High taxation is the cause of Africa’s underdevelopment (2)

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Female-run SMEs and youth at the heart of AfCFTA
Amos Safo is a Development and Communications Management Specialist, and a Social Justice Advocate.

 By Amos Safo

Last week, I started a two-part series of articles to shed light on the debt situation in Africa and its implications for future generations.

The articles follow the ongoing demonstration of Kenyan youth, popularly called Generation Z (Gen Z) over a finance bill that would raise the cost of living. Amid the turbulence President William Ruto backed down from his initially plans to hurriedly sign the bill into law after Parliament approved it.

Originally, Gen Z refers to the generation of Americans born from 1997 to 2012, who probably did not experience many of the hardships and difficulties older people experienced. So, the term is currently used to describe younger generations, whose lifestyles and aspirations differ from the older generations.

For instance, this current generation has access to smartphones, laptops and internet services for use to satisfy many gratifications, which their older counterparts did not have. This explains why social media has become the most potent weapon for the youth of today to communicate and mobilise for causes like the ongoing Kenyan demonstrations.

Tax justice

In last week’s article, I highlighted how high taxation in many Sub-Saharan African countries is worsening poverty and underdevelopment. In some African countries taxes are the highest in the world, with Value Added Tax (VAT) as high as 50 percent. The article pointed out that, whereas the few multinational companies operating in Africa enjoy tax holidays, poor people continue to sweat under oppressive taxes, which undermine their ability to live quality lives, let alone investing in small scale businesses.

These concerns are being raised by tax justice advocates for Africa, who argue that the high tax rates make it impossible for ordinary people to build capital for investments. Since independence high taxes have stifled any possible attempts by various governments to turn their economies around and ever get out of the poverty trap.

Tax burdens

As the demonstrations continue, it is worth sharing more perspectives on the tax burden on Africa and why some youths are beginning to upset with their leaders. The expectation back home is that African leaders will be to able proffer home grown solutions as an alternative to IMF and World policies, which never support African countries to wean themselves dependence on neo-liberal policies.

To begin with William Ruto’s problems started when he accepted American President, Joe Biden’s invitation to the White House, where he held high profile meetings with Biden. In fact, some political analysts argue that the meeting between Ruto and Biden came at the wrong time, when the average Kenyan was disillusioned with western policies that are stifling local initiative.

The Gen Zs  are fighting against taxes being raised on food and transportation, including baby food and diapers for the government to supposedly raise $2.7 billion to service foreign debts and accruing interests. In fact, the Kenyan economy, like others in Sub-Saharan Africa is facing negative growth because of mounting debts owed the IMF, World Bank and other western creditors.

Strategic ally

Analysts say Ruto is being prepared by the United States and other western leaders as a counter power to the three popular Sahelian military leaders, (Ibrahim Traoré of Burkina Faso,  Assimi Goïta of Mali and Omar Tchiani Hassoumi Massaoudou of Niger), who have rekindled the spirit of Pan-Africanism pioneered by Kwame Nkrumah, Patrice Lumumba, Amical Kabral among others. Remember former charismatic and visionary Libyan leader, Muamar Qaddafi was killed by western forces for his commitment to Pan-Africanism.

In the spirit of Pan-Africanism, the Kenyan youths say they are on the streets to reclaim their country from the hands of Ruto and his ruling class, who they accuse of selling to the west.  The outcome of the meeting at White House was that Biden announced plans by the United States to make Kenya its strongest ally in Africa.

Nothing was heard about plans to cancel Kenya’s debts to enable the country to invest its tax revenue in social services, like primary health care, basic education and water and sanitation. Many people had expected that when William Ruto sat face-to-face with Joe Biden, he would have mustered the courage and asked for debt cancellation, rather than pandering to demands by Kenya’s creditors to raise taxes to pay the loans.

The irony is that a few months ago William Ruto was named one of Time Magazine’s most influential people in the world. The recognition came on the heels of the rigid implementation of western backed policies which are biting his people and reversing economic growth. Perhaps, they are trying to market Ruto as the leader Africans as a successful and influential leader. Unfortunately, many Kenyans and Africans do not recognize him as an influential leader. His human rights record is what resonates with many Africans. Little wonder that many people are contesting the criteria for such awards to African leaders by western institutions.

 

Trade relations

It makes little sense for African leaders to be persistently asking countries they owe for stronger trade relationship, though trade is essential. Henceforth, dialogue with western leaders should be about debt cancellation, because over the years foreign loans and aid have trapped African economies into perpetual servitude. Most, if not all the country’s  in deep debts may never escape, unless our leaders speak with a collective voice.

These loans have virtually crippled African economies with conditionalities like high taxation, cuts in public sector jobs, reduction in public spending on education, health and water and sanitation. These are the same public goods and services western countries provide to their populations to sustain economic growth.  With time, if African leaders fail to correct the unfair world economic order, the Gen Zs will teach them how to do it on the streets, as is unfortunately happening in Kenya.

In May 2022, the IMF asked the Kenyan government to remove subsidies on fuel and maize which were introduced by Uhuru Kenyata’s government. In September 2022 on assuming office William Ruto removed the subsidies on fuel with the explanation that the subsidies were a burden on the economy. In December of the same 2022 IMF approved a loan of $450 million requested by Ruto’s government.

According to IMF fossil fuel subsidy is the cause of high global carbon emissions. In its May 2019 report, IMF concluded that if there were no fuel subsidies, global carbon emissions would be reduced by 28 percent and increase tax revenues by 3.8 percent globally.  The IMF says, pre-conditions, including demands for more taxes are aimed at reducing structural problems that may hinder economic stability.

On average, poor countries must accede to 25 conditions before loans are approved. The IMF extends two types of loans- a “lending arrangement’ and an “outright loan.” A lending arrangement requires borrowers to meet some conditions before getting a loan, while an outright loan does not require any pre-conditions. The conditions often include interference in internal governance issues that leave governments powerless.  The question is, why is that it is only poor African countries that are often compelled to accept such harsh conditions in return for loans?

Debt to GDP

In early 1980s many African countries contracted IMF and World Bank loans with conditions that compelled them to reduce spending on social services. The notion is that the lending gives loans to countries that already have unsustainable debt to GDP ratios and are struggling to pay. Simply put, the IMF gives loans to countries that are already struggling with existing debts. Ghana is an example of countries which are debt stressed and needs debt cancellation, rather than more loans.

A study by researchers of Oxford and Cambridge universities concludes that between 1995 and 2014 the IMF and World Bank imposed conditions on 16 African countries that compelled governments of those countries to reduce health care budgets. Consequently, this policy affected access to primary health care.

A World Bank report showed that the number of people living below one dollar a day in Sub-Saharan Africa doubled from 164 million to 316 million between 1981 and 2001. This was against the backdrop of the poor countries implementing IMF and World Bank poverty alleviation programmes. The IMF and World Bank are controlled by the one dollar, on vote.

Because most of the shares are held by powerful western nations like the United States, Britain, France, Germany, they have unassailable voting rights and decision making. The voting rights at the two institutions is dictated by a country’s GDP.  The United States alone holds enough shares in IMF to give it veto powers over decision making. This implies that the whole of Sub-Saharan African countries cannot garner enough votes to reform the operations of the two global financial institutions, let alone influencing decision making. Therefore, this cycle of shackling African countries with more debts will continue until African leaders begin to think outside the box.

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