Date: Tue, 23 Sep 2014 14:54:10 +0200
Africa: Why Are We So Poor? Yet We Are So Rich?
guest column
Briggs Bomba calls for domestic resources to be mobilized to bring about
inclusive development in Africa, in particular by stopping the illicit flow
of money out of the continent.
23.09.2014
As leaders gather for the annual Southern African Development Community
(SADC) summit in the resort town of Victoria Falls this weekend, a
distinctive new prominence and sense of urgency has emerged around the key
issue facing the region - and the continent as a whole: the question of
inclusive development and economic transformation.
At the same time, attention is moving from debates over aid effectiveness,
multi-lateral and bi-lateral loans, and foreign direct investment as the key
drivers of transformation, and towards development which is anchored on
domestic resources.
For Africa, the quest for new approaches and transformative solutions is
driven by the continued glaring contrast between, on one hand, the
continent's abundant endowment in natural resources - including precious
minerals, oil, agricultural land, fisheries, wildlife and forestry - and, on
the other, the paradoxical reality of the continent's, particularly
sub-Saharan Africa's, position as the "poorest" in terms of virtually all
the human development indicators - life expectancy, literacy, education,
standard of living and quality of life, as measured on the Human Development
Index.
Africa's poverty persists in the midst of a wealth of natural resources,
estimated by the United Nations Economic Commission on Africa as including
12 percent of the world's oil reserves, 42 percent of its gold, 80 to 90
percent of chromium and platinum group metals, and 60 percent of arable land
in addition to vast timber resources.
If these were idle, unexploited resources, it would be one thing.
However, the reality is that they are increasingly being exploited:
investment and trade in Africa's resources sector is on the rise, largely
accounting for the sustained GDP growth rates witnessed over the last
decade. The Economist magazine has reported increased foreign direct
investment into Africa, rising from U.S. $15 billion in 2002, to $37 billion
in 2006 to $46 billion in 2012.
While trade with China alone went up from $11 billion in 2003, to $166
billion in 2012, very little can be pointed to in commensurate changes in
human development and fundamental economic transformation. It is
multi-national corporations and a few local elites which are benefiting
disproportionately from the reported growth - exacerbating inequality and
further reinforcing the characteristic "enclave economy" structural defect
of most African economies.
The disparity between sustained GDP growth rates and Africa's seemingly
obstinate and perverse state of underdevelopment, extreme poverty and
deepening inequality brings to the fore issues of inclusivity and
responsible governance of domestic resources. The question that is being
asked by many - especially Africa's young people who have assumed the agenda
for economic transformation as a generational mandate - is this: Why are we
so poor? Yet we are so rich?
Promisingly, the thinking at many levels in Africa seems to be changing.
The upcoming SADC summit's theme, "SADC Strategy for Economic
Transformation: Leveraging the Region's Diverse Resources for Sustainable
Economic and Social Development through Value Addition and Beneficiation",
expresses a long overdue shift of focus to optimizing domestic resources.
Likewise, the parallel People's Summit being organized by civil society,
with a theme of using "SADC Resources for SADC Peoples", echoes the
resurgence of the question of domestic resources governance. And at the
continental level, the African Union is championing an agenda based on using
Africa's resources "for the benefit of all Africans".
There appears, therefore, to be something special happening - an
unprecedented consensus across the state-civil society divide and across
national and regional boundaries on maximizing local benefits from Africa's
resources. This convergence presents great opportunities for global
strategic dialogues and compacts to pursue a new path for development.
Indeed, one can speak of a new or 21st century resource nationalism, or a
"resource Pan-Africanism", which goes beyond the old state "ownership and
control" talk to look at smart investment contracts, public-private
partnerships, beneficiation, community ownership, promoting linkages - and
plugging the illicit outflows of capital from the continent.
By exploiting weaknesses in investment contracts and loopholes in valuation,
pricing and taxation regimes, corporations are able to use all sorts of
devices to minimize their tax exposure and illicitly move capital out of the
region to preferred "tax haven" jurisdictions. These illicit flows rob poor
countries of greatly-needed public revenue that could be mobilized and
invested to fight poverty, build infrastructure, improve livelihoods and
finance development.
A new
<http://thestudyofvalue.org/2014/05/15/new-lcsv-working-paper-explores/>
study of the South African diamond sector by Sarah Bracking and Khadija
Sharife provides alarming figures showing that revenue which accrues to the
state from the diamond trade is pitiful. In 2012, diamond sales in South
Africa brought in $1,2 billion yet the government collected only $11 million
dollars in tax.
Massive potential revenue was lost through trade mis-pricing and value
manipulation. In the study, Sharife and Bracking calculate that the diamond
giant, De Beers, mis-invoiced $2.8 billion dollars worth of stones in recent
years - figures that De Beers has not refuted up to now. This hemorrhage of
illicit flows affects virtually all key economic sectors, including
agriculture, financial services and wildlife and tourism.
In another
<http://www.afdb.org/en/documents/document/illicit-financial-flows-and-the-p
roblem-of-net-resource-transfers-from-africa-1980-2009-executive-summary-319
86/> recent report, the African Development Bank and Global Financial
Integrity demonstrate that Africa is actually a net creditor to the
developed world due to illicit flows. An estimated $1.2 trillion to $1.4
trillion was lost from Africa in the 30-year period between 1980 and 2009.
What is worrying about the rate of these flows is that it has escalated in
recent years, hence the need for comprehensive action now to stem the
leakages. Their impact on development cannot be underestimated, not only
because they represent a heavy opportunity cost to local development, but
also because they exacerbate the debt crisis already crippling most Africa
countries, with states turning to loans which in practical terms can never
be repaid, and mortgaging natural resources on terrible terms in order to
finance development.
So as President Robert Mugabe hosts SADC leaders in Zimbabwe, and as civil
society rightly surrounds such leaders' meetings to build pressure from
below, the issue of illicit flows must receive significant attention. Such
attention can productively be focused on two areas.
The United States and the rest of the western world bear particular
responsibility for the global structures and policies that enable illicit
flows and as recipients of the bulk of illicit flows from Africa. It is
encouraging that the question was part of the agenda of President Barack
Obama's U.S.-Africa Summit last week. However, beyond rhetoric a firm
commitment to practical national, regional and global strategies to curb the
flows is what is needed.
Africa, for its part, needs to create greater transparency and
accountability throughout the entire resource value chain by reforming
financial, taxation and customs regimes to widen the tax base and curtail
mis-pricing, and by introducing new arrangments for exchanging information
about taxes which are paid.
Illicit financial flows stand out as one of the major factors accounting for
the limited translation of Africa's vast natural resource wealth into
positive development outcomes. Effective strategies to curb the flows,
therefore, can play a key part in optimizing the use of domestic resources
to improve the lives of Africa's people.
Briggs Bomba coordinates TrustAfrica's work to curb illicit financial flows
out of Africa. He can be reached on bomba_at_trustafrica.org.
<http://allafrica.com/view/group/main/main/id/00031938.html>
http://allafrica.com/download/pic/main/main/csiid/00280573:ba2b8c83ccfdbdf4a
d30109cf9a77bef:arc614x376:w290:us1.pngPhoto: <http://www.whitehouse.gov/>
Chuck Kennedy/ The White House
President Barack Obama joins African leaders for a group photo during the
U.S.-Africa Leaders Summit at the U.S. Department of State in Washington,
D.C., Aug. 6, 2014.
(image/jpeg attachment: image001.jpg)