By IF spokesperson Dereje Alemayehu
Throughout my entire postgraduate degree in development studies, a PhD in economics, and a career teaching both subjects for 12 years, I was never taught, nor did I ever teach, any topic close to 'tax and development'. I only really engaged with the theme a decade after I left academia.
I have often asked myself why this vitally important topic was missing in my university career, and indeed why it was absent in international development discourse altogether. I found a partial answer in the then dominant paradigm linked to the 'vicious circle of poverty' theorem of the '70s, which states that without saving there is no investment; without investment no growth; and without growth no poverty reduction - thus poor countries cannot rely on their domestic savings to propel investment and growth.
However, according to this simplistic theory, poor countries are not doomed since they can always access development finance from rich countries, including aid, concessionary loans, and foreign direct investment. Unfortunately the underlying, and fundamentally flawed, assumption was that rich countries were philanthropic, altruistic benefactors who were more than willing to help the worlds' poor climb out of poverty.
At the time, foreign aid was criticised by development theorists as an exploitative tool that only perpetuates dependency. Policy conditions attached to aid then soon betrayed it as a key part of the arsenal in the Cold War, and underlying geopolitical and business interests were clearly exposed.
Despite this, aid continued to be the major form of development finance, particularly in Africa. When Tony Blair declared 'Africa remains a scar on the conscience of the world' he was inadvertently transmitting the same old message: that Africa should appeal to the conscience of the rich to beg and plead for aid. Nicolas Sarkozy's infamous: 'The African has not yet entered history' is not only a statement by a Eurocentric politician ignorant of what history is all about, but also a reflection on the endemic paternalism in development cooperation.
A quick glance at where foreign investment goes and what it produces shows that it is predominantly deployed in extracting wealth in enclaves, not promoting integral development by enhancing links within the different sectors of the national economy. It continues, by and large, to be a reproduction of the old colonial practice of creating misery where wealth is extracted and producing riches and glory where it is processed. Lubumbashi still languishes in its misery and Antwerp shines in its glory; just the way King Leopold left it.
As became clear at the start of the debt crises in the early 80s, it was irresponsible lending which led to unaccountable borrowing by the elite of developing countries. The old mantra that sovereign countries cannot become insolvent makes lending to corrupt regimes of all hues a no-risk venture. dumping idle financial capital on the credit market at virtually negative interest rates, agreeing a flexible interest rate written in the small print and, when repayment was due, claiming debt servicing at up to 17 per cent. Repayment was ensured through 'structural adjustment programme'. This was the dominant practice that ruined lives in developing countries and made speculators even richer.
A global trade justice campaign emerged to fight policies that forced developing countries to open up their markets prematurely to uneven competition. Even boxing, one of the world's most brutal sports, classifies competitors into different weight categories! Market liberalisation entailed sending heavyweights and featherweights to the same ring, as exemplified by the subsidies paid by rich countries to their rich farmers, while refusing to countenance the same for poor farmers in poor countries
The realisation then grew that tax justice was a key factor in the on-going battle against resource transfer from the South to the North, with campaigners recently estimating that trade mispricing alone annually costs developing countries $160bn in tax revenue - nearly one-and-half times the aid budget of rich countries. This figure is not even a sum total of tax revenue losses of the developing world - it is a conservative estimate based on analysis of just two trade-mispricing practices.
In 2007 the Tax Justice Network-Africa (TJN-A) was launched in Nairobi. Since its inception, TJN-A has been involved in raising awareness about the link between tax dodging by multinational companies and wealthy individuals and development, as well as engaging in research and advocacy to expose the shocking drain of resources in Africa through tax dodging and unchecked capital flight.
In terms of the drivers of resource outflows from Africa, according to GFI (Global Financial Integrity) commercial activities are responsible for a massive 60 per cent of illicit outflows, with corruption sharing the remaining 30 per cent with other criminal activities such as money laundering and drugs. This is not to minimise the damage that corruption is responsible for in Africa. In fact, I am emotionally more outraged by the 10 per cent stolen by the African ruling elite than the 60 per cent illicitly taken out of the continent by investors. The point is to keep this proportion in mind when dealing with both impediments to Africa's development.
Domestic taxation is now widely perceived as a way of financing the objectives that will replace the Millennium Development Goals after 2015, along with other development projects. This is in line with our view that tax must be considered as a pillar of any developing economy. It is the only reliable and sustainable resource we have, which levied appropriately and paid fairly will engender true financial self-sufficiency.
As TJN-A, we have helped push tax dodging high up on the agenda of Pan-African institutions. The African Union (AU) and the UN Economic Commission for Africa have set up a High Level Panel on Illicit Financial Flows. And we have contributed to 'Africa's Mining Vision' adopted by the Heads of State of the AU, in which African countries commit themselves to 'transparent contracting, enabling public supervision of value for money in the execution of these contracts'.
Secrecy jurisdictions- or tax havens - that facilitate abuse are now at the top of the G8 and G20 agendas. According to UK Prime Minister David Cameron, the G8 summit in Northern Ireland early next week will be predicated on 'trade, tax and transparency'. The developing world, however, has every right to fear that outcomes from that meeting will be directed more towards shoring up the tax revenues of rich countries than dealing with the impact of tax dodging on poorer states.
To remind the summit of the urgent need for binding reforms that address that concern, thousands will gather in Belfast on Saturday (June 15) to call for a crackdown on tax havens, and a new transparency convention to make the beneficial ownership of companies, foundations and trusts a matter of public record.
The event has been organised by the Enough Food For Everyone IF campaign, a collection of some 200 UK organisations raising their voices against the factors that cause world hunger. An end to tax dodging features high on its list of priorities, as well as better support for small-scale agriculture, funding to address climate change, and the ending of land grabs.
The scandal of one in eight of the world's population going to bed hungry must be consigned to history. Even the OECD now accepts that a tax system designed 80 years ago is no longer fit for purpose. It's time the rhetoric of recent years gave way to action.
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