Welcome to Foreign Policy’s Africa Brief.
The highlights this week: M23 rebels agree to a cease-fire in the Democratic Republic of the Congo, Ghana’s fired Twitter workers accuse Elon Musk of flouting local labor laws, and Morocco, Ghana, and Senegal give Africa high hopes at the World Cup.
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Nigeria’s Proposal Will Reorder Global Tax Rules
United Nations members agreed last week to begin talks on fundamental changes to how taxes are collected globally. The resolution submitted by Nigeria on behalf of the 54 member states of the African Group would see the establishment of a U.N. tax convention and new global tax body—a historic move long resisted by richer nations because it would weaken their control over international tax rules.
A last-minute amendment put forward by the United States argued that a new body would “undermine” work already underway by the Organization for Economic Cooperation and Development (OECD). But that amendment was rejected by developing countries.
Fewer than half of Africa’s countries are participating in the OECD two-pillar deal on tax reforms struck last July. And countries that signed onto it have delayed implementation. Many developing nations perceive the OECD as a club controlled by and working in the interests of Western economies. (The OECD is a 38-member body largely formed of wealthy nations, including the United States, the United Kingdom, and Japan.) It has spent the last 14 years, since the 2008 financial crisis, trying to deliver significant reforms.
“Shifting power from the OECD is paramount to end the exploitation and plunder of developing countries,” Dereje Alemayehu, the executive coordinator of the Global Alliance for Tax Justice, said in a statement. U.N. Secretary-General António Guterres warned in August that current “[t]ax norms need strengthening to address digitalization and globalization in ways that meet the needs and capacities of developing countries.”
Developing countries want an architecture overseen by the U.N. in which they would have an equal say. Those advocating for change say the current system was created over a century ago, when most African countries were not yet independent, and doesn’t take African interests or economies into account.
In a majority of African countries, there is widespread tax evasion and a lack of state enforcement capability. Therefore, most governments want to implement targeted taxes at the source—for example, taxing mobile money payments or digital services, which would force their citizens to pay taxes, as well as large corporations that operate in their countries but dodge taxes because they have no African headquarters or hide profits in offshore tax havens. The OECD’s two-pillar tax changes would largely affect companies and financial institutions based in OECD countries.
Pillar One of the OECD’s framework would force multinationals to pay taxes in countries where they operate instead of where they have registered their headquarters. For example, Apple, through subsidiaries in Ireland, was able to hold and accumulate $137 billion in cash, which largely came from non-U.S. profits that couldn’t be fully taxed by any government in the world, according to the International Consortium of Investigative Journalists. But the package has failed to win approval in the U.S. Congress, which tax experts view as effectively killing the reform because more than half of corporate giants subject to the taxes are based in the United States.
Washington and its allies have lobbied against digital services taxes within the OECD. Under Pillar One, digital levies would be banned, which would make current levies being rolled out in Kenya, Nigeria, Zimbabwe, and Ghana illegal.
Although Pillar Two would theoretically eliminate tax havens and set a 15 percent global minimum tax rate, most African countries have corporate tax rates of 25 to 35 percent, and campaigners argue that a 15 percent basic rate is too low to benefit African countries. The Biden administration had originally proposed a 21 percent rate. More importantly, the minimum rate applies only to companies with annual sales of at least 750 million euros ($776 million), which Nigeria says would exclude many multinationals operating in the country from being taxed.
Peter Barnes, a tax specialist at the Washington law firm Caplin & Drysdale, told Foreign Policy that the world will likely end up with digital services taxes. “The Pillar One exercise is not likely to succeed, and so if Pillar One drops off, then all countries will be able to impose digital services taxes,” he said.
The reform has hit a block in Congress because the United States would be giving up much of its tax base to other countries, as many of the companies affected are headquartered in the United States. “There is no doubt about it. These are targeted taxes—targeted at companies primarily based in the U.S.,” Barnes said.
