African business, politics and lifestyle
Do tax havens contribute to African poverty?
Tax havens have been blamed (and lauded in some quarters) for many things. But a new book that is causing quite a stir says they are a key reason behind African poverty and underdevelopment.
“Treasure Islands: Tax Havens and the Men who Stole the World” by Nicholas Shaxson argues among other things that they are “deep drains of development.”
“Poverty in Africa cannot be understood without understanding the role of offshore. The world’s worst war for years has been the civil conflict in the Democratic Republic of Congo, which is tied in with the wholesale looting of its mineral resources via tax havens,” he writes.
The amount of money in tax havens has been estimated at $11.5 trillion by the Tax Justice Network, a respected and independent advocacy group that monitors such trends. Much of it is money that has been channeled illicitly to the developed world from the developing world and by some estimates exceeds the amount of aid that goes into regions such as Africa.
The broad brush — and this is a simplication of the overall argument — is that tax havens enable the flight of scarce capital from Africa to other regions, stunting the continent’s ability to develop on a range of fronts. Such havens inclue not only tropical destinations like the Cayman Islands but the City of London and the U.S. state of Delaware.
And global efforts to curtail them, a subject we have written on before, have been largely ineffective. Resource-rich countries are also, for a range of reasons, more prone to capital outflows to tax havens and other offshore institutions. And Africa is rich in resources.
Shaxson’s work is in many ways a counter-argument to the “aid is bad” consensus that is taking hold in some quarters. (See, for example, Dambisa Moyo’s “Dead Aid”.) Shaxson, a former Reuters correspondent, quotes Raymond Baker of anti-graft group Global Financial Integrity as saying: “For every dollar (in aid) that we have been generously handing out across the top of the table, we in the West have been taking back some $10 of illicit money under the table.”
Shaxson notes: “Remember that, next time some bright economist wonders why aid to Africa is not working.”
Of course, Africa is also increasingly on the radar screen of investors who once shunned the continent, from big fund managers to Chinese banks. Money is flowing in that did not come in previously.
What do you think? Is Africa winning the battle against capital flight or is its life-blood being drained offshore? If so what can be done to combat this state of affairs?