Gordon Brown, the Prime Minister of Great Britain, has signaled that he wants to see poor countries develop through trade rather than aid. The new Prime Minister has even appointed a minister with joint responsibility for the two areas. But charities are planning a major campaign that they believe will expose a flaw in the plan.
While major British companies are investing in the developing world, much of their profit is still banked elsewhere. BBC Radio 4’s File on 4 has learned that almost 100 billion a year is taken out of Africa through accounting practices — several times what the continent receives in aid.
Charles Abugre, head of policy and advocacy for Christian Aid, said this capital flight amounted to “the looting of the continent”. “If we can’t deal with it, there’s no way we can conceive of poor countries detaching themselves from aid dependency,” he said.
Reporting from Kenya on the activities of foreign companies there, File on 4 has discovered evidence of questionable accounting practices — both legal and illegal. Because of the way Kenyan tax laws have evolved, foreign companies can quite lawfully contribute very little in the way of taxes to the country’s economy.
And some other international companies have acted illegally in falsely declaring amounts of tea that are being exported to the UK, according to BBC File on 4’s findings.
In Mombasa, Kenya’s main port town, the tea board has an official working with customs officials to investigate some startling discrepancies. Kenya’s official export statistics say almost 50 million kilos of tea left there in 2005 bound for Britain. But the British import statistics showed 75 million kilos — one and a half times as much — arriving here from Kenya.
A former head of domestic tax for Kenya, Jack Ranguma, told the programme he believed the mismatch was created by customs fraud.
This shows two things, he said. “One, there is a great deal of corruption in Kenya, which is why they are able to prepare documentation which are not consistent with the figures. But more importantly, the companies involved are transferring income. In bald terms what they are doing is to deny Kenya that tax revenue.”
And the country’s Minister for Trade and Industry, Mukhisa Kituyi, called on developed countries to put pressure on companies to behave. He also said Kenya was trying to increase its capacity to prevent these practices from depleting his government’s resources.
But Mr Ranguma, who retired a year ago, expressed doubts about whether the Kenyan government had the commitment and the resources to tackle illegal trade practices. He told the programme he had also discovered widespread under-reporting of profits by flower companies, many of which are owned by Europeans.
What Mr Ranguma had uncovered was the illegal use in Kenya of a legitimate practice known as “transfer pricing” — the means by which firms value their goods for tax purposes when they move them across international borders. In effect, this allows companies to undervalue their products when they leave Kenya and to place their profits elsewhere.
