AFRICA: Behind The Veil Of Poverty

Often while I was still residing in Britain, my like-minded peers and I used to discuss why Africa found itself in abject poverty. The debates would go on for hours on end, I Pads and laptops at the ready to extract figures and other relevant information from the Internet. The topics would range from authority, corruption, education, politics, food security, natural resources and many others.

In these discussions we would try a new approach, instead of focusing on the negatives, our aim was to militate against the problems our continent faced through innovation. This in away helped us to focus our energy on productive avenues and to think outside of the box without getting frustrated or demoralised by the on going situation back home.

I would frequently argue that the causes of Africa’s major ailments came from one source “inequality”. I was adamant that a continent with such vast natural resources could give its population the opportunities to develop. If a person could feed his or her family without having to sacrifice other human advances, then we wouldn’t have hungry populations but intelligent and thriving societies. The aforementioned human advances are referring to education, health and wealth. In my opinion these three different areas of mankind’s development are all interlinked.

My hypothesis was simple and complex at the same time, proving my argument required me to change importantly the way I thought about my continent and eventually my geographical location, in October 2012 we packed our bags, my wife and I relocated to Kenya. On arrival without actually having to go far I witnessed poverty from the onset of our journey home.

From this moment on I will no longer narrate my findings but share with you facts and figures to justify my assumptions. The conclusion being the detrimental role of multinationals eating away at the wealth of the African people, leading to weak and corrupt governments that cannot provide the basic functions required by the continent. My aspiration is to develop a consensus on how to move forward as a continent. These issues do not differentiate between gender, location, race or religious creed; poverty affects everyone on the continent rich or poor. 

In 2009 the UN Population Fund stated that the African population had reached the one billion mark, and over the course of just 27 years the population had doubled in size. In 2013 the figure was revised and estimated to be around 1.033 billion. The Director of The Population Fund Thoraya Obeid stated "Africa countries are all growing fast... because there is large number of women who have no access to planning their families" she said. "It's an African phenomenon of a large growing population and a large percentage of young people in the population."

This dramatic rise in the continents population has had a knock-on affect on the number of people living beneath the poverty line, nearly one in four are deemed to be living in this category with a steady increase of 2% per year as stated by FOOD AND AGRICULTURE ORGANISATION OF THE UNITED NATIONS in 2012.

Kenya being one of the more developed countries on the continent has 50% to 60% of its population living below the poverty line. Meaning over half of the population is living on $1.25 a day, in shillings this is 106.25. Zimbabwe’s count stands at 70% Zambia at 64% and the figures don’t get any better regardless of where you look on the continent. The underlining problem is hunger arising from inequality, throughout the variety of sources be it the CIA World Fact-book or the World Bank’s poverty index, the figures show that almost half of the continent is hungry.

This lead to the question why is there so much hunger on a continent that holds half of the worlds natural resources? Lets take Zambia as a perfect example, a country that is referred to as being one of the richest in the world in terms of resources. Laying on the copper belt of the continent it holds the third largest reserves of the mineral in the world, an essential commodity in the global economy. Due to privatisation in Zambia, virtually all the mines belong to multinationals. In the span of just 10 years they have extracted copper worth more than 29 billion US dollars. Yet this country is rated amongst 20 of the poorest countries the world over.

Wylbur Simuusa, Zambia’s minster of mines stated “ God has blessed us with such an abundance of natural resources. The paradox is that Zambia is ranked among the bottom 20 in terms of poverty, we are wealthy yet we are poor.”

Absolute poverty cannot be the problem in Zambia, with all the wealth that the country is making out of sales of booming copper prices globally. Could the disparity be down to inequality or the mismanagement of this wealth? Between 2001 and 2008 the price of copper quadrupled in the London Metal Exchange where the world’s prices of such commodities are determined. Yet the multinationals in Zambia paid virtually nothing in corporate taxation. This avoidance of tax has been attributed to a number of factors with the most damaging being “transfer pricing.”

