Nigeria, Africa's biggest oil producer, gets more than 90
percent of its foreign earnings and two-thirds of its tax revenue from oil
exports. Yet there are many reasons why that hydrocarbon bounty is a mixed
blessing.
For starters, it can drive up the value of a nation's
currency, making other exports less competitive and imports more attractive. As
Burgis points out, textiles used to be Nigeria's most important manufacturing
industry. But cheaper Chinese imports smuggled in by Nigerian gangs (an illicit
trade worth more than $2 billion a year) have devastated the industry -- one
example of why Africa produces just 1.5 percent of global manufacturing output,
despite its abundance of cheap labor.
Billions of dollars in oil revenues are also a tempting pot
of money for bent politicians. One 2012 report said corruption had swallowed up
$37 billion worth of Nigeria's oil money over the last decade. That surpasses
the annual economic output of more than half the nations in Africa as well as Nigeria's
annual federal budget. Such corruption has other toxic effects. Dirty money
from bribes and kickbacks has to be laundered, and because those doing the
cleaning don't care so much about profit or productive investment, their
infusions of cash distort the value of assets.
Nigeria's reliance on oil for tax revenues also creates a
perverse political dynamic: As Burgis puts it, "the ability of rulers of
Africa's resource state to govern without recourse to popular consent."
Instead of having to do right by taxpayers to win their votes, politicians
focus on controlling and dispensing mineral wealth to bolster their patronage
networks. "Politics becomes a game of mobilizing one's ethnic
brethren," Burgis notes -- a contest with dangerous destabilizing effects
in Nigeria's fractious polity. In fact, as one Nigerian governor explains, if
he failed to share the wealth, ill-gotten or otherwise, "I've got a big
political enemy."
Nigeria is far from the exception. At least 20 African
countries are what the International Monetary Fund calls
"resource-rich": that is, their natural resources account for more
than one-quarter of exports. From the coltan mines of the Democratic Republic
of the Congo and Guinea's rich bauxite and iron ore deposits to the diamond
fields of Zimbabwe.
This looting depends on an all-too-willing cast of outside
partners, whether Western mining and oil companies that bribe and abet
massacres, or shady shell companies in the British Virgin Islands. The World
Bank's International Finance Corporation, backs visibly corrupt,
environmentally destructive, or just plain inequitable oil and mining ventures
in Chad, Guinea and Ghana -- all countries it was supposed to be helping. Western
criticism of China's growing presence in Africa carries a distinct whiff of
hypocrisy.
2 comments:
Tax evasion is the illegal evasion of taxes by individuals, corporations, and trusts. ... In contrast, tax avoidance is the legal use of tax laws to reduce one's tax burden.
asset protection
You are, of course, perfectly correct.
Same as there no crime in using off-shore holding companies.Tax havens are called tax shelters.
But can I ask who writes the law? Who uses the accountants and lawyers who understand the rules and know the loopholes?
If company A, a food grower in Africa, processes its produce through three subsidiaries: X (in Africa), Y (in an off-shore tax haven, ) and Z (in the United States). Now, Company X sells its product to Company Y at an artificially low price, resulting in a low profit and a low tax for Company X based in Africa. Company Y then sells the product to Company Z at an artificially high price, almost as high as the retail price at which Company Z would sell the final product in the U.S.. Company Z, as a result, would report a low profit and, therefore, a low tax... all perfectly legal
About 60% of capital flight from Africa is from transfer pricing and is estimated at ten times the size of aid it receives and twice the debt service it pays.
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