Fight Tax Evasion/Avoidance ... Don't Give Aid

A lot of African people have stood up and said no to Aid. For obvious reasons, Aid has been around for decades with little to no hope of seeing Africa move a step closer to development and provide for its people. 

In extreme cases, people have even claimed a reduction in living standards as statistics show that African people have become poorer in the time of Aid. From 11% poor to 66% is a scary statistic. 

"Despite a deluge of Aid between the years of 1970 and 1998, poverty on the continent skyrocketed from 11 percent of the population to 66 percent, which means over six hundred million Africans are now impoverished." (Guernica)

This is under the claim that over 1 trillion dollars have been sent. A figure nicely fought by pro-aid people like Owen Barder that the figure is less than trillions of dollars! "since aid began in the 1960s donors have given a grand total of $502 billion to sub-Saharan Africa, which is worth about $866 billion in today’s prices. (Table 29; excludes debt relief.)". But is it really trillion dollars or no does not bother me. The fact that it has not worked will not make a point for it because the figure is $200billion less to be regarded as a failure! Will it make the point more true if they said 'despite the 500billion to 800billion of aid, there is nothing to show that aid is helping Africa (oh sub-Sahara Africa?' I think the substance that aid has failed to improve the lives of the continent is priority in considering this issue even if you disagree on the figures. I think the case that this policy should be re-looked at is a good one and one that should be taken on for people truely interested in seeing the growth of Africa and an improvement of people's life. Surely, there is no transparency on aid (even recognized by the OECD - "The current lack of transparency and predictability of aid have been recognized as key bottlenecks in making aid more effective."), will a $200billion not be spent through back door "help"? If you really want the $1 trillion to show up somewhere before you indicate that aid has failed.

My alternative to aid has been fairness in trade and the West not stealing the resources from Africa. After all, it is common knowledge that the West benefits more from Africa and only send Aid as a personal action to sleep at night. 

By calculations that need not be very complicated and require a lot of resources, just qwids (1) I have created a graph of aid inflows into Africa from 1960 to 2012.

Now we see how much aid has been increasingly off-loaded into Africa and one would expect a corresponding effect on eradicating poverty. The simple graphic data I could find is on a working paper by Dr. Mark Perry (University of Michigan) from this post.

Not much improvement from the '70s to warranty a fight to maintain the status quo. Obvisoiusly, updated data is needed and I am working on it.

On the other hand, data from different sources shows the same dismal result - aid is not helping at all. "Helping Africa is a noble cause, but the campaign has become a theater of the absurd – the blind leading the clueless. The record of Western aid to Africa is one of abysmal failure. More than $500 billion in foreign aid – the equivalent of four Marshall Aid Plans – was pumped into Africa between 1960 and 1997. Instead of increasing development, aid has created dependence.....
The more aid poured into Africa, the lower its standard of living. Per capita GDP of Africans living south of the Sahara declined at an average annual rate of 0.59 percent between 1975 and 2000. Over that period, per capita GDP adjusted for purchasing power parity declined from $1,770 in constant 1995 international dollars to $1,479. The evidence that foreign aid underwrites misguided policies and feeds corrupt and bloated state bureaucracies is overwhelming."(CATO Institute). I think Andrew Mwenda and Dambisa Moyo are on to something that can clearly be seen although fought by the likes of Bono and Bill Gates. Aid is not doing Africa any good.

Tax Problems

I believe this is an area where Bill Gates and the team can help Africa and not handouts! There is a lot of out flows in revenues from Africa which can have far better impact on development prospects and eradicating poverty than aid. I would have loved to show how good Bill Gates' company was doing on that front, but this is not helping. I wouldn't want to think of the effect on Africa itself.

So if Africa and the West got together and fought this battle and seriously on disclosure, more results would come out than what Aid has done so far. Maybe as a result of recent fights by the West, Africa may actually benefit! 

"Rich countries have promised much but delivered little meaningful support to African countries on tax evasion, said a report ahead of a G8 meeting chaired by David Cameron.

