Part of the money sent by the World Bank to 22 poor countries – 18 of them African – has gone to the Cayman Islands, Switzerland, Luxembourg, and Singapore, as indicated in a report by this international financial institution. It is assumed that there is complicity between executives of the organization and African governments.
A study by the World Bank (WB), published in February 2020 but silenced for months, has exposed the theft, by the WB itself, of money destined for poor countries. The 45-page document is called Financial Aid Withheld by Elites and shows that, between 1990 and 2010, approximately 7.5% of financial aid provided by the financial institution to 22 developing countries was diverted to financial paradises.
The report made a lot of noise because it emanated from the structures of the World Bank itself, and because it certified that the agency’s payments to these 22 countries – 18 of them African – which are the most dependent on aid from the financial institution, “coincide with a significant increase in deposits in tax havens.”
It is not surprising that the publication of the report was stopped, since it accused the institution of stoking up this trend. On February 13, 2020, the British weekly journal, The Economist, noted that WB leaders had disapproved of the study’s findings and were therefore delaying its publication.
It is nothing new that African economists denounce the deficiencies of the World Bank in financing and controlling projects. In addition, they have sometimes highlighted the undesirable collusion between members of the institution and some African leaders and/or politicians. This is why, as the report points out, a part of the hundreds of millions of dollars that go to Africa in the framework of development aid ends up in tax havens, becoming illegal profits secretly secured.
18 African nations
The African countries featured in this report are Burkina Faso, Burundi, Eritrea, Ethiopia, Ghana, Guinea-Bissau, Madagascar, Malawi, Mali, Mauritania, Mozambique, Niger, Rwanda, Sao Tome and Principe, Sierra Leone, Tanzania, Uganda, and Zambia.
It is clear that the report directly questions the effectiveness of the World Bank’s actions. Payments that should promote development have contributed to more corruption in poor countries. Specifically, it can be read: “These payments coincide with a significant increase in transfers to offshore financial centers known for their fiscal opacity”, particularly in Switzerland, Luxembourg, the Cayman Islands and Singapore.
The report, which analyzes a 20-year period (1990-2010), indicates that the capital “tax evasion rate” is averaging close to 7.5%. For some of the countries receiving aid, it even reaches 15%, when the funds represent at least 3% of the Gross Domestic Product (GDP). Burundi, Guinea-Bissau, Eritrea, Malawi, Mozambique, Sierra Leone, and Uganda are in this situation. On the other hand, when aid amounts to 1% of GDP, deposits in tax havens increased by 3.4%. In the same period, it was found that deposits are zero or almost zero in countries that are not tax havens. Some other data confirms that, in some countries, deposits in tax havens represent significant sums. For example: Madagascar, $193 million; followed by Rwanda (149), Tanzania (145), Zambia (117) and Burundi (103).
The tip of the iceberg?
The report does not emphasize the responsibility of executives or the working mechanisms of the World Bank, so this practice can be defined as institutionalized clientelism. According to Pape Demba Thiam, a Swiss-Senegalese economist who has worked for 14 years at the World Bank, “this means that the study actually focuses only on the emerging part of the iceberg, and it is no coincidence that the institution has tried to censor it. There is supposed to be a deeper corruption of African leaders.” According to Yves Ekoué Amaïzo, Togolese economist and politician, director of Afrocentricity Think Tank, the World Bank has built, with total impunity, a system of corruption and irresponsibility of the elites of poor countries.
In any case, the report shows the deficiencies in the management of aid granted to the most fragile countries – which do not take full advantage of them – to the detriment of the weakest sectors of the population. What emerges from this research would require a response from the highest levels of the international institution, precisely because its mission and role are questioned.
Meanwhile, the consequences of this tax evasion have strong repercussions on the economies of African countries. Although the report does not quantify the damage that countries are suffering as a result of aid diverted to tax havens, it should be remembered that, according to United Nations studies, if Africa were able to reduce illicit financial outflows, it could have access to 89 billion dollars a year, a figure that is reached from the sum of capital flight, illegal tax and commercial practices – such as false invoicing of commercial exchanges – and criminal activities that run illegal and corrupt markets.
On September 28, 2020, Mukhisa-Kituyi, Secretary General of the United Nations Conference on Trade and Development (UNCTAD), said: “Illicit financial flows deprive Africa and its people of future prospects, undermine transparency and responsibility, and they break trust in the institutions of the continent.”
Between 2000 and 2015, capital evasion from Africa totaled $836 billion. If we compare it with the total external debt of the continent, which in 2018 was $776,000 million, we perceive that Africa is, in fact, a net creditor of the rest of the world.
25 billion evaded each year
Tax evasion costs Africa more than $25 billion a year. This is what emerges from a study conducted by a network of non-governmental organizations, including the Global Alliance for Tax Justice. In a time of fighting the pandemic, this evasion is considered “unacceptable”, since, among other considerations, it reduces the income that African countries could dedicate to health. According to these organizations, multinationals – local or foreign – that operate in Africa have withdrawn 23 billion dollars from the countries where they work. To this sum, just over 2 billion that rich Africans have transferred to tax havens must be added. The country most affected by this phenomenon is Nigeria, followed by South Africa, Egypt, and Angola. But even a country like Mauritius, considered by some to be a tax haven, is a victim of this phenomenon, with an estimated loss of 60 million dollars. As a recent OCSE report revealed, this evasion is not always illegal, as many multinationals, particularly in the mining sector negotiate advantageous tax conditions with the states in exchange for their investments. But, legal or not, this capital evasion hampers the economy of these countries. The Global Alliance for Tax Justice estimates that tax evasion in Africa accounts for, on average, half of state health budgets. If that money stayed on the continent, 10 million more nurses could be hired a year.