Situation of Africa’s Poverty
It has been reported that globally, there has been notable progress in human development, especially in China. Yet incomes in the poorest deciles of humanity remain quite low. Ranging between 1 to 2 USD per day. Given such low incomes it is no wonder that situation of the world’s poor is extremely bleak. The world population is estimated at 7.6 billion human beings. Out of these 821 million are chronically undernourished (SOFI Report 2018, pp. v,xii,xiii,2,3); 2000 million lack access to essential medicines (http://apps.who.int/medicinedocs/en/m/abstract/Js22176en/), 844 million lack safe drinking water (http://www.who.int/news-room/fact-sheets/detail/drinking-water); 1000 million lack adequate shelter (https://homelessworldcup.org/homelessness-statistics/); 1000 million lack electricity (https://www.iea.org/energyaccess/), 2600 million lack adequate sanitation (http://www.worldwatercouncil.org/en/water-supply-sanitation), 775 million adults are illiterate (http://uis.unesco.org/en/news/international-literacy-day-2017); 152 million children (aged 5 to 17) do wage work outside their household — often under slavery-like and hazardous conditions: as soldiers, prostitutes or domestic servants, or in agriculture, construction, textile or carpet production (ILO: https://www.ilo.org/global/topics/child-labour/lang–en/index.htm).
This situation of poverty is so serious that that a third of the deaths in the world per year or 50,000 daily are due to poverty-related causes, in thousands: diarrhea (2163) and malnutrition (487); perinatal (3180) and maternal conditions (527); childhood diseases (847 — half measles); tuberculosis (1464), meningitis (340), hepatitis (159); malaria (889) and other tropical diseases (152); respiratory infections (4259 — mainly pneumonia); HIV/AIDS (2040), sexually transmitted diseases (128) (WHO: World Health Organization, Global Burden of Disease: 2004 Update, Geneva 2008, Table A1, pp. 54-59).
These deprivations suffered by so many in our world amount to a massive deficit in basic, social and economic human rights (see article 25(1) of the 1948 Universal Declaration of Human Rights). This state of affairs is against the backdrop of a perceived progress that demonstrates that poverty levels have gone down in terms of the number of people living below the poverty datum line. As already noted and as the tracking of the Millennium & Sustainable Development Goals (MDGs/SDGs) shows, the situation of the world’s poor is steadily getting better and better. This diachronic perspective is systematically promoted by replacing the language of (human) rights with that of (development) goals. We are meant to accept that, so long as there is progress, all is well. All is not well as the statistics above demonstrate. Governments treat freedom from poverty as a goal to be promoted at our leisure rather than as a human right to be implemented with no avoidable delay. Given that humanity has come to possess very advanced technological capacities, such human rights deprivations can be reversed or even avoided.
But the question is why do we have so much poverty. Several theories have been mooted to explain the condition of the Third World countries but it has become more and more apparent that development gaps are not the only factor affecting the grim global income distribution. There are stronger opposing forces that favor the most affluent sections of humanity and disfavor the poor of our world. I am referring to structural features of the current global economic and financial order fashioned and influenced by corporate power and banks, hedge funds, industry associations and billionaires that serve their own interests and those of powerful agents. Such features of the current economic and financial order encourage illicit financial flows, which drain developing countries resources needed for the financing of basic social services.
We know that the it is the responsibility of governments in which human rights deficits exists but given the current global financial architecture, most of these governments have limited capacity to tax effectively so that they could raise enough revenue to finance the provision of social services. These governments also encounter serious difficulties in taxing the wealthy and large multinational corporations. The key problem in taxing wealthy people in developing countries like those in Africa is that they externalize their wealth in tax havens and secret bank accounts and that often developing countries do not have information about their citizens’ wealth held abroad. For example, it is estimated that 33 percent of all private financial wealth owned by wealthy people in Africa and the Middle East is kept abroad while the analogous amount held by the wealthy of Europe and the US amount to only 7 percent and 1.8 percent respectively (Boston Consulting Group,2013)
MNCs also reduce their tax obligations through mechanisms like transfer pricing, so the key problem here is the shifting of profits into low-tax & no-tax jurisdictions. In 2016, US multinationals booked more profits in Ireland ($76.5 billion) than in China, Japan, Germany, France & Mexico combined ($76.4 billion). There are other flows to other corporate tax havens: Netherlands ($43.3 billion), Switzerland ($40.9 billion), Singapore ($26.4 billion), Bermuda/Caribbean ($21.2 billion) (Wright & Zucman, “The Exorbitant Tax Privilege” (NBER working paper 2018). Canada has its own losses. Assets officially held by Canadian corporations in the top ten havens reached $199 billion dollars in 2015. This figure has been going up. Canadian corporations are continuing to shelter funds offshore while the government does little to curb the practice. Prime destinations for the money are Barbados ($71B) and Cayman Islands ($36B) – consistent destinations for Canadians and others seeking to avoid paying taxes.
