Tax havens and Africa: Will the G8 deal with the real issue? – By Richard Dowden
If you hadn’t noticed it is the United Kingdom’s turn to host the G8 again. Not as important these days as the G20 but, as a gathering of the old capitalist nations, it takes serious decisions (and sometimes implements them).
The last time Britain hosted the Summit in 2005, Tony Blair dedicated the event to Africa and persuaded all the G8 leaders to sign a pledge that they would give 0.7% of their GDP in aid to poor countries. Britain is the only one still keeping the pledge. Even though I am an aid sceptic I am quite proud of that. Aid sometimes works well at a local level but we haven’t worked out how to make big aid work at a government to government level.
More important than giving aid would be to stop doing bad things to poor countries. The worst thing we – the British – do is to maintain the world’s most iniquitous secret tax havens.
Last week the Foreign Secretary, William Hague, held a public conversation with the editor of Prospect magazine, Bronwen Maddox. I managed to get the last question and asked him if the G8 themes of Tax Trade and Transparency, included the UK offshore tax havens. I pointed out that a lot of dirty money from Africa gets filtered, cleaned in these tax havens and recycled back into the system through the City of London. They were the same tax havens that many global companies also register in to indulge in transfer pricing to avoid paying tax in poor countries.
“Do the themes of the G8 suggest that Britain is now going to deal with this scandal?” I asked. Mr Hague’s reply was less then forthright:
Well, without accepting, and indeed without being an expert on everything that you describe, it is addressed to this sort of issue. Let’s be clear about that. I think particularly in extractive industries there is a need for greater transparency. I think people can make the criticisms that you are making of how companies might behave. Others might also make criticisms of the domestic governments in some of the countries concerned as well. And of course transparency in revenues would be an enormous help in many of the countries concerned. Not in Africa but it’s in my mind because I was there a few weeks ago, in Lebanon, which now has oil and gas discoveries off its coast. Given the internal political situation in Lebanon, transparency in terms of how any future revenue is handled is not only desirable but of fundamental importance to the state being able to work in the future, to people being able to have confidence in each other and to work together.
And there’ll be many situations in Africa the same. So yes, the prime minister is very serious about this. What you’re talking about is the themes for the G8 heads of governments meeting as opposed to the foreign ministers meeting that I held last week. But yes, tax, trade and transparency, including countries working together to tackle tax evasion or aggressive tax avoidance, and pursuing transparency including particularly in extractive industries””these are important things of the G8. So I hope they will go some way to address your concerns.
Watch this space.
In the meantime, just take a look at these figures from the World Bank and the OECD compiled by Eurodad. On average, between 2002 and 2006 $857 billion flowed into developing countries each year. Of that $84bn was aid, $187bn was migrant remittances, $226bn foreign direct investment and $380bn was loans. Meanwhile, on average every year over the same period, $1205bn flowed out: $130bn profits for investors, $456bn in debt repayments and a whopping $619bn in “˜illicit flows’. Some of that is corruption money – about 3%. About 30% goes through criminal networks but some 60% of the “outflow” is tax avoidance schemes. Unaccountable and un-transparent tax havens – many of them British – are where these schemes operate. Base a subsidiary of your company in a tax haven with a very low tax regime, claim all your imports and exports come through it and you can avoid paying tax in the country you are actually working in. And the criminal networks make good use of them too. Whenever another stolen oil money scandal emerges or a fraudulent deal is revealed, the money always seems to flow through offshore islands which have the Union Jack somewhere on their flag.
When you think that this fiddle results in poor countries losing about nine times through tax evasion what they are given in aid it makes you realise that our government’s pleas for transparency and accountability in poor countries ring a bit hollow. I do urge to check out this issue and press the government to take it seriously.
Last thought on Thatcher and South Africa
When I wrote about Mrs Thatcher recently I described waiting outside Downing Street in 1989 for the not-quite-president F.W. de Klerk to come out and talk to the press as promised. He didn’t and I assumed, like many others, that Mrs Thatcher had given him such an earful that he had quailed at the thought of hostile press questions as well. Last week I met Mr de Klerk at Lord Renwick’s book launch, and I was able to ask him if my supposition was true. “No” he said. He had been warned that he would hardly get a word in but “In fact I did most of the talking. I laid out my plan and she listened throughout. When I had finished she simply said – if you do what you say you will have my full support.”
Richard Dowden is Director of the Royal African Society and author of Africa; altered states, ordinary miracles. For more of Richard’s blogs click here.
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