While discussing the international development related issues, We come across the West and the Rest relationship, and how the rich world has generously embarked with the other one on its journey to fight poverty and to push up the development ladder.
For obvious reasons, this article will not discuss the negative impact of colonialism and slavery trade. We got over ourselves and understood clearly that bringing past on the table will only make the analysis sound weaker.
That being said, what if I tell you that poor countries pay an amount of money equal or superior to the given Aid…
In 2012, developing countries received a total of $1.3tn, all aid, investments, and income from abroad included. However that same year $3.3tn flowed out of them. In other words, the rest sent $2tn more to the west in comparison to what they received. If we look at all the years since 1980, these net outflows add up to an eye-popping total of $17.6tn – that’s how much money has been drained out of the global south over the past few decades. To get a sense of the scale of this, $17.6tn is equivalent to the US GDP.
You’ll ask, what are these outflows about?
Well, most of it is debt’s repayment. Global south countries have forked out over $4.2tn in interest payments alone since 1980 – a direct cash transfer to banks in London and New York, on a scale of Gulliver in the Lilliput Island. Another big contributor is the income of foreign investment repatriated home. Think of all the profits that BP extracts from Nigeria’s oil reserves for example, or that Anglo-American pulls out of South Africa’s gold mines, not to mention the colonial taxes still being paid yearly by 14 African countries. (I know I promised not to include any colonisation related argument but couldn’t resist mentioning this one, sorry)
But by far the biggest outflows dwarfing poor countries’ income are unrecorded transactions – usually illicit. The global south countries have lost a total of $13.4tn through unrecorded capital flight since 1980.
Again, How this happens?
Most of these unrecorded outflows take place through the globalisation system. Basically, corporations report false prices on their invoices in order to transfer money out of poor countries to tax havens and secrecy jurisdictions, a practice known as “trade mis-invoicing”. Or a simple shift of profits between subsidiaries by mutually faking trade invoice prices on both sides (which by the way is very much illegal). Usually the goal is to evade taxes, but sometimes this practice is used to launder money or circumvent capital controls. In 2012, developing countries lost $700bn through trade mis-invoicing, and roughly another $700bn through invoice faking (the amount is approximate because the practice is very difficult to detect) against the $1.3tn received in aid that same year.
If I’ve done my maths correctly, for every $1 of aid that poor countries get, they lose $24 in net outflows. These outflows strip developing countries of an important source of revenue and finance for development.
No need to be a genius to establish that those outflows are hindering economic growth and perpetuating extreme poverty all over the global south region.
Who is to blame for this disaster?
Let’s start with the ILLEGAL corporations’ outflows: corporations that lie on their trade invoices are clearly responsible; but why is it so easy for them to get away with it? Before 1995 customs officials could hold up transactions that looked dodgy, making it nearly impossible for anyone to cheat. But the creation of the World Trade Organisation – WTO carried thing away, and made the situation out of control. It claimed that those customs practices made international trade inefficient, and since then customs officials have been summoned to accept invoiced prices at face value, except when the situation is extremely suspicious and inconsistent. Even so, we still have tax havens, which are mostly controlled by a handful of rich countries. There are European tax havens such as Luxembourg and Belgium, and US tax havens like Manhattan. But by far the biggest winner of tax havens is concentrated in the City of London, which controls secrecy jurisdictions through the British Crown Dependencies and Overseas Territories.
In other words, the same countries that love to brag about their foreign aid contributions so much are the ones enabling theft from poor ones.
Poor countries don’t need charity. They need justice. And justice is not difficult to deliver. The excess debts of these countries can be written off, and it is what the Committee of the Abolishment of the Illegitimate Debt (CADTM) has been actively preaching since 1990 after the Bastille Appeal in France, freeing those countries to spend their money on their economic development instead of eternal loans payments. Impose penalties on the banking system facilitating illicit outflows and giving incentives to corporations, and fight to close down secrecy jurisdictions
Why are those facts not as advertised as aid, then?
Because history is written by the survivors…
Written by Nawal Allal