As an important part of what might be called his life’s work, the African Renaissance, Thabo Mbeki has striven hard to correct what he regards as the negative and even racist stereotypes about his continent and his people.
And thereby to more equally distribute the blame for Africa’s misadventures, it would seem. Sometimes that powerful ideological imperative has led him into a cul-de-sac.
His infamous denial of the cause of AIDS was essentially also a denial that Africans themselves were responsible for the epidemic on the continent – with a sideways swipe at Western pharmaceutical companies for exaggerating its impact for profit.
His myopia about the misdemeanours of Zimbabwean President Robert Mugabe likewise stemmed from a belief that Western powers were denigrating Mugabe and backing the opposition there for their own nefarious ends. You don’t have to look too hard to see the ghost of Mbeki’s larger endeavour between the lines of the Report of the High-Level Panel on Illicit Financial Flows from Africa, which he presented to the African Union (AU) summit in Addis Ababa last weekend, as chair of the panel.
The report estimates that well over US$50 billion of illicit money is flowing out of Africa every year – greater than the money that is flowing in – in the form of official development assistance (ODI) from donor countries and organisations.
So Africa is, after all, a ‘net creditor to the rest of the world,’ not a net debtor as conventional wisdom would have it. And it is critical that the flow should be reversed at a time when ODI is starting to dry up because of financial difficulties in donor nations, and when the commodity super-cycle that boosted Africa’s average economic growth to above 5% a year all through this century, is waning.
In any case, the report says, that growth has not been enough to really reduce poverty and create jobs to contain the social unrest that threatens to destabilise the continent. The number of people living under US$1,25 a day in Africa has risen from 290 million in 1990 to 414 million in 2010.
Africa is a net creditor to the rest of the world
The reports says therefore that addressing the illicit outflows this year – 2015, the deadline for the Millennium Development Goals (MDGs) to be achieved – is timely, as stopping the outflow and spending it instead on Africa’s development could make a big impact on the MDGs. In the case of the Central African Republic, the MDGs would be reached in 45 years instead of 218 if illicit financial flows (IFFs) were stopped, in Mauritania in 19 years instead of 198, and even in South Africa in 24 instead of 33. (Who would have thought that it’s going to take 33 years for South Africa to attain the MDGs?)
The panel defines IFFs as ‘money illegally earned, transferred or used,’ and says by far the greatest part of this is being transferred by multinational companies – mainly through tax evasion, followed by criminal enterprise and then corrupt officials. The report said that others have estimated the ratio as 65% corporate, 30% criminal and 5% corruption. So, it is the capitalists who are the biggest culprits in IFFs and also significant accomplices, by implication, in Africa’s under-development – though the report recognises, of course, that IFFs are not the only cause of Africa’s development woes.
The report details how multinationals are avoiding paying vast amounts of tax by various intricate dodges, such as ‘abusive transfer pricing,’ which entails moving their profits through a bewildering series of shell subsidiary companies in low-tax or no-tax countries, leaving an almost invisible money trail.
Mbeki related at a presentation in Addis Ababa, after his report had been adopted by AU leaders, how the Kenyan president had told him of a particular company which had paid no tax for 20 years because it allegedly had never made a profit ‘yet strangely, it has never gone bankrupt.’
There’s growing consensus around the world that these IFFs must be stopped.
Trade misinvoicing – either under- or over-stating the price, quality or quantity of traded goods and services – is another major cause of IFFs. The report details how Mozambique’s records, for example, showed 260 385 cubic metres of logs and sawn timber were exported in 2012, whereas records from China alone showed that 450 000 cubic metres were imported.
Painting a picture of an Africa that would be much better off if it were not for the illicit activities of foreign capitalists has obviously been ideologically satisfying to Mbeki. But in truth there is also a growing consensus around the world, not least in the developed countries where most of the multinationals come from, that these IFFs must be stopped. (Even if not all would necessarily agree with the report’s distribution of blame, perhaps.)
The report also dovetails well with the moves in Africa towards financial self-sufficiency, including mobilising greater development resources from domestic sources. It is also in tune with the spirit of the AU’s decision last week to drastically reduce its dependency on foreign donors for financing its own operations, and so to require its own members to produce US$600 million a year from their own sources within five years.
Mbeki said there was also an emerging global architecture about how to stop the flows. This includes legislation just adopted by the European Parliament which will require corporations to report on their transactions in every country where they operate – not just in aggregate as they now do – which will expose efforts to disguise the real domicile of their operations.
Mbeki praised similar efforts by the United States (US), mainly through the Dodd-Frank Act and noted, somewhat ironically perhaps, that the Patriot Act (designed to counter global terrorism) had wiped shell banks, which had been used to launder IFFs, off the financial landscape.
He also commended North America’s Kleptocracy Asset Recovery Initiative, among other achievements, for freezing US$458 million stashed in US and other international accounts by the late Nigerian dictator Sani Abacha.
Mbeki suggested it would be a good idea if other countries emulated the US legislation. The report also details other efforts, in the United Nations (UN), G20, G8, the Organisation for Economic Co-operation and Development, and so on, to make tax and other international financial and economic transactions transparent and stop the flow of IFFs.
But Mbeki also noted that some developed countries were reluctant to open up all such finances, specifically family trusts, because of what they regard as legitimate desires for privacy. And he said he expected that as these governments and institutions closed loopholes, the multinationals armed with highly paid and therefore highly expert lawyers, bankers and other professions, would find new ones.
One of the main thrusts of Mbeki’s report is that these growing international efforts should be joined up rapidly into a global architecture of financial control, preferably under the UN. The other main thrust is that African governments need to improve their own financial controls, as they are simply being outgunned and outsmarted by the multinationals. The report suggests that African governments will need considerable financial assistance to improve these capacities.
One of the important implications of Mbeki’s panel’s work appears to be that closing the ‘illicit’ (which actually seems in many cases to mean unethical, rather than illegal) loopholes which otherwise legal multinationals use to evade/avoid taxes, would also block the flow of criminal money.
Because, as Raymond Baker, a member of the panel, said in Addis, these channels are all the same. All the more reason why the recommendations of Mbeki’s report should be taken seriously and implemented fast.
This article was first published by the Institute for Security Studies