The UK prime minister has made tax and transparency key subjects for next month's summit at Lough Erne, Northern Ireland, but this year's Africa Progress Panel report, Equity in Extractives, criticises the rich countries in the Organisation for Economic Co-operation and Development (OECD) for their failure to strengthen disclosure standards.

Africa loses twice as much in illicit financial outflows as it receives in international aid, the panel said. It is unconscionable that some companies, often supported by dishonest officials, use unethical tax avoidance, transfer pricing and anonymous company ownership to maximise profits, while millions of Africans go without adequate nutrition, health and education, the panel added."(Guardian)

I have said it before on this blog, no help is coming out of the West on this issue. It has more contribution than Aid will ever have. Most importantly, it would kill the dependence that Aid has created.

Edited:
You may wish to read the latest developments on this topic here (Give us access to information on tax havens and tax avoiders, African leaders tell David Cameron ahead of G8 Summit.)

Dambisa Moyo Vs. Bill Gates

I was very disappointed to watch Bill Gates' response to a question on Dambisa Moyo's "Dead Aid". Watch

Seriously it is one thing working on codes and programming and living in a country full of poverty and "Aid". Dambisa Moyo is Zambian, a poor country which is a massive recipient of aid. Bill Gates and visisted it on several occasions and probably was taken to meet some of the poor people he "helps" out. But the issue is the experience on the matter and not being a by-stander and being led to meet poor people so you can dish some aid to them. The two have had completely different perspectives of the same thing.

But that is not the issue as I saw it. They are people who have simply empathized on the poor and got a great understanding of the issue in totality  So we would expect that Gates can have a good understanding of the issues that are being addressed here. Maybe even better that Dambisa.

But surely saying Dambisa's book promotes evil is a hit below the belt no matter how much you think you know the issues. I don't think it even comes close to being an insult, it is disgraceful of the man. Look at the facts on the table. I will use some well known sources for easy of reference:

"despite one trillion dollars in western aid over the past sixty years, the economic lot of the average African has only gotten worse. Most Africans now live on one dollar per day, and sub-Saharan Africa remains the poorest region in the world. Despite a deluge of aid between the years of 1970 and 1998, poverty on the continent skyrocketed from 11 percent of the population to 66 percent, which means over six hundred million Africans are now impoverished." (Guernica)

Meaning, the more aid keeps coming to Africa, the poorer the people are becoming. Logically, a rethink of the whole system is in order. But does that re-thinking worth being called "promoting evil"? Surely have respect for intellectual alternative that is being offered. With due respect if this was an area that she has no connection with, you wouldn't disregard one that much, but an economist from Africa talking about an alternative to the system and that is promoting "evil"?

I think the whole thing was probably mis-understood by Gates. Someone credited as being an analyst of great intellectual standing would not go out and literally be so "un-intellectual". I don't think he has even looked at his competitors over the years as that! 

The more I read about the issues, the more I realize the people involved in the debate and unfortunately, can easily be grouped into only two - promoters of aid and promoters of alternative thinking. The promoters are mostly from donor groups or individuals and the alternative thinkers are from poverty and aid recipient countries!

I have never seen anything worth talking about aid. It is mostly used by so called "donors" to get what they want. I even coined a word for one - Gay-Aid. Where the "gay rights" are used in order to get "aid". Malawi is an example of that outcome. Without serious brain gears turning, you reralize the problem of "aid". It does not work to improve people's livelihoods but makes a good thing to use for the west to get their way. African leaders have long been known to use aid to win elections or control certain views all of which do not promote growth and economic prosperity.

On the other hand, if people are being taught to improve and infrastructure built from the financial sector, they would be great responsibility in making sure the goodness of the spirit to build is achieved. This is unlike a situation where one stands with a plate for a donation from Gates foundation to eat. Why would any government think of improving and providing for the people? After all, gates will do it while they steal the wealth through corruption and bribers from west countries' companies. Responsibility and the desire to work and produce results is killed by aid. I seriously look for evidence of a continent that developed from aid! I would be give you a large one which has not move forward over decades because of aid. The facts are on the table not debating the person. 

