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Africa/Global: Debt, IFFs, and Inequality in Africa

AfricaFocus Bulletin
May 11, 2022 (2022-05-11)
(Reposted from sources cited below)

Books Recommended by AfricaFocus Bulletin

https://bookshop.org/lists/stop-the-bleeding-illicit-financial-flows-and-tax-justice/

The AfricaFocus Bookshop on bookshop.org contains multiple lists of books read and/or recommended by the editor on a variety of subjects, including books on African and global issues, mystery novels, and books of possible interest picked up at the numerous Little Free Library boxes in the Mount Pleasant neighborhood. Purchasing your books here is the best way to support the ongoing work of AfricaFocus, as AfricaFocus is no longer actively seeking voluntary subscription payments as contributions paid by check or Paypal.

The links in the AfricaFocus shop can only be used for books to be sent to mailing addresses in the United States. But many of the same books can be bought on https://uk.bookshop.org/ to be sent to mailing addresses in the United Kingdom. For AfricaFocus subscribers in other countries, please check with the publisher or with bookstores or distributors in your country. And, of course, you may also check with friend, colleague, or comrade to see if they can get the book for you.

The four highlighted below are, in my opinion, most useful as first books to read for the non-specialist for their clear writing and analysis, even though the first two were written approximately a decade ago.

Tax Us If You Can is also available in PDF format at https://www.taxjustice.net/cms/upload/pdf/tuiyc_africa_final.pdf and at�https://taxjusticeafrica.net/wp-content/uploads/2019/06/Tax-Us-If-You-Can-Why-Africa-should-Stand-up-for-Tax-Justice.pdf.

Demands for austerity and spiralling debt are �sabotaging� Africa�s COVID-19 recovery

April 19, 2022

https://panafrica.oxfam.org/latest/policy-paper/africas-extreme-inequality-crisis-building-back-fairer-after-covid-19

43 African governments are facing expenditure cuts totalling $183 billion (equivalent to 5.4 percent of GDP) over the next five years, reveals new analysis from Oxfam and Development Finance International (DFI) today. If these cuts are implemented, their chances of achieving the UN�s Sustainable Development Goals will likely disappear.

The Commitment to Reducing Inequality Index: Africa Briefing Paper shows that Africa�s debt burden is stifling post-COVID economic recovery and stagnating the public services necessary to reduce poverty and inequality. Africa�s debt burden has been climbing steadily, averaging 67 percent of GDP in 2021. Debt repayments are equivalent to 51 percent of African countries� budget revenue and 22 times more than their spending on social protection. Debt servicing exceeds spending on healthcare in all but six African countries, rising to 77 times more in South Sudan. The G20 countries have so far offered little relief: debt cancellation or suspension amounts to just $9.3 billion.

��Majority of African governments know and want to lift their citizens from poverty but their coffers are empty, so they need support instead of more pressure,�� said Peter Kamalingin, Oxfam�s Pan Africa Program director. ��At a time when poor countries are faced with increasing costs of living and with poor people unable to afford food, it cannot be the time to suffocate them with more austerity. That is the surest way to undermine recovery, widen inequality and destroy livelihoods.��

The index ranks 47 African countries on their policies on public services, tax and workers� rights. South Africa ranks first, followed by Seychelles, Tunisia, Namibia and Lesotho. At the bottom are South Sudan, Nigeria, Chad, Liberia and the Central African Republic. North Africa outperforms Africa�s other subregions, with Central Africa ranking last.

The analysis shows that African governments� failure to tackle inequality -- through support for public healthcare and education, workers� rights and a fair tax system -- left them woefully ill-equipped to tackle the COVID-19 pandemic. The IMF has contributed to these failures by consistently pushing a policy agenda that seeks to balance national budgets through cuts to public services, increases in taxes paid by the poorest, and moves to undermine labour rights and protections. As a result, when COVID-19 struck, 52 percent of Africans lacked access to healthcare and 83 percent had no safety nets to fall back on if they lost their job or became sick.

Quality public services are proven to reduce inequality. For example, they have reduced inequality by 34 percent in Namibia, 22 percent in South Africa and 19 percent in Benin. However, Africa�s unfair tax system is increasing inequality by 1 percent. In Tanzania and Tunisia, fair tax policies have slashed inequality by 10 percent.

Oxfam and DFI are urging the G20 to reallocate and waive off unnecessary conditionalities so that lower-income countries can access most of the $100 billions worth of IMF Special Drawing Rights (SDRs) with ease. They are calling for increased aid flows to Africa to increase access to inequality- busting public services and COVID-19 vaccines. The vaccination rate in Africa needs to increase significantly if the continent is to meet the 70 percent vaccine coverage target set for June 2022.

