Thursday, March 06, 2008

'International Thieves': Western Corruption and the Third World Financing of the Rich

Pan-Africa and the Third World are certainly on the move insofar as the west’s colonialist and racist perceptions of African and Third World people are concerned. However there are certain areas in which negative perceptions of African and Third World peoples are deeply entrenched, and will require specialized forms of informed and analytical critique to address them. Making these perceptions even harder and more complicated to deal with are tendencies within a few pockets of elites amongst African and Third World peoples themselves to pass on opportunities to address the global nature of some of the problems. The perception of corruption in Africa and other Third World countries offers one example where negative images of the global South persist, and are not adequately challenged by those endogenous elites in a position to make a difference. The story of the perception of corruption in Malawi, the staggering levels of capital flight from African countries, and the shortchanging of Zambia’s copper industry serve to illustrate the injustice of Western institutions in their hypocritical indictment of Third World corruption.

Contrary to his high profile and widely quoted pledge to stamp out corruption in Malawi made at his swearing-in ceremony in May 2004, President Bingu wa Mutharika is said to have conceded in February this year that corruption is rampant in Malawi. This follows from news that the country’s Corruption Perception rankings dropped 28 places in 2007, from 90 to 118. This has been the trend since 2001 when the International Monetary Fund, the World Bank and other major donors halted aid to the country, citing widespread corruption, amongst other reasons. It was the same story in 2005 when Transparency International released its 2004 National Integrity Systems TI Country Report.

That 2005 TI report was written by the late Nixon Khembo, who at the time of his death in December 2005 was a political scientist in the University of Malawi. In October 2007 the United Nations Office of Humanitarian Affairs’ Integrated Regional Information Networks (IRIN) reported worsening corruption in Malawi, following the release of the 2007 Corruption Index from Transparency International. The report quoted a top Malawi government official, Henry Chimunthu Banda, then minister of energy and mining (now in transport), and erstwhile acting president while President Bingu wa Mutharika was attending the UN General Assembly, and two other civil society activists, as all agreeing with the TI assessment.

The IRIN report quoted Chimunthu Banda as observing that government was the largest employer in Malawi and therefore numerically more prone to corruption amongst public officials. Mabvuto Bamusi, national coordinator of the Human Rights Consultative Committee (HRCC), attributed the problem of corruption in Malawi to parliament’s refusal to approve the president’s choice for the position of director of the Anti-Corruption Bureau, adding that economic inequality and its resultant poverty were also part of the problem. Charles Kumbatira, executive director of Malawi Economic Justice Network (MEJN), said government had intentions to root out corruption but they needed to be matched with political will and action.

And commemorating the 2008 national anti-corruption day on February 5th in Malawi, President wa Mutharika is said to have “conceded that corruption is rampant in Malawi’s three arms of government, namely judiciary, legislature and the executive.” This was reported by the internet-based newspaper, Nyasatimes. Hot on the heels of the president’s acknowledgement came a report from the International Foundation for Electoral Systems (IFES), which put it in no uncertain terms that Malawi was indeed a corruption-ridden country, as evidenced from a late 2007 survey which indicated that 71 percent of Malawians perceived the country to be thus. Despite the survey reportedly interwiewing respondents on their “perception” of corruption in Malawi, an IFES researcher, Rola Abdul-Latif, was quoted by Malawian newspaper The Nation as saying “It is not a secret. Malawi is a corrupt country. Corruption has not decreased from 2006.”

It is to their undoubted credit that Malawi’s political and civil society leaders acknowledge the existence of widespread corruption in the country. That first step is always necessary in attempting to address any problem. Beyond this acknowledgement that corruption is a big problem in Malawi however, there is also an urgent need to come to a deeper understanding of the broader aspects of corruption at the global level, in which Africa and other Third World countries are cheated out of billions of dollars every year by the very western institutions that go on to construct Africa as the most corrupt continent. Africa and the Third World pay a huge price when this perception and the corruption of the West itself go unchallenged. The complicity and facilitation of dominant and anti-Third World corruption indexes in this unjust practice need to be exposed.