The Journal of Accountancy in its October issue of 2013 defined Transfer Pricing as the price charged between related parties (e.g., a parent company and its controlled foreign corporation) in an intercompany transaction. Although intercompany transactions are eliminated when consolidating the financial results of controlled foreign corporations and their domestic parents, for tax purposes such entities are not consolidated (Sec. 1504(b)(3)), and the transactions are therefore not eliminated. Transfer prices directly affect the allocation of group wide taxable income across national tax jurisdictions. Hence, a company’s transfer-pricing policies can directly affect its after-tax income to the extent that tax rates differ across national jurisdictions.

In a nutshell multinationals shift their profits from the high tax onshore countries where the profits are being made and into their subsidiaries in tax heaven countries where there is very little or no tax at all. These subsidiaries trade amongst each other while artificially altering the prices as they see fit during these transactions. This is the common set up by the majority of multinationals if not all that operate within Africa. Nicholas Shaxson an author and journalist simplifies the process of Transfer Pricing saying "the multinational subsidiaries buy a commodity cheaply from their parent companies then sell it on for a much larger prices, these subsidiaries being based in low tax countries end up keeping the large profits made without having to answer to the onshore countries where the commodity comes from."

Alex Cobham, head of research for Save The Children stated “ transfer pricing is an enormous damaging phenomenon right across Africa.”  

Zambia’s problem is that most of its copper is not sold on the open market but behind closed doors of multinationals and their subsidiaries in Switzerland, what little profit that is made then has to be used by the African state. But how do you spread such limited finances? Does the government prioritise infrastructure? Does it use the limited funds to increase food security? Does it improve the health and education sectors? Or maybe job creation so the citizen can earn a decent wage?

This inequality between state and multinationals has an affect right down to the youngest member of the societies where such a relationship exists. For example if 64% of the population living below the poverty line in Zambia are struggling to eat, and have to forage for their daily food. And where every member of the family plays their part in this process, be it the search for fuel and water. Where often the young female is the first to be sacrificed as the one to collect the firewood and water frequently from miles away and then finally cooking the family meal.

By the time a female child reaches the age of 10 she is ready to fetch a bride price, this money will feed the family for a few months. Giving rise to early pregnancies, how do we expect the young woman to have learn about contraception or better yet afford it, after all Africa’s rising poor population has been attributed to the abundance of fertile women giving birth to more hungry mouths. Assuming as the population increases, do the countries finances increase or further stretched? Every single African can live a health and prosperous life, and the truth is this can only be achieved by utilising our resources in a manner that befits us all. The disproportion between the amounts of resource we sell and the prices we receive from these sales are unimaginable and must be evened out. 

There are some who argue that in order to take such drastic measures we must be financially secure before we take on multinationals, they include the fact that aid money would also be used to discourage developing states from such actions. I would let the undeniable facts speak for themselves. The amount of aid the developing world receives from the developed world is firstly interest based, secondly it is not even 10% of what the developed world takes out of Africa in terms of resource and as mentioned before in unpaid taxes.

Raymond Baker, director of global financial integrity states, “A lot of people think that we in the west have been extremely generous in the amount of foreign aid that we provide to the developing countries and particularly to Africa. Globally our estimate is that the amount of money flowing out of developing countries is ten times the foreign aid that is flowing into these countries.”       

The process to attain resource independence must be systematic and include everything from extraction, processing, refining, marketing and selling. Every step of this procedure has to be performed within Africa and by African entities. The wealth generated from such a system can be used to invest in all aspects of the continents dire state, be it infrastructure, education, health, industries and technology. Imagine what 29 billion US dollars could have done for Zambia.

In conclusion this battle against multinationals and unfair dealings regarding the continent’s wealth must not be unilateral. It is the responsibility of every single government on the continent. Civil societies also have a strong role to play as they can priorities and highlight these disparities. However the key group of people in this fight is the ordinary citizens, they are the ultimate losers in this system and have the largest stake. They must be given the information to understand the situation and assisted in directional approach of bringing this to the national and international stage. I urge all those who feel the injustice and have a strong sense of creating a more equal and healthier Africa to come together. In all of history no one man can change anything without the support and intelligence of those around him.

Hamza Egal © copyright 2014 all rights reserved.