Through tax evasion by corporations and elites, “lower-income countries are often losing around 50 percent of their public health budget, whereas OECD members might be losing only 5 percent of their public health budgets,” said Alex Cobham, chief executive at the Tax Justice Network.
A high-level panel on illicit financial flows from Africa commissioned by the African Union and led by former South African President Thabo Mbeki found that Africa was losing at least $50 billion annually to illegal transactions of multinationals and embezzlement through offshore banking. But OECD initiatives to tackle the problem did “not have Africa or indeed other developing country regions in mind,” nor were their views sought, the panel found. As Audrey Donkor noted in Foreign Policy, the United States was second only to China as the top destinations for illicit flows out of Africa, hosting about $129 billion between 1980 and 2018.
In an October op-ed published in the Financial Times, Nigerian President Muhammadu Buhari lambasted the U.K. government for not returning stolen funds. The Nigerian government took legal action following delays in returning 150 million pounds (about $180 million) siphoned by Nigeria’s former military dictator, Sani Abacha, and held in the U.K.
Over the past few years, the United States has cooperated with similar Nigerian demands. This month, the Nigerian government received from U.S. authorities $20.6 million in funds looted by Abacha. So far, the United States has returned a total of $332.4 million in public funds laundered into the United States through Abacha and his associates.
The strength of Africa’s position, despite the significant roadblocks, could seed a desire for similar movements in other regions. “We’ve now got the beginnings of a process in Latin America to create the same kind of regional consensus” on a more progressive taxation, Cobham added.
Wednesday, Nov. 30: A South African panel is due to submit a report in Parliament on whether President Cyril Ramaphosa should face impeachment.
Wednesday, Nov. 30, to Saturday, Dec. 3: South Korean Prime Minister Han Duck-soo visits Mozambique and Ghana to promote South Korea’s bid to host the 2030 World Expo.
Sunday, Dec. 4: OPEC+ oil ministers hold a virtual meeting.
Tuesday, Dec. 6: Ramaphosa hosts Venezuelan President Nicolás Maduro on a state visit.
South Africa publishes GDP figures for the previous quarter.
Congo negotiations. On Friday, the M23 rebel group released a statement accepting the terms of a cease-fire brokered between East African leaders at a mini-summit last Wednesday in the Angolan capital, Luanda. M23 had earlier rejected the cease-fire. However, the East African Community said that if M23 fighters did not withdraw from captured territories in eastern Democratic Republic of the Congo, beyond a 6 p.m. deadline on Friday, then a joint regional force of Burundian, Kenyan, and Ugandan troops would use “force” to achieve compliance.
In its statement, M23 rebels requested direct talks with the Congolese government and African leaders, which Kinshasa has long refused. “Give us direct negotiations with the government to resolve the root causes of conflict that are producing all these wars here,” M23 leader Bertrand Bisimwa said. Further peace talks between East African leaders began on Monday in Kenya’s capital, Nairobi.
British Prime Minister Rishi Sunak greets South African President Cyril Ramaphosa at No. 10 Downing St. in London on Nov. 23.
British Prime Minister Rishi Sunak greets South African President Cyril Ramaphosa at No. 10 Downing St. in London on Nov. 23.Carl Court/Getty Images
South Africa-U.K. state visit. South Africa and the United Kingdom committed to infrastructure partnerships that would seek to boost each other’s struggling economies during South African President Cyril Ramaphosa’s two-day state visit to London.
King Charles III and Camilla, the queen consort, hosted Ramaphosa in the king’s first state visit since he ascended the throne in September. It was followed by meetings with Prime Minister Rishi Sunak and U.K. Trade Secretary Kemi Badenoch.
South Africa is Britain’s largest African business partner, with trade worth 10.7 billion pounds (about $13 billion) annually. New deals will focus on clean energy and minerals mining.
Ghana’s gold-for-oil barter. Ghana has ordered large gold mining companies operating in the country to sell 20 percent of the metal they refine to the nation’s central bank. As the country plunges further into economic distress, with dwindling foreign currency reserves, Ghanaian authorities announced plans on Thursday to pay for oil imports using gold instead of dollars. (Ghana is Africa’s largest gold producer.)