��That some governments have fared better than others at tackling inequality confirms we can end inequality if we make the right policy decisions. This must include taxing the wealthiest, curbing illicit financial flows, restructuring debt held by poor countries and ending the pandemic through equitable access to COVID-19 Vaccines and therapeutics.�� - Peter Kamalingin.

ENDS

Notes to editors

Download Oxfam�s�Commitment to Reducing Inequality Index: Africa.

Our analysis of the IMF�s COVID-19 loans�during the first year of the pandemic is also available for download.

Contact information: Victor Oluoch in Kenya �[email protected]

Africa�s Extreme Inequality Crisis: Building Back Fairer�after Covid-19

https://panafrica.oxfam.org/latest/policy-paper/africas-extreme-inequality-crisis-building-back-fairer-after-covid-19

Introduction

Africa is facing a crisis of extreme inequality which is undermining growth, preventing poverty eradication� and contributing to insecurity. The six richest African billionaires are now wealthier than the poorest 50% of Africans combined. This briefing paper shows that COVID-19 has deepened this crisis, and that the responses� of African governments and international financial institutions are making little difference as debt burdens� grow and austerity kicks in. While some African governments were doing a lot to fight inequality before� COVID-19, through equitable public services, progressive taxation and enhanced labour rights, especially� for women, most were not. The paper lays out a comprehensive plan of measures which could be taken� by African governments, the AU and the international community, including the EU, to significantly reduce� inequality,eradicate poverty, accelerate growth, and reduce insecurity throughout Africa.

Executive summary

Africa�s Crisis of Inequality, Debt and Adjustment

Africa is facing a crisis of extreme inequality: seven of the ten most unequal countries in the world are in the� region; inequality is undermining growth in every African Union member state; and the top 1% of Africans hold� 33% of Africa�s wealth. Such inequality is a major cause of political instability and insecurity.

The COVID-19 pandemic has dramatically increased poverty and inequality, such that the six richest Africans� now own more wealth than the poorest 50% combined. As a result, without accelerated efforts to reduce� inequality, it will be impossible to end extreme poverty in Africa by 2030.

Africa was poorly prepared to face a pandemic, with 52% of its citizens lacking access to healthcare, 83%� lacking access to social protection and 52% of workers having no formal labour rights. Unequal access to� vaccines (11% of Africans have been vaccinated by early February, compared with 71% of Europeans) means� that Africans are more likely to die from COVID-19.

African governments made valiant attempts to respond to COVID-19, but most lacked affordable finance so as� to increase spending sharply � low-income countries spent only 3.1% of GDP and emerging markets 5.3% of� GDP, compared with 19.1% for OECD economies. Much of this went towards healthcare and social protection,� but most African governments are now phasing out these measures, leaving no long-term increases in� healthcare or social protection spending to fight future pandemics.

Africa�s debt burden has risen sharply before and during COVID-19: debt servicing is almost three times� as much as education spending, six times health spending, 22 times social spending and 236 times more� than climate adaptation spending. To repay debts and reduce budget deficits, the IMF is encouraging most� countries to implement austerity: 43 AU member states will cut their spending by a cumulative 5.4% of GDP in� 2021�26, totalling $183bn. This confirms earlier Oxfam findings, which showed that in 2020-21 the Fund had� encouraged 33 African countries to pursue austerity policies.1

What Can Be Done about This Crisis?

The key government policies which reduce inequality are: universal free education and health services and� social protection; equitable taxation; and enhanced labour rights, especially for women. Development Finance International and Oxfam International have designed a Commitment to Reducing Inequality (CRI) Index to track� progress on these policies and their impact across 158 countries, including 47 in Africa.2

The latest CRI Index report finds that North Africa outperforms other regions in Africa, with Central Africa� lagging behind. The African countries that fare better are South Africa and the Seychelles, but they score only� 0.75, meaning that they could do one-third more to match the best global performers. Lesotho comes in the� top five, showing that lower-income countries can perform well. The poorest performers are South Sudan,� Nigeria, Chad, Liberia and the Central African Republic.

On public services, many African countries allocate high proportions of their budgets to education, but most� fall way below AU or global targets for education, health, social protection and agriculture spending. Because amounts spent per capita are low, education, health and social protection do not reach the poorest people.� Across Africa, social spending reduces inequality by only 7.8%, compared with 8.5% in Asia and 10% in Latin� America: however, Namibia (34%), South Africa (22%) and Benin (19%) stand out for using social spending to� cut inequality.

