STWR - Share The World's Resources

14th September 05, The Guardian (UK)

The large inflow of foreign direct investment (FDI) into Africa since 2000 looks good on paper but is unlikely to deliver lasting benefits to Africans according to a United Nations report.

The report, Economic Development in Africa, from the UN conference on trade and development (Unctad), warns African governments that policies aimed at attracting more FDI through a further push for rapid liberalisation and downsizing of the state "will not do the job". The report shows that FDI flows into Africa reached $18bn (£10bn) last year, three times the annual average of the 1990s and mostly resulting from an increased demand for minerals and fuels.

Richard Kozul-Wright, a senior economist at Unctad, said the often harmful economic adjustment policies forced on African nations over the past 20 years had in any case not improved the FDI flow. When FDI had occurred it had not had the effect of encouraging local investment or increasing government revenues. "The inflow of capital from FDI may be a benefit but the resulting outflow of profits may be so high as to make it a substantial cost. Production of firms is a benefit but less so if it displaces local firms."

Multinationals often shield profits made in a developing country from that country's tax authorities, depriving it of key revenues. Mr Kozul-Wright said capital flight from Africa, either by rich people or multinationals, was a huge problem. It was easy to blame corruption for this but it was as much a symptom of a country's inability to attract and retain capital.

Capital flight is also identified as a big problem in a report from the Tax Justice Network and Christian Aid. Their report, called "Tax Us If You Can", says the rich world should not only concentrate on debt relief and aid but should plug the leaks of capital into tax havens.

They say that the global tax avoidance industry, run by multinational accountancy firms, banks and companies, is causing more than $500bn a year to flow out of developing countries, dwarfing the $78bn a year of aid flowing in.

The report welcomes attempts to deal with harmful tax practices and urges a new international drive to clamp down on tax havens, tax avoidance and banking secrecy, something that is increasingly a problem for developed countries.

This article appears courtesy of the The Guardian Newspaper

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