Can Thabo Mbeki, the second president in post-apartheid South Africa, help save the continent from the scourge of corruption and illicit money outflows? The United Nations seems to think so.
Mbeki is the public face of a UN-sponsored group – “The High Level Panel on Illicit Financial Flows” -- that is in the process of drawing up what it says will be practical recommendations to end the flight of much-needed capital from Africa whether from outright corruption, criminal activities or, most significantly, tax avoidance schemes by multi-national corporations.
The target audience for the group’s recommendations, which are to be issued next June, are fellow African leaders who will be provided with specific steps to follow and who, it is hoped, will be motivated to take action. Mbeki was in New York last week hosting a panel discussion with officials from various government agencies and non-profit groups to solicit their ideas. It was just one in a series of sessions that is taking Mbeki and his staff to Europe, where he will meet with OECD and European Union officials, to Washington, where the group met with Treasury, State and Justice department officials, and to Africa, where he has met with leaders of some nine countries.
At the New York event, Mbeki said that an estimated $50 billion a year seeps out of Africa through illicit capital outflows, which is twice as much as the amount of foreign aid the continent receives each year. “These are reserves that leave the country and end up somewhere else,’’ said Mbeki. “Africa is deprived of $50 billion a year that it needs for economic challenges.”
In the cross-hairs of the panel are multi-national corporations that extract resources or sell their goods and services in Africa while contributing little in the way of taxes or other forms of payments. Shell corporations, tax havens, complicated tax-avoidance schemes are the various tools used by multinational companies to whittle down their tax bill, in some cases, to zero, according to the group.
Other forms of financial outflows from Africa are well-known – corruption, bribery and embezzlement by local officials as well as such criminal activities such as trading in drugs, weapons and even people. Yet the group said these illicit activities pale when compared to the financial drainage caused by multinational corporations. In Kenya, for instance, expat companies have successfully operated for more than twenty years and managed to never show a taxable profit. Copper mines in Zambia have provided little revenue to the government and the Democratic Republic of Congo has no idea of much money multi-national companies are generating within its borders.
In some ways, Mbeki is saying the same thing about multi-national corporations that the bandit Willie Sutton said about banks: He’s going after them because that is where the money is. Yet, even Mr. Mbeki admits, it is a challenging task. The question is simple: Do African nations have the technical expertise to confront sophisticated multi-national corporations and their platoons of accountants and attorneys with increasingly opaque ways of dodging their tax bill?
This is not only a problem in Africa. General Electric, for instance, has come under fire for parking so much money offshore that it lowered its U.S. tax rate to just 1.8 percent through most of the 2000’s. The tax avoidance schemes of Apple, along with other tech companies, that shuffle money through a dizzying array of tax havens, have garnered global headlines, and some outrage.
Yet, General Electric and Apple are avoiding taxes to the U.S., the world’s largest economy. In the case of Africa, it is the world’s weakest economies that are deprived of tax revenue. A recent report by Action Aid, a British nonprofit that focuses on issues of global poverty, found, like the UN panel, that far more revenue was lost to Africa through tax avoidance schemes than it received in aid.
Action Aid also presented a case study of one multinational operating on the continent, SAB Miller, one of the world’s largest brewers. In Ghana, for instance, SAB Miller sold up to $47 million in beer a year and yet, in many recent years, paid no taxes. In fact, Action Aid found that a Ghanaian roadside stand selling Miller-made beer paid more in taxes than brewer itself.
If the U.S. government is unable to wring more taxes from these multi-national corporations, it is an even taller order for African nations with limited technical expertise and weaker political systems. Mbeki said the issue of whether African nations “have the capacity to negotiate with multi-national corporations is a real one.” In the Congo, Mbeki said, the government has no idea of how much copper is being exported from its mines. He added: “They don’t even know how much they are losing.’’
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