No doubt who's still boss as rich nations rally to water down African push for multinationals to stop dodging tax

Ethiopia summit fails to strike deal on the one issue that showed just how deep the North-South divide remains

AN international meeting that had held huge promise for Africa failed to reach a deal on an issue that had once-again thrown up the rich-poor divide, as wealthy nations struck down demands for more transparency on tax avoidance by their multinationals operating on the continent.

The Financing for Development summit in Addis Ababa had identified fair taxation as a key agenda, but the meeting ended up in the odd position of rich nations, from which most of the multinationals in Africa come from, instead arguing for less transparency.

The official position was one of compromise, where rich nations mainly under the Organisation for Economic Co-operation and Development (OECD) would seek to “enhance” transparency and “reduce opportunities for tax avoidance”, but it essentially was a watering down the popular text that had called for full transparency.

Seeking more funding

African nations, which form the majority of developing nations, had sought to extract more financing for the next phase of the development push as the Millennium Development Goals (MDGs) run out this year, and the will struggle to see the gains from this, even as the UN was at pains to term the resulting agreement “historic”. 

Its leaders will seek to put on a brave face, but they will have been sorely disappointed.

“A strong international tax regime is crucial for eradicating poverty. We, therefore, look for agreement on tax in Addis,” Kenyan President Uhuru Kenyatta had said in his opening speech to the summit.

“Illicit money flows and tax evasion are costing Africa between $30-$60 billion a year. This is more than the total development aid,” said Senegal’s President Macky Sall as the three-day summit started off on Monday.

The OECD success mean’s the “rich man’s club” retains control of the agenda on the issue on profit-shifting, which the UN’s trade and development body UNCTAD says costs poorer countries up to $100 billion a year.

Campaigners and the 134-member G77 bloc had argued for the creation of a UN-managed intergovernmental body charged with overseeing a new set of global fiscal regulations that would circumvent the accounting tricks multinationals are regularly accused of.

The continent has argued that multinational enterprises usually take advantage of corruption and weak domestic regulation to avoid paying up the full amount of tax that is due.

Aid agency Oxfam had called the existing system a “robbery”. Its director, Winnie Byanyima, alluded to US probe findings on American construction conglomerate Caterpillar.

The Caterpillar case

Its Senate found that “Caterpillar had almost 30% of its employees in Asia and Africa, made 30% of its sales in Asia and Africa—but recorded only one percent of its profit in Asia and Africa. Eighty percent of its profit went to a tax haven,” she said.

Nobel laureate Joseph Stiglitz too added his voice. Advanced countries had made commitments on (Overseas Development Aid) that they were not meeting, he told news agency AFP.

“But at least they shouldn’t be doing harm. At least if they’re not going to give money, let’s not undermine the ability of the developing and emerging markets to collect money that is rightly theirs.”

Rich nations argue that any new body would have turned into a talk shop, hobbled from achieving any deal by the myriad of muti-country interests at play. 

They have also been deflecting, by pushing for greater private sector involvement and for emerging economies like China, Brazil and India to share the burden. 

Vested interests

But it is easy to see into the opposition: keeping the tax agenda under OECD’s grip means they can continue to structure aid in such a way that their multinationals continue to access more African markets, and contribute more to coffers in their home domiciles.

The budgetary weight of the money paid by multinationals to African governments has been a key pillar of the urgency of the push to loosen up their purses.

A new report by UNCTAD showed that the affiliates of foreign multinational enterprises (MNE), as the transnationals are known, contribute about $730 billion annually or 10% of total government revenues in developing countries. 

And in a environment where aid has continued to be volatile as donors stutter on meeting targets made as far back as 1970, African governments are looking to raise more finances from their growth internally, as they look to make recent booming growth on the continent more inclusive.

The largest share of infrastructure financing now comes from government budgets—Cape Verde for example funds nearly half of its projects from its own pockets—but internal systems have remained weak, leading to leaking revenues in no small part aided by dated legislation that has struggled to keep up with the ever-shifting globalisation practices.

But African governments have often come of worse in their attempts to negotiate with multinationals, weakened by the still-deep need for outside investment and under pressure from their domestic constituencies to provide much-needed jobs.

Many are however slowly making progress as increases in tax-GDP ratios show, and talk of more innovative financing such as diaspora bonds increases, but it is a long process and would inform the need to pick the low-hanging fruit first.

But as Addis showed, there is little doubt as to who still calls the shots—transnationals are also very potent tools of foreign policy.

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