The Western-based dominant indexes on corruption have a design that is automatically skewed against African and Third World countries, and unfairly tipped in favor of Western countries. The Tax Justice Network (TJN), formed in January 2007 at the World Social Forum in Nairobi, has been doing some ground breaking work in uncovering the design flaws of this paradigm. The TJN have been exposing the duplicity of these indexes and their anti-Third World bias. The work of the Tax Justice Network brings to light the massive corruption orchestrated by Western corporations with the facilitation of their governments, in plundering Africa and other Third World countries. TJN’s John Christensen was quoted in a 2007 radio documentary by Asad Ismi and Kristin Shwartz as saying for every $1 of so called “aid” money, $10 of corrupt money leaves Africa and goes to the West. And in his paper titled “Mirror, Mirror on the Wall, Who’s the Most Corrupt of All,” presented at the 2007 World Social Forum in Nairobi, Kenya, Christensen describes how recent IMF stipulations for Third World privatization have opened up off shoring, money laundering, and tax evasion, all of them highly corrupt practices that none of the famed corruption indexes measure. Christensen attributes part of the problem to Transparency International’s definition of corruption: “the misuse of entrusted of power for private gain.”

According to Christensen, that definition focuses on corruption by public officials, but misses corporate directors and financial intermediaries who are responsible for most corruption, especially tax evasion and trade mispricing. As a result, Transparency International’s Corruption Perception Index (CPI) identifies Africa as the most corrupt continent. Ironically, 53% of countries said to be least corrupt by the TI index are offshore tax havens, where most of the corrupt money goes, and is never accounted for as tax returns owed to Third World countries. These tax havens include New Zealand, ranked the #1 least corrupt country; Singapore, ranked #5, Switzerland ranked #7.

At the African Studies Association annual conference in New York City last November, South African scholar Mvuselelo Ngcoya pointed out how Switzerland, ranked one of the least corrupt countries in the world, is home to the biggest commercial deposits of gold in the world, yet it has no known deposits of gold underground. All of that gold is extracted mostly from South Africa, Ghana, and other Third World countries known to have the biggest natural deposits of gold. The story of late Nigerian dictator needs no elaborate discussion here, taxpayer billions from an African country being deposited in Switzerland, with the African country being labeled one of the most corrupt countries in the world, and Switzerland one of the least.

Christensen has observed that a conservative estimate of US$1 trillion of dirty money crosses borders, with 50% of it being extracted from developing countries, and being deposited in Western countries. Capital flight from Sub-Saharan Africa is estimated at $274 billion per year, according to figures Christensen cites from the African Union. Developing countries have lost approximately $385 billion in undisclosed tax revenues, an indicator of the enormity of Western corruption which Transparency International, IFES, etc, never mention.

Christensen argues that there’s an urgent need to rethink the definition of corruption and its perception. He quotes Dr. Patrick Darling who says: “With one hand, the West has pointed the finger at corrupt African leaders, with its other hand, its bankers, lawyers,
accountants, art dealers, health authorities, universities, estate agents and embassies have been actively or passively encouraging wealth out of Africa into the West's economies.”

There’s little hope that any such change is imminent, but the effort must continue being a goal for African and Third World countries. Says Christensen:

The principal barrier standing in the way of progress towards achieving these goals is the lack of political will on the parts of the leaders of the OECD nations, most notably Switzerland, the USA and the UK, all of which are leading tax haven states. This lack of political will stems largely from the fact that western leaders, who point fingers at corrupt politicians and public servants in poorer countries whilst conveniently ignoring the harmful role of the offshore interface, are all too aware of the extent to which their own economies have become geared to dependence on capital flows from the poorer countries. They get away with this because public perceptions in the west have been shaped to pay no attention to the offshore interface. The CPI has done nothing to change this situation (Christensen, 2007, p. 16).

