G8 identifies the right target, but will it really shoot?
The G8 leaders' biggest commitments were on reducing tax evasion, a problem that has been highlighted by Thabo Mbeki's High Level Panel on Illicit Financial Flows from Africa.
The 2013 G8 summit at Lough Erne which UK Prime Minister David Cameron hosted and which ended on 18 June was always going to suffer by comparison with the last G8 summit that Britain hosted, at Gleneagles in 2005. Gleneagles was the Africa summit. It was the culmination of Prime Minister Tony Blair’s Commission on Africa and it produced impressive figures; most notably a pledge to double aid and an agreement to cancel 100% of the outstanding debts of the poorest countries, worth $35,5 billion.
Though the G8 countries did not quite deliver on all their Gleneagles promises, they did a lot: aid flows increased by $11 billion annually and the debts were cancelled. As UK High Commissioner to South Africa Nicola Brewer recently noted in a speech about her country’s presidency of the G8 in 2013, the debt forgiveness enabled Tanzania, for example, to abolish primary school fees, raising primary school enrolment from 49% in 1999 to 98% by 2008.
But Brewer also observed that the world had changed since 2005. The G8 countries are now experiencing slow growth (or none, one might add) and financial austerity. And, conversely, African economies have been growing at an average of 5% a year for over a decade, with foreign direct investment and development indicators both rising. And so the development narrative had also changed, as aid and debt give way to broader financial flows – export earnings, domestic taxes, remittances, foreign and direct investment – across the continent.
Brewer said the G8 summit at Lough Erne would reflect those changes as Cameron would focus on ‘three Ts’ – trade, tax and transparency: breaking down trade barriers, pursuing global tax dodgers and casting a global light on those who hide ill-gotten gains in secret shell companies and the like. Cameron did in fact register significant success in achieving these goals, such as they were. On trade, the summit gave new impetus to the negotiations for the EU-US free trade agreement – which Cameron said would greatly boost their and the global economies – and other coming trade deals. The leaders committed to securing a World Trade Organisation (WTO) trade facilitation deal in December that would cut red tape to make it easier and faster for goods to cross borders, and they promised to help developing countries slash trade barriers to trade.
On tax, the G8 leaders made their biggest commitments. These included a promise to create an automatic exchange of tax information between tax authorities ‘as the new global standard’, and a commitment to work for a global model which would make it easier for governments to find and punish tax evaders. They would also work to create a common template for multinationals to report to tax authorities where they make their profits and pay their taxes across the world. And they would support developing countries to collect the taxes owed them, with access to the global tax information they need. The G8 leaders said they would also publish national Action Plans to make information on who really owns and profits from companies and trusts available to tax collection and law enforcement agencies, for example through central registries of company ownership.
On transparency they agreed on an ‘Open Data Charter’ to make budget data and other government information public in an easily accessible way; to make progress towards common global reporting standards to make extractive industry payments more transparent; and to work with resource rich countries to help them better manage their extractive revenues ‘so as to provide a route out of poverty and reliance on aid’.
It was not altogether surprising that these commitments received relatively little attention – not only because they lacked the big figures of Gleneagles – but because the G8 itself has faded in significance since 2005, in favour of the G20. Oxfam, ever wary of G8 promises, remarked after the summit that ‘The G8 has asked all the right questions but has been thin on answers’. Nonetheless it offered a sort of compliment by adding that ‘The writing is on the wall for tax dodgers …’.
As Oxfam acknowledged, the G8 summit did at least address the right issues, and with commitments which had the potential to tackle a much bigger source of solutions to global poverty and underdevelopment than aid. Oxfam had calculated that at least $18,5 trillion is hidden by wealthy individuals in tax havens worldwide, representing a loss of more than $156 billion in tax revenue – twice the amount required to lift everyone in the world above the $1,25-a-day ‘extreme poverty’ threshold.
Ironically, former South African President Thabo Mbeki may have been an eminence gris behind the Lough Erne summit as he had been a more visible influence on the Gleneagles outcome. The Gleneagles decisions were in no small part the result of Mbeki’s engagement with the G8 from 2000 to persuade it to support the New Partnership for Africa’s Development (Nepad). And he was there at the summit to make his case directly as part of a formal G8 ‘Outreach’ initiative.
That formal outreach has now fallen away. Yet it is hard to imagine that Cameron’s agenda for Lough Erne was not influenced by Mbeki’s High Level Panel on Illicit Financial Flows from Africa. That panel has been travelling around the continent, publicising the calculation that total illicit financial outflows from Africa, conservatively estimated, were about $854 billion between 1970 and 2008 and perhaps as high as $1,8 trillion in total. ‘Curtailing illicit financial outflows from Africa can produce the largest source of new funds for poverty alleviation and economic growth in the near future’, Mbeki had said.
Those who believe that capital drain is essentially a problem for countries like Nigeria, should take note that Mbeki has listed South Africa as the country with the fifth-highest outflow: $24,9 billion of that $854 billion. One thing South Africa could do about that is to join the Extractive Industries Transparency Initiative (EITI) a voluntary scheme for mining, oil and gas companies to reveal publicly what they pay governments and for governments to reveal what they get. Blair launched the EITI in 2002 yet, bizarrely, neither the UK nor any other G8 countries signed onto it. So the South African government took the view that it was capable of policing its own extractive industries and didn’t need any hypocritical Western help in doing so, and therefore declined to join.
Yet now Cameron had said the UK will join the EITI and the Lough Erne communiqué said France will also. The US and others are evidently contemplating doing so too. With all the negative international publicity around mining in South Africa right now, it would do no harm to win a free kudo.
Peter Fabricius, Foreign Editor, Independent Newspapers, South Africa