Guernica and other worthy of read sources have facts that Mr. Gates should have disputed and provided his own facts and not debate the person presenting her facts! It is always that simple!

Sorry, I may get derailed when people disrespect the whole issue of intellectual debate that I may divert myself but when facts are presented, an ad hominem in this time and age is really a hit below the belt!

Tax Avoidance Now Hitting The West

Africa has been trying for many years to find a solution to tax avoidance. There was little interest from Europe and the USA. Mostly because they actually gained from this tax that escaped from Africa and landed in their banks.

But life is a funny thing. What goes around, surely comes around. Now the USA is at pains to stop tax avoidance. Apple is accused of $74bn US tax evasion and thats what the news is all about.

The good news that has come out of this confusion is the push for harmonized tax system that will make it impossible to avoid paying their rightful contribution to the nation's treasury. Good news fro countries like Zambia whose tax base has been greatly eroded by such actions of multi-nationals.

I believe the way out is simple. Most tax havens would die without helping multi-nationals avoid taxes. So if there is a move to stop that, these tax havens will reject such a move. Do you think Ireland and Mauritius to agree to measures that will make it impossible for them to get money into their economy? But on the other hand, if the countries being affected unite to fight this kind of tax treatment and setup was to make these companies pay, great things can come up. Maybe even disagree to have Tax Agreements with these nations to force them to comply and make tax avoidance a thing of the past.

A positive outcome of this whole tax avoidance to me is the indication that the world is slowing becoming a solid market place, where if you ignore what is happening in Africa - tough luck, it will hit you in America harder than you thought. Apple is hopefully a beginning so that the world can come up with a solid united fight against tax evasion and avoidance.

SI 32 of 2013

Sorry I have been out of touch on serious assignments. But I think we need to have some space for one of the few happenings in the economy of Zambia - Statutory Instrument no. 32 of 2013.

I will have to do a blog on this but you should look at it from and see what it has for you. I know there are a lot of lies about it and some dreams too. I will offer my opinion as soon as I have time. It can be found here.

Time To Nationalize

It is always interesting to look at how Economist look at different views they have on an issue in the economy. An interesting view if you are an Economist in the field also.

I have been looking at the issue of the mines and the outcomes of which party is in charge of the mines. Right now, we are made to believe mines are not making any profit and so their contributions to taxation. Seriously if the operations are so bad that no one pays taxes, it would not make business sense to even own the mine. So why don't the owners leave? Why would anyone continue with a business operation which does not make sense (both generic, economic or business sense). If it really was the case, they would have left. 

I believe they have not left because all these loses that they complain about is a properly engineered part of transfer pricing! They find all loses in the chain and the money and profits show up in Switzerland. How else will a company pay taxes in Switzerland over Zambia's minerals when Switzerland has no copper? That is an issue that shocks me. 

My perspective is even strange to other economists. I think it will make good sense if the same loses that the mining companies are complaining about leading to no payment of taxes to be enjoyed by government. Why can't government take over the burden from the mining companies and the little resources enjoyed by the owners of the mines be ploughed back into Zambia? The country will not experience loses as much as the mining companies. The difference will be, there will be worry about the loses and exports since all returns from the mining activities will be back here in Zambia!

I know any modern Economist avoids using the words of nationalization and favours privatization. I believe things should be looked at a different angle altogether. Zambia has been using modern economic theories and perspectives since time in memorial, have we seen any goodness out of that? When the mines were owned by the people of Zambia, the mining towns were doing way better than today. Even ZESCO was selling electricity properly and a rate better than it is today. So the two experiences we have had should give us a lesson we can surely use to our advantage. Even the football pitches were a marvel to be in. Need we forget the schools that we all dreamt of going to? So what has changed with going back and getting the best out of it.

