ActionAid is a global movement of people working together to further human rights and defeat poverty for all.

Dipping Away: Why poor countries stay poorer and rich nations stay richer

Sunday, December 10, 2017 - 14:11

When I worked as a broadcast journalist, reporting exciting and breaking news for one of Ghana’s television news networks, one of my favourite events to cover was the Judgement Debt Commission sittings. Implemented by the former President of Ghana, John Mahama, the sittings were intended to investigate judgement debt payments made by government and state institutions.

I would receive an e-mail invitation from Mr George William Dove, Public Relations Officer of the Commission, and will be assigned to the public hearing by my editor.

Arriving at the Old Parliament House, my camera man would set up as I read through the proceedings for the day, doing brief checks on the representatives of the organisations appearing before the commission and reading about their “less-than-an-oversight” payment of judgement debts. My fellow reporters and I, along with individuals and representatives of the organisations on stand, would all rise as Sole Commissioner, Justice Yaw Apau, entered the room. After each proceeding, engulfed and mesmerised by Justice Apau’s no-nonsense and intense method of interrogation, I would walk out of the office of the Commission broken; aware of the structural gaps and systemised network of corruption that was emptying Ghana and other African states of its coffers. I was perfectly aware of the hands that were taking from the people, they were hands of the people that were entrusted with protecting and safeguarding the states’ money.

Corruption amidst government officials and within state departments in Africa has gone from being undeniable to acceptance. Millions of debts are incurred; billions are spent on infrastructural work that should cost only a few million cedis, members of government and state officials do not hesitate in splurging money; buying expensive four wheel drives for themselves, their family members and anyone in their good books. When atonement comes and the staggering billions of dollars spent unscrupulously by government cannot be hidden anymore, I find it heart-wrenching and frustrating to be an African; especially one that dutifully pays tax.

The “not-so mutually” beneficial relationship

Taxes are crucial to the development of any country and contribution of money is instilled in us from basic school; when teachers would select a classmate to collect an amount from everyone in class for either an excursion or to buy a gift for a sick mate. It is the same with taxes. Ghanaians pay taxes (though it is heavily tasked on the middle and working class) so that government can use the money to build infrastructure, provide better services and ultimately ensure sustainable development. It true, governments do not have it easy either, taxation on the African continent has proven very difficult due to lack of capacity and the inability to mobilise domestic resources. Coupled with dwindling of state resources due to corruption and careless spending, African countries, like Ghana, are prone to run into debts, and what do you do when you see your friend has run into trouble? You help them. Like the way many international and multinational companies and organisations have been “helping” Ghana.

Multinational companies are important to developing countries because they offer jobs. The more majority of the people have jobs; the larger the amount of tax collected; the more government can invest into providing basic services and needs like access to quality healthcare, education, etc. Roads can be built and expanded, enhancing effective and efficient transportation of foodstuff from rural farming communities to markets and industrialised factories for processing, ensuring food security but most importantly – money in the hands of farmers and the population – so they can make a living, subsequently driving down poverty and keeping food insecurity at bay. In turn, multinational companies benefit from the opportunity to expand their international reach, make higher profits and diversify their markets.

Seems good enough eh? This mutually beneficial relationship between multinational companies and developing countries.

Not quite.

High-costing “friendships”

Assistance offered by multinational companies to developing countries come at high costs. One that, I believe, is simply not worth it.

Governments of developing countries compete against each other for foreign investment. To attract multinational companies and organisations to operate in their economies and in turn, effectively increase job availability and the rate of employment, they offer tax incentives.

This system, as evidenced by the ever growing level of inequality in the world, is perfectly addressed in, “Aid in reverse: how poor countries develop rich countries”, where Jason Hickel, writing for The Guardian, discusses how companies are structured to make profit; and how tax havens and incentives enable this rich-keeps-getting-richer-whilst-the-poor-keeps-getting-poorer system to continue and grow.

Designed to boost economic growth, tax incentives are offered to attract and keep businesses, so as to increase investments into the economy of that country. This benefit should be two-thronged, with both sides profiting. However, various researches have revealed that benefits of this tax regime hugely favours developed countries, further driving the inequality divide in developing countries.

In 2015, ActionAid released the report, “The West African Giveaway: Use and Abuse of Corporate Tax Incentives in the ECOWAS”, which estimates three African countries (Ghana $2.27 billion, Nigeria $2.9 billion and Senegal $638.7 million) losing a combined $5.8 billion by granting corporate tax incentives to multinational companies, at the expense of investing in smaller and domestic industries.

This system also feeds corruption, with special treatments being given to multinational companies by governments to not only attract but keep them.

Oxfam further validated this through the release of its new report; An Economy for the 99%. The report estimates that just the top eight of the richest people in the world own the same wealth as the poorest half of the world.

Using the Forbes Billionaire List, Oxfam tallied up the net wealth of these eight men, who are led by Microsoft founder, Bill Gates (worth an estimated $75 billion), and discovered their combined net wealth to be $426 billion – more money than 50% of the poorest people in the world

Operating large commercialised businesses, the richest people in the world run companies that thrive on reducing wages and increasing the workload of employees, allowing the very few people who own major companies to accumulate mass wealth, whereas the rest of the world grows poorer.

The explosive Panama Papers revealed that majority of these businesses invest their monies in countries that offer tax havens, another system designed to help the rich from paying taxes and contributing their quota to development.

According to Oxfam, just one out of the ten biggest organisations in the world does not have presence in tax haven countries.

The hands that are emptying Africa of its billions and preventing our growth and sustainable development, are not only state and appointed officials’, they also belong to multinational companies and so-called “aid” agencies, who draft policies that favours them and disadvantages African countries.

With global inequality ever increasing, strong policies are needed to be implemented by poor countries and backed by the rest of the world; to address the abuse of tax incentives and reduce the presence of tax havens, effectively bringing the rest of the world to a “reasonable” par with the rich 1% and decreasing the inequality gap.

Written by: Deborah Smallie Lomotey, Communications Officer, ActionAid Ghana.