But such losses and revenue leaks also occur in Africa and when they occur there they have a greater impact because a dollar lost by a poor country leaves a greater effect there that it would in a wealthier country. Even though Africa receives inflows of dollars from the North like aid and foreign direct investment, Africa is in fact a net creditor to the North and elsewhere where illicit flows from Africa find their destination. Africa loses nearly $60bn a year through tax evasion, climate change mitigation, and the flight of profits earned by foreign multinational companies. Although sub-Saharan Africa receives $134bn each year in loans, foreign investment and development aid, $192bn leaves the region, leaving a $58bn shortfall.
Wealthy governments celebrate their generosity whilst simultaneously assist their companies to drain Africa’s resources by allowing unjust financial and economic systems that promote bad practices like tax avoidance, evasion and profit shifting. Foreign multinational companies siphon $46bn out of sub-Saharan Africa each year, while $35bn is moved from Africa into tax havens around the world annually.
These outcomes have development implications in that these revenue losses carry an opportunity cost. The revenue losses through illicit flows mean less money available for African governments to spend on health, education and other social services. This state of affairs has a big impact on the human development status of these countries. The linkage of Illicit financial flows to human development makes illicit financial flows one of the greatest human development challenges in the Africa and this situation explains some of the grim statistics that we have presented at the beginning of this article, which I described as human rights issues. A rights-based approach to IFFs combines these perspectives, demonstrating the practical importance to developing countries of curbing IFFs while also providing a moral impetus for developed countries to do so.
Such impacts on human development further have a negative effect on economic growth which depends on how much a government is able to build human capital through investment in education and health. Illicit financial flows further hamper governments’ ability to provide other public services and infrastructure for their citizens and this has implications for citizens’ trust in their governments. Thus, illicit flows are also linked to governance.
While tax evasion and avoidance and illicit financial flows are hugely important, we must also look at how rich corporations and individuals, especially from the developed North, participate in formulating and otherwise influencing the tax rules. Even when such agents operate fully within the letter and the spirit of all applicable laws, they may be using these laws to disadvantage and impoverish others unjustly. In this regard, I am reffering tot he practice of lobbying. A lot of lobbying nowadays is focused on international tax rules, the international division of the tax base, and, in any case, has powerful international impacts.
This leads into the question of tax justice, both national & international: what does a just system of taxation look like? But this question is ill-formed. Justice is holistic, we need to look at the entire scheme of rules and practices to judge its justice. Only a slice of this whole scheme, the tax system is especially well-suited to correcting excessive inequalities arising from the rest of the scheme – inequalities that perpetuate severe poverty or interfere with democratic decision making or social mobility/equality of opportunity, for example.
Current national and international institutional arrangements are vastly too unequal. The rich and politically dominant elites value additional funds going to the rich more highly than additional funds going to the rest. Celebrating GDP, economists value all additional dollars equally, regardless of where they go. In contrast to these two positions, it is easy to show that additional income and wealth going to the poor is vastly more valuable, morally speaking. We should use national & international tax rules (and other mechanisms also) toward achieving a more equal distribution even at the expense of a smaller total (which is independently supported by environmental concerns). There is need to reform the international financial and economic system and promotion of international cooperation to stem illicit financial flows through efforts like joint tax audits between developed and developing countries, creating an International Convention on Financial Transparency and the creation of a World Tax Authority to under UN auspices to ensure a fair playing field.