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Do tax havens contribute to African poverty?

April 8, 2011

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.”

 

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“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?

Comments

The only solution to this entire problem is pure democracy not stability. The western powers preach democracy to use but they support our leaders who are not democratically elected. Once there is democracy in Africa things like this will never happen; because in a democratic world, government activities are transparent and questionable but here in Africa you cannot question any government. E.g. who can question the activity of former Nigerian president Ojbasanjo? Who can question Paul Biya of Cameroon, who can question Idris Derby of Chad? And yet the colonial powers continue to work with these individuals even though they know that these governments do not practice democracy. When African government sign contract they give no account of the money. E.g. a French company Bolloré controls nearly everything in Francophone Africa, they have an agreement with the government of Benin to control the seaport for 35years just like all other French speaking African countries. I know the west does not care about us, if they do they should sanction all African head of states. The same France will invite all these head of state for a celebration of one thing or the other in Paris. Some of these presidents have stayed for 30 years or above, they worked with Omar Bongo of Gabon and now they are working with his son, knowing every well that the Gabonese people did not vote that guy. For me they are responsible for African difficulties.

Posted by kboy | Report as abusive
 

Africa is not winning anything, and especially the battle against capital flight. Like George Ayittey once said, Africa’s problem is not the aid distribution but the fact that Africa’s capital is not invested in Africa.

Combating this issue, like other financial issues in the world, is monetary regulation, strict monetary regulation. This is very feasible, but since the world is virtually controlled by a cohort of elites, this will never happen. The issue is that anything in this world that benefits the many will always be subdued by the elitist few.

I hope all this malarkey about MDG’s and new development plans for Africa turns out to be otherwise, because from the way it looks nothing will change anytime soon. Plus, I’m an optimist.

Posted by globaloptimist | Report as abusive
 

The problem is not the tax havens, but the African leaders. Like so many things in life, one has a choice, and in this regard the leaders choose to act irresponsibly. Until a change in character happens in the its leaders, African countries will remain poor and corrupt.

Posted by jayceevr | Report as abusive
 

I Leopold-Maximilian Donchield-Zu-Leone II believe a constitutional monarchy would be very good for Sierra Leone. By constitutional monarchy I mean a representative monarchy whose main purpose would be to act as an international world ambassador for Sierra Leone. Attract trade and commerce without meddling in political affairs, unless asked for by government. A constitutional monarchy could also represent a unifying symbol for the people above party politics. I see the potential of Sierra Leone to become a principality as Monaco, a hub for financial services and tourism, with the monarch as its trademark.

Posted by L.M.Donchield | Report as abusive
 

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