If implemented in 2023 as envisioned, the new policy “will fundamentally change our balance of payments and significantly reduce the persistent depreciation of our currency,” Ghanaian Vice President Mahamudu Bawumia said.
As part of loan negotiations with the International Monetary Fund, the country will ask holders of its international bonds to accept losses of up to 30 percent on their principal loans and forgo some interest rate payments.
This Week in Sports and Tech
Twitter’s sacked Ghana staff. Twitter has agreed to talks with ex-employees from its only African office in Ghana’s capital, Accra. The social media giant started engagement after fired staff petitioned Ghana’s employment ministry to get involved and accused Twitter of “recklessly flouting” local labor laws. Former employees say they were discriminated against, as they were offered severance packages worse than those announced in other countries by new Twitter chief Elon Musk. Around 20 people worked on the African team, and nearly all were sacked.
African teams at World Cup semifinals? Ghana’s German-born Ghanaian coach, Otto Addo, has said the chances of an African team reaching the semifinals at a FIFA World Cup will remain limited until the continent is awarded more places at the tournament.
“There was never a point where everybody had an equal chance at the start. Never in FIFA history,” Addo said in an interview on Sunday prior to Ghana’s dramatic 3-2 win on Monday against South Korea. No African nation has ever made it beyond the quarterfinals. Cameroon became the first to reach that stage in 1990 and Senegal made the final eight in 2002. Ghana’s Black Stars did it in 2010—only to be defeated by Uruguayan star Luis Suárez’s controversial handball to prevent a late goal.
The African continent, comprising 54 nations, is allocated just five slots. In contrast, Europe, with 55 eligible countries, gets 13, and South America, with just 10 nations, gets between four and five. On Friday, Ghana takes on Uruguay again and will no doubt seek revenge, with increased pressure on all African teams to make it out of the group stage.
African countries have the lowest rate of tax revenue, averaging 16 percent of GDP, which is below that of OECD countries (33.5 percent), the Asia-Pacific (19.1 percent), and Latin America and the Caribbean (21.9 percent). Many economists believe the roots of the problem lie in the tax collection methods of colonial administrations that were inherited by African governments. Reforms to global tax systems could improve the ability of African nations to collect taxes.
FP’s Most Read This Week
• What’s the Harm in Talking to Russia? A Lot, Actually. by Raphael S. Cohen and Gian Gentile
• Russia’s Great Reverse Migration by Evan Pheiffer
• It’s Time to Debunk Putin’s Existential Fallacy by Stephen Sestanovich
Egypt’s bird poachers. Alia Abu Shahba and Mohammad Abu Laila, for Arab Reporters for Investigative Journalism, examine the lucrative businesses of migratory bird hunting for export to Persian Gulf nations. The route across Egypt is the world’s second-most important for migratory birds worldwide, and despite Egypt being a signatory to the Convention on International Trade in Endangered Species of Wild Fauna and Flora, Egyptian authorities have failed to monitor poaching violations, the reporters found. Around 2.5 million migratory birds are killed during a three-month hunting season in the North Sinai region, but without proper oversight, it is contributing to the decline of some species.
Life after apartheid. In Foreign Policy, Sisonke Msimang reviews American author Eve Fairbanks’s new book, The Inheritors: An Intimate Portrait of South Africa’s Racial Reckoning, which follows the lives of ordinary South Africans as a way to examine the country’s social fault lines while offering analogies to U.S. history. Fairbanks notes that “recent South African history, very loosely, collapses two hundred and fifty years of American history into about thirty.”
But, as Msimang argues, Black South Africans constitute a majority who, for the most part, did not lose their languages and are able to identify their lineage. “While there are obvious parallels between U.S. and South African histories, the differences are significant,” Msimang writes. “These differences matter to how Black people in South Africa experience racism and cope with it.”