The effort to redefine corruption and put emphasis on how wealthy western countries are directly involved in corruption in African and Third World countries needs to especially focus on what is known as capital flight. Amit Basole, staff economist for the Center for Popular Economics (CPE) at the University of Amherst, points out how what was a US$40 billion net inflow of money into Third World countries has now reversed into a US$657 billion net outflow (cited from Ortiz, 2007; Boyce and Ndikumana, 2000). In an article on the CPE’s Econ-Atrocity blog, Basole points out that Sub-Saharan Africa alone has injected into the Western economies US$193 billion over a 26 year period, with most of it ending up in the US economy. “The insanity of this situation puts a question mark on the entire logic of the international financial system,” writes Basole.

He identifies three mechanisms through which Third World countries finance developed countries, namely, repayment of debt, accumulation of foreign exchange reserves, and trade mis-pricing. One of the most bizarre cases that exemplify the insanity of the international finance system and how it traps Third World countries into unending debt was explained by Ken Wiwa, son of the late Nigerian writer and activist Ken Saro Wiwa who was executed by the Abacha regime in 1995. Reacting to news that Nigeria was going to be forgiven US$18 billion of debt, Wiwa wrote in the Guardian of London in July 2005: “it is as well to consider that the original debt was $5bn, and my country has paid back $16bn interest. And yet the books say we still ‘owe’ $35 bn!”

For instances of trade mispricing, Zambia’s case is illustrative. Asad Ismi and Kristin Schwartz’s radio documentary produced from the 2007 World Social Forum in Nairobi quotes Charles Abugre of the Tax Justice Network who spoke of how Zambia was being ripped off through trade mis-pricing. One example was how in 2004 the copper industry in Zambia under-reported its profits at US$1 billion, out of an estimated US$2-3 billion. Due to the low profit declared officially, Zambia received only US$8 million from the industry. Another example from Zambia appears in the March 2008 issue of the New African, in an article by Reginald Ntomba.

Ntomba writes that in the 2005-2006 fiscal year, the mining sector made US$4.7 billion. Out of that amount, the government of Zambia only obtained US$142 million in taxes, owing to tax concessions forced upon Zambia during the IMF and World Bank push for Zambia to privatize its mining industry (p. 47). It is this IMF and World Bank pressure to privatize, Ismi and Schwartz argue, that lies at the root of the explosion of global corruption in African countries.

On their own accord, the misperceptions and inaccuracies of corruption indexes in Africa and the Third World are enough to warrant urgent redress in the images they create of perpetually dysfunctional countries. But truth and honesty, though important in and of themselves, are not sufficient. Effective solutions to African and Third World problems require methodologically solid, analytically effective and ethically honest appraisals, otherwise the cycle of unworkable solutions and worsening consequences will keep repeating themselves.


Anonymous said...

A well written piece. We need to introduce a course in all African Universities on "How the West impoverishes Africa through unfair and unethical economic relations, especially capital flight, which is what keeps Switzerland etc above water.

blackstone said...

Excellent piece. I applaud you for spreading the information. There is a lack of coverage and awareness on the pillage of Africa and how Africans are not benefiting from the resources being extracted from their communities. On my blog i also have been posting news on the Zambia strikes, as well as strikes in Zimbabwe, Mali and Egypt.

Keep it up.

I will add your link to my blog.

Chola Mukanga said...

An interesting piece.

The real question of course is whether this matters? I suspect not if the article proves anything it is certainly that the TYPE of corrupt is more important than corruption per se.

Switzerland may be more corrupt than Nigeria, but it is Nigerian led corruption that does more immediate harm to the poor. Labelling Switzerland as more corrupt than Nigeria would do nothing but give more comfort to the corrupt Nigerian politicians.

I think the example of Zambia is actually misleading. As I have argued on my blog previously, the Zambian government was NOT forced to take on the concessions. Our politicians simply saw an opportunity to benefit and exchanged national assets for personal gain. That we have not had a single investigation into the Development Agreements is proof of that fact. Why else has the Zambian government not opened a Public Inquiry into the matter?

lefobserver said...


Anonymous said...

As always there is consistency among third world countries (Asia, Africa, Latin America)regarding failure to understand the true spirit of freedom after post colonial rule. The impoverished confusingly enslave themselves under the rich men's wings for protection and daily life consumption.

Anonymous said...

Haha, I placed a wrong URL. I corrected it so can check more on my personal ideas on world politics.

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