Africa does better on equitable taxation, because its tax systems are progressive on paper, with many� countries having high top personal and corporate income tax rates, and VAT exemptions for food. However,� Africa collects only 29% of the taxes implied by its tax rates, 10% behind other developing regions, because of� high levels of tax exemptions and tax dodging. Taxes on wealth, capital gains, inheritances and property are� also weak. As a result, tax in Africa is actually increasing inequality by 1% � though Tanzania and Tunisia have� used tax to cut inequality by 10%.

The worst African performance is on labour rights. Though many aspects of policy look good on paper, some� countries repeatedly violate labour rights, lack laws or enforcement of women�s labour rights, and have very� low minimum wages. Above all, 67% of Africa�s workers are unemployed, underemployed or in jobs without� formal contracts, leading Africa to have the highest wage inequality of any developing region.

This briefing paper presents a set of key recommendations to African governments, the AU Commission and the� international community on the urgent measures they can take to cut inequality in Africa, thereby eradicating poverty, accelerating growth and reducing insecurity and migratory pressures.

Conclusion and Recommendations

There is nothing inevitable about the crisis of extreme inequality in Africa, nor its worsening during the� COVID-19 pandemic. However, without concerted efforts by governments and support from the international� community, the crisis will deepen, and stop the region from meeting the SDGs. The pandemic must serve� as a wakeup call to national, regional and global leaders for an inclusive recovery that tackles inequality� aggressively. In spite of strong anti-inequality efforts by some governments in the region, market-produced� inequality due to poor labour rights and unequal access to land and credit have kept inequality far too high.� The efforts of many other African governments to tackle inequality are far short of what is needed, and in� fact are increasing inequality in many cases. Only immediate measures to reverse pandemic-related rises in� inequality, strongly reinforced national commitment to anti-inequality policies, and regional and international� support, can allow African countries to emerge from the pandemic without a major increase in inequality and� poverty � and resume their progress to meeting the SDGs.

1. The Most Urgent Recommendations

� Ensuring COVID-19 vaccines for all African countries, to reach 70% vaccine coverage by June 2022, in line with� the global WHO goal.

� Immediately reversing the planned fiscal austerity, with a particular emphasis on increasing spending for� health, education and social protection to achieve the SDGs.

� These enhanced spending efforts should be funded by:
- increasing rates and collection of progressive income and wealth taxes in each country.
- cancelling debt service due to all creditors between 2022 and 2025.
- reallocating $100bn of SDRs to low-income developing countries (LIDCs) as grants. If additional loans are to� be offered, they should be highly concessional loans with minimal or no conditionality; and
- increasing aid flows to Africa targeted at enhancing anti-inequality social spending.

� Mandating the IMF and World Bank to ensure that all country programmes and policy advice focus on reducing� inequality, and contain specific urgent measures to make tax, public services and labour policies achieve this� more effectively.

2. Key Recommendations for African Governments

Across the continent, it is vital for national governments to build post-COVID recovery plans, including:

A. Spend much more on universal high-quality public services that reduce the gap between rich and poor� people

� Allocate 20% of government budgets to free universal pre-primary, primary and secondary education.

� Allocate 15% of government budgets to fund free public universal healthcare without patient fees of any kind.

� Provide universal social protection programmes including, for example, for the working poor, children, people��living with disabilities, unemployed people and other vulnerable groups, including pensioners.

� Allocate 10% of budgets to enhanced investment in smallholder food-producing agriculture.

� Increase investment in water, sanitation and hygiene so as to ensure universal access and coverage.

B. Redistribute income and wealth through progressive taxation

� Make corporate and personal income taxes more progressive

� Introduce or strengthen taxes on wealth, capital gains, property, and financial transactions and income.

� Ensure all value added and general sales taxes exempt basic food products.

� Ensure multinational corporations pay their fair share of taxes by strengthening anti-tax avoidance policies.

� Scrap unnecessary tax exemptions for corporations and richer individuals, and review tax treaties to ensure� that they support revenue generation and do not give away taxing rights unnecessarily.

� Strengthen the capacity of national revenue authorities to curb illicit financial flows, through corporate� country-by-country reporting and exchanging data on profits and wealth holdings.

� Invest in strengthened tax administrations� compliance efforts that are targeted at high-income earners and� corporations.

C. Strengthen labour policies and rights, especially for informal, vulnerable and unemployed workers

� Ensure workers have rights to unionize, strike and bargain collectively, in line with ILO conventions.

� Legislate in all countries against gender discrimination, rape and sexual harassment, and for equal pay.

� Increase parental leave and expand paternity leave significantly to reduce the burden of unpaid care on women.

� Increase minimum wages to match per capita GDP.

