Africa’s inequality linked to billions hidden in Europe

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By Guest Writer on February 24, 2015. No Comments

Reports of clandestine monies from African countries stashed in a Swiss bank have grabbed international news headlines according to the East African. Secret bank accounts in the HSBC’s Swiss private banking arm unearthed this year by the International Consortium of Investigative Journalists (ICIJ) were said to hold over USD 100bn, some of which came from Africa, including some of the poorest nations on the continent. When these funds leave the
region, they deny the very nations that need them most. For example, at least 57 clients of the Swiss HSBC bank associated with Uganda were reported to be worth at least USD 159m whilst the World Bank has estimated that Uganda loses more than USD 174.5m in corruption annually.

It is not a crime for Africans to have a Swiss bank account. But questions are now being raised by local tax offices as to whether the proper taxes were paid on the stashed amounts. In South Africa, one of the heads of the Revenue Service, Vlok Symington, said his office was analysing the information. “Early indications are that some of these account holders may have utilised their HSBC accounts to evade local and/or international tax obligations,” Symington was reported as saying to South Africa media.

“Income inequality begins with our political leaders and corrupt wealthy business people who, more often than not, illicitly own the resources of the continent,” Claris Madhuku, director of the Platform for Youth Development, a democracy lobby group in Zimbabwe, told IPS.

Diamonds, for example, which have made many traders wealthy, are often mined by the poorest of the poor, who are treated almost as slaves in war-torn African countries, despite the Kimberley Process Certification Scheme, which was established in 2003 to prevent the flow of these diamonds.

Development experts have attributed the income inequalities to the continent’s lax anticorruption laws. “African countries do not have sound anti-corruption laws and politicians and the rich amass too much power exceeding even the powers of the police here, leaving them with the liberty to accumulate wealth overnight by whatever means without being questioned,” Nadege Kabuga, an independent development expert in Kigali, Rwanda’s capital,
told IPS

Writing for Financial Transparency Coalition, a global alliance of civil society organisations and governments working to address inequalities in the financial system, Koen Roovers, the coalition’s European Union (EU) Lead Advocate, asked the deeper question: “How do we prevent this in the first place?” To catch fraud sooner rather than later, capacity in developing countries must be increased, Roovers said. “The scale of the challenge is significant: the UK-based charity Christian Aid has estimated that SSA would need around 650,000 more tax officials to reach the world average.” Rich states have promised help to poor countries to build the capacity they need, but these commitments have yet to be honoured.

Researchers at the US-based Global Financial Integrity, a non-profit organisation working to curtail illicit financial flows, said developing nations have lost almost USD 1tn through illicit channels. Without clearly defined measures to curb income inequalities, economists say the African continent may be headed for the worst levels of poverty set to hit even harder at the already poor. “Africa may keep facing perpetual poverty amid rising income inequalities
because governments here have no institutions and expertise to identify and halt money laundering by corrupt wealthy individuals and politicians evading tax,” Zimbabwean independent economist, Kingston Nyakurukwa, told IPS.

Management of revenue collection remains a key challenge for fiscal authorities throughout SSA due to corruption and the efforts of criminals and tax dodgers. We thus believe that it would be prudent for SSA governments to invest more resources into capacitating their revenue collections departments and tightening tax loopholes as this will go a long way towards reducing their budget shortfalls and need for donor support. It would also help increase the amount of funds available for them to invest into social development and poverty alleviation.