foreign direct investment (FDI), official aid, and charitable donations.

Democracy offers no relief either. South Africa, often cited as a beacon of democracy in Africa, was one of the “top five countries with the highest illicit financial outflows during 2000-2009,” according to the African Development Bank Group. The GFI’s “Illicit Financial Flows” report pegs South Africa’s loss to illicit financial flows between 2004 and 2013 at US$209 billion.

Is there hope for African countries transitioning from post-colonial dictatorships? Not as long as foreign corporations “investing” in Africa continue to prioritize profits over the humanity of Africans. Not along as western governments remain unwilling to shut down their tax havens and regulate their corporations’ activities in Africa.

Contrary to the emotive anti-Robert Mugabe narrative we’re all used to, the dictator always been useful to foreign corporations. According to the “Illicit Financial Flows” report, from 2004 to 2013, Zimbabwe lost US$2.76 billion to illicit financial flows. After the landmark 2018 elections, Mugabe’s Zanu PF will be replaced by a corporate friendly government. All of the leading Zimbabwean parties proposing to replace Mugabe currently offer no opposition to unfettered capitalism.

As long as Africa continues its dangerous embrace of unfettered global capitalism, I doubt that the “crackdown” on tax avoidance by multinational corporations will ever yield enough money “to boost development” on the continent.

Obert Madondo is an Ottawa-based blogger, activist, photographer, digital rights addict, and former international development administrator. He’s the founder and editor of these blogs: The Canadian ProgressiveZimbabwean Progressive, and Charity Files. Follow him on Twitter: @Obiemad

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