From where I stand, the whole western world has ganged up on Africa and its resources. There is too much complex way of ripping the resources of Africa such that if we try to follow the logical steps, we will be doomed. Ireland, Luxemburg, Netherlands and now even Mauritius have been set up in such a way that they will use all possible ways of reducing taxes so that Multi-Nationals find their way to Africa through these places and rip all the resources. There is 10 times more resources leaving Africa than the ones coming in in form of "AID"! Had this been a straight forward business, Africa would have been far better than any country in Europe or the Americas. But that does not appear to be.

Moreover, if we look at the China arrangement, you will agree with me that China does not follow the "modern" economics. They use planned economy and have been heavily criticized by the west. Did the Chinese system fail them? No they have producing for the world! So anyone looking at a way to develop, would surely think China is a way to go! They have more state owned enterprises competing in the world than you would imagine. We have taken these as our brands for some reason without looking at them and their history. Look at these:

ZTE Corporation (Zhongxing Telecommunication Equipment Corporation)

ZTE is no upstart. The company was founded in 1985 by a handful of state-owned companies affiliated with the Ministry of Aerospace Industry and has grown along with China's big phone companies, which are ZTE's top customers.That is pure genius!

China National Petroleum Corporation (CNPC)

British Broadcasting Corporation (BBC)

ABN AMRO Bank N.V. 

Bharat Electronics Limited

So why do we fear nationalization  After all I think the mines will contribute more to the economy when all their owners are Zambians. Many countries have a way of dealing with State-owned enterprises, we can find a way that can work if we divorce politics from the running.

I know its wishful thinking, but it is worth every typed word. We should nationalize the mines - The benefits far, far out weigh the costs (I am a student Economist, I should know that!)

Zambia Launches First Ever Citizen's Budget

Zambia has today, 26th February, 2013 launched the first ever Citizen's Budget. This is in line with ambitions to make government operations transparent and enable the ordinary citizen participate in the economic issues of the country. Being informed will surely get people talking and will contribute effectively to the operations of government.

By a simple definition:

"A Citizens Budget is a non-technical presentation of the Government budget which is intended to enable the public, including those who are not familiar with public finance, understand Government plans."

This is expected to inform the people in a clear and simple language on what is contained in the 2013 Budget. Considering that the Budget itself is highly technical and complex, it is mostly understand by people involved in the budget. The ordinary people barely get a grasp of the budget. You would be shocked to see what things are contained in the Budget if you have a chance to analyse it.

I agree, it is sad to see what one would have to to get all the things complied in our Budget. So next stop is finding a way that this can easily be done and presented to the public.

So the idea of Citizen's Budget has come at the right time, and at a time that Zambia needs to be more open and inclusive. A time that every ordinary person should know what the budget contains and what it will mean to him and others around him.

We have opened up the Budget to a wide spectrum of people and views. This is an improvement as now people will be seeing what is planed, what the intention is, what is expected, and the ultimate outcome. People will be able to follow the Budget in a clear and simple manner. The promise by the Minister of Finance of releasing the Citizen's Budget on an annual basis is welcome and something to smile about.

You can get the 2013 Citizen's Budget here(PDF file of about 2.5 MB).

2013 Citizen's Budget

Zambia Sugar's Sweet Nothings Report

Another report has come out clearly showing how multi-nationals are not helping Zambia by simply paying their fair share of taxes. What is sad is that this company comes from the UK where they send aid to Zambia but the amount of aid is far less than what Zambia losses out in taxes. 

ActionAid did a research "Sweet Nothings" which is contained here. Take time to read it and watch a clip here.

I think we need to seriously look at our tax laws and especially our Agreements with tax havens to avoid tax being avoided by Multi-nationals. Having spent time looking at the activities of many of these companies, I have unbelievably been convinced, if there is any suspicion of tax avoidance or evasion, this country must take matters into its own hand and deal with it.

There is no point is getting aid, which is most cases is fraction of what is being stolen from here. The legal system is not doing us justice. We need to amend what needs mending and cancel what needs to be cancelled. How long do we need to scream "trade not aid"? I actually think we should change that to "fair trade not aid".