� Invest far more in national structures enforcing labour legislation, including encouraging the informal sector to� progressively comply with laws and provide social protection to their workers.

� Invest in public sector jobs and public works to cut unemployment, and increase unemployment benefits.

3. Recommendations for AU Leaders and the AU Commission

The mandate of the African Union in Vision 2063 includes poverty eradication, which cannot be achieved� without reducing inequality sharply. In addition, the AU theme for 2022 is �Food Security to Strengthen� Agriculture, and Accelerate Human Capital, Social and Economic Development�. In this context, the AU should� put reducing inequality at the heart of its work from 2022 onwards, by:

A. Recognizing and planning to remedy AU member states� extreme inequality crisis

� Prioritize tackling inequality in the agendas of summits, ministerial meetings and the Secretariat.

� Develop a joint continental action plan to set clear targets and accelerate measures to reduce inequality and� poverty.

� Establish a robust mechanism to support and monitor the achievement of SDG 10 on reducing inequality.

B. Encouraging �a race to the top� in policies to reduce inequality

� Enhance the roles of regional commissions (EAC, ECOWAS, SADC, WAEMU) in advising members on coordinating� tax policies, by building regional tax harmonization frameworks, involving more progressive income taxes and� VAT, and strengthened taxes on capital gains, property, financial income and wealth.

� Seek regional harmonization of investment and tax codes to curb harmful tax competition in the region,� particularly by sharply limiting tax incentives.

� Develop common regional frameworks on measures to combat tax dodging and illicit financial flows, including� corporate country-by-country tax reporting and information exchange on bank accounts.

� Enhance monitoring of compliance with AU norms on spending on education, health, social protection and� agriculture, and extend this to assess coverage of public services for people living in poverty.

� Develop and monitor compliance with regional norms on labour policies designed to reduce inequality, such as� union rights, women�s rights, minimum wages and policies to encourage job formalization.

4. Recommendations For The EU And The International Community

The international community should support national and regional efforts by:

� Mandating the IMF and World Bank to ensure that all AU country strategies, programmes and policy advice� focus on reducing inequality, and contain specific measures to achieve this more effectively.

� Immediately reverse opposition to the TRIPS waiver on all COVID-19 vaccines, treatments and technologies,� and support the mandatory sharing of vaccine recipes by pharmaceutical corporations, including sharing MRNA� technologies with the WHO MRNA hub in South Africa.

� Supporting the rapid scaling up of publicly controlled vaccine production facilities across the continent.

� Providing comprehensive debt cancellation to AU countries where needed, to reduce their debt servicing to low� levels and ensure that they have enough financing to achieve the SDGs.

� Establishing a global fund for social protection that supports lower-middle- and low-income countries to� provide social protection for all by 2030.

� Introducing solidarity taxes in their own countries on wealth, income, carbon emissions and financial� transactions, with part of the revenue going to lower-income countries.

� Assisting developing countries to collect more taxes by reversing the global �race to the bottom� on corporate� tax rates, sharing corporate country-by- country tax reporting information and information on global bank� accounts, and ending tax treaties which reduce tax collection.

� Ensuring that all global tax reforms provide a fair share of their benefits to developing countries, by making� all profits taxed where they have been created, through a process where developing countries are equally represented.

� Ensuring that climate policies do not harm low-income countries. Specifically, the EU should consider an� exclusion of least developed countries (LDCs) from the Carbon Border Adjustment Mechanism (CBAM) and use the revenues from the CBAM to increase support for climate action in low- income countries.

� The EU should not pressure African countries to implement the recent OECD tax deal (BEPS 2), nor penalise� countries that did not endorse it, by blacklisting them in the EU tax havens list. The EU should allow countries� to carefully consider the trade-offs in the deal and the best course of action for them, including the use of� unilateral measures such as digital service taxes or alternative minimum taxes. If African countries agree to� the OECD tax deal, the EU should support them to implement it in a way that is more convenient for them, and� EU countries should renegotiate bilateral tax treaties with low taxation levels, as provided for in the deal.

� The EU must live up to its rhetoric of a �partnership of equals� with the AU and support national and regional� efforts by prioritising reducing inequality in all its national-level policy dialogue with African countries,� and in its collective and member state interventions in IMF and World Bank governing bodies. It could also,� where requested by African governments, provide capacity building assistance to help countries design and� implement equitable spending and progressive tax policies, and to enhance labour rights in order to reduce� inequality sharply � which would help them eradicate poverty, and dramatically accelerate GDP growth� between now and 2030.

AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter. For an archive of previous Bulletins, see http://www.africafocus.org,

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