Pandora Papers and Africa: revealing but not surprising
Loic Venance/AFP
In the Papers, there are almost 50 politicians and public officials from Africa, including heads of states, who funnel their wealth to tax havens. President of Kenya, Uhuru Kenyatta is one of them. When he announced his candidacy for the presidential elections of 2013, he was portrayed as being "too rich to be corrupted". He made ambitious commitments on fighting against corruption and improving transparency. However, Pandora papers reveal that Kenyatta and other members of his family have several companies and foundations registered in tax havens. It is not clear for the time being, whether Kenyatta declared these offshore entities to the Kenyan authorities or any corruption involved. Yet the most crucial question is why he ventured into tax havens despite being exceedingly wealthy.
As Pandora papers demonstrated, Kenyatta is not alone in this endeavour. The President of Congo, Denis Sassou-Nguesso owns a firm that controls the diamond deposits of his country. The Gabonese President Ali Bongo is the biggest partner and manager of two shell companies registered in tax havens. We understand that it is not limited to high-level political elite since there are scores of entities and officers in the revelations. Around 25% of individual wealth in African countries is estimated to be held in such overseas tax havens
Leading African politicians and their close associates appeared in the leaks. Source: icij.org
A closer look into Pandora Papers reveals quite clearly that the illegal financial flows (IFF) from the western and southern Africa are higher than the eastern and central parts of the continent. Oil and mineral exporting countries are at the forefront. However, the leaks and the reports on IFFs from African countries do not fully overlap. For instance, Equatorial Guinea, Togo, Ethiopia and Zambia were mentioned in the African Union's 2019 report as being among the top 10 list of IFFs origin-countries in Africa. However, they do not stand out in Pandora papers nor as was the case in the previous leaks. It is partly due to the fact that the leaks concern a fraction of the accounts registered in tax havens. For example, the British Virgin Islands, one of the outstanding tax havens in the Pandora documents, is represented only by three companies. Moreover, we do know the proportion of leaked number of individuals and entities in the overall customer portfolio of these companies.
Top African countries whose entities and officers mentioned in Pandora Papers. Source: icij.org.
On the other hand, the media and public mostly focus in the leaks, on the high-level political elite (power players) such as Kenyatta, Sassou-Nguesso and Bongo. Yet, it is estimated that 65% of IFFs from African countries stem from trade misinvoicing. Considering that the economies of African countries are informal at a rate of 60-70%, this is in line with the general picture. The remaining 30% originates from criminal activities and 5 percent from corruption. Overall, the annual IFFs out of the continent are assessed to be around 90 billion dollars. This figure is almost twice the development assistance provided by the international community to Sub-Saharan Africa.
When it comes to the motivations to stash money in tax havens, it is obvious for criminal groups that can in no way declare revenues generated from illegal activities such as trafficking persons, weapons and precious metals. Large local companies and multinational corporations, on the other hand, vie for paying the least possible amount of tax. As for politicians and senior public officials, they scramble to protect their wealth, which is largely earned through corruption or by violating professional ethics. Their fear is not at all unfounded. As seen in the case of Angolan ex-President Dos Santos and his family, the possibility of being held accountable some day for pillaging public funds, urges the corrupt political elite to transfer their ill-gotten wealth abroad.
Whatever the motivation, the IFFs hinder the development of African countries. Eroding the tax base, IFFs reduce state revenues, which could be spent on basic public services such as health and education. As a direct consequence, millions of people die in African countries from preventable diseases each year. Almost half of the Sub-Saharan African population live below the poverty line, and the majority of continent's population does not have access to electricity.
And the IFFs out of the continent show no sign of decreasing, despite reducing the IFFs has been on the agenda of the international community for at least 10 years. The Agenda 2063, the AU’s "blueprint and master plan" for development in Africa, emphasizes the need for preventing IFFs in order to put an end to dependency on development aid and to ensure economic and social development of the continent.
The UN's 2030 Agenda for Sustainable Development as well, sets the objective of “reducing significantly the IFFs by 2030”. In fact, similar unilateral and multilateral initiatives have led to some concrete results. For instance, thanks to the Kleptocracy Asset Recovery Initiative of the United States and the Stolen Assets Recovery Initiative of the World Bank, almost half a billion dollars, stolen by the former head of state Sani Abacha, returned to Nigeria. However, this is a drop in the bucket compared with 90 billion dollars, the annual sum of IFFs from Africa.
What is worse, despite being at the forefront in the fight against IFFs, the Western countries namely the USA, the UK, Netherlands, and Switzerland plays a significant role in the pillage of Africa’s capital. It's no coincidence that London is full of wealth managers, law firms and accountants serving the world's wealthiest. The British overseas territories, namely the British Virgin Islands, Bermuda and Cayman Islands, are not included in the EU’s list of tax havens. Even though the USA, Switzerland, Luxembourg, and the Netherlands are among the top 10 countries in the financial secrecy index of the Tax Justice Network, they do not appear in any list of tax havens. As a matter of fact, Pandora documents revealed that some states of the USA have turned into tax havens.
Under these circumstances, while leaks such as Pandora papers draw public attention to the root causes of social and global inequalities, they have little or no impact on preventing the IFFs from Africa. In this context, it is understood that Africa's persistent problems, arising from social and economic inequalities, will remain unaddressed as long as the continent's political and economic elite continue stashing their ill-gotten wealth in tax heavens, and as long as the international community does not tackle the issue with honesty and integrity.
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