UK profits from over £11 billion from
Christian Aid reports the UK made a net profit of over £11 billion from Sub Saharan Africa in the 12 months since last year's G8.
UK profits from sub-Saharan Africa despite aid and debt pledges Despite good intentions and billions of pounds worth of aid and debt relief, more money flowed out of poor African coffers into Britain last year than the other way round.
Fresh research by Christian Aid into the financial relationship between Africa in the 12 months since last year's G8 meeting of world leaders in Edinburgh shows that the UK economy gained over £11 billion – or £187 for every single person in the land.
According to the charity, the tally of all the monies given to sub- Saharan Africa by Britain last year were outweighed by all the funds coming into the UK from that region.
`These figures show that even in a year when Africa was high on the agenda thanks to Tony Blair's Africa Commission and the aid and debt pledges at the G8, the underlying truth remains that we in the rich world are taking out vastly more resources from sub-Saharan Africa than we are putting in,' said Dr Claire Melamed, Christian Aid's senior trade analyst.
On the plus side, the UK donated £1.35 billion worth of aid and debt relief. Added to this were nearly £7 billion that the UK paid out to sub-Saharan Africa for importing their goods plus an estimated £460 million that flowed out of the UK to the region in remittances from salaries earned by Africans in this country. When this is added to the estimated £6.8 billion in foreign direct investment by British firms in sub-Saharan Africa, a total of nearly £17 billion is reached.
On the other hand, more than £27 billion from sub-Saharan Africa flowed in the opposite direction towards the UK. This figure includes debt repayments of over £1 billion from Nigeria and other African countries to the UK. Added to this was around £17 billion of capital flight from the region (this is defined as the, often illicit, transfer of funds from the wealth holders in one country to banks or other financial institutions in another country), over £4 billion worth of profits made by UK companies in Africa and remitted back to the UK, plus nearly £4.5 billion worth of imports of British goods.
`The conclusions from this are stark,' said Dr Melamed. `The UK government and its people sometimes think that because we are one of the best aid givers among the rich nations, that we are making real progress on poverty. This is just not the case. In order for aid and debt relief to be really effective, we have to plug the leaks of resources from the Continent to rich countries like the UK.
`The main culprits in this are large corporations and rich individuals who took £22 billion in profits and capital flight from sub-Saharan Africa last year. This money could have been used to build up local economies in Africa but instead it sits in UK banks. The UK government must take action to close the tax loopholes and end the banking secrecy which allows capital flight to flourish,' she said.
Contact Claire Melamed: 0207 523 2148/ 07985 075853 or John McGhie: 0207 523 2418/ 07812 352 130
Notes to editors:
Below is the research carried out by Christian Aid followed by an analysis of the figures.
Flows Africa/UK 2005
to Africa from UK Pound sterling real aid 1,350,000,000 export earnings 6,959,356,193 FDI 6,800,000,000 remittances 460,000,000 Total 15,569,356,193
to UK from Africa Pound sterling debt repayments 1,070,000,000 imports 4,450,930,567 profit remittances 4,250,000,000 Capital flight 17,000,000,000 Total 26,770,930,567
What this means
1. Aid and debt According to DFID, the UK gave £2.48 billion to sub-Saharan Africa in 2005. This figure includes £1.13 debt relief to Nigeria. Most of this should not be counted as aid since it was not being serviced, so writing it off is simply an accounting procedure and not a real resource flow. Jubilee Research estimate that about £100 million of this was being serviced, so we have included that in the aid figure as a genuine resource flow.
Therefore £2.48-£1.03= £1.35 billion aid from UK to Africa.
The figure for debt repayments is composed of £1.05 billion paid by Nigeria to the UK as part of the debt deal between the two countries. A second payment of £650 million was paid in May 2006 under the same deal – this is not included in these figures. Other sub-Saharan Africa debts paid to the government were £20 million. The size of the payment by Nigeria distorts the overall figure for 2005 – but indicates the scandalous nature of a deal that was supposedly about forgiving debt but ended up with Nigeria paying over a billion to the UK treasury in return for cancellation of the £100 million debt that was actually being serviced.
Aid to Africa in 2005 was more than debt repayments from Africa to the UK, even with the very large payment from Nigeria. In future years, without the effect of the Nigeria deal, the ratio of aid to debt would be even higher.
2. Trade flows: exports and imports These figures are from Eurostat, the official EU database, and are compiled from records of trade flows between the UK and every country in sub-Saharan Africa.
The trade balance in 2005 between Africa and the UK (exports and imports) shows that African countries earned more from exporting to the UK than they spent importing goods from the UK. This is partly a consequence of high commodity prices. However, both exports and imports are indicators of economic activity in Africa, and flows in both directions can be a good thing for African businesses and for development. Unlike debt repayments, which are outflows from Africa with no returns, payments from African countries to the UK for imports are payments for actual goods.
3. FDI and profit remittances These figures are extrapolated from the 2001-2004 figures from the Office of National Statistics, since 2005 figures are not available. It assumes that the increase in investment and profit remittances between 2003-4 was maintained in 2005. Since there has been a year on year increase in investment every year since 2001 this is a reasonable assumption.
Comparing total FDI with profit remittances shows that UK businesses invested more in Africa in 2005 than they took out in profit remittances. Profit remittances tend to be from investments made in the past, since in the very early years of an investment profits may well be lower than once the enterprise is up and running. It is likely that profit remittances in the future will rise in response to the recent rise in FDI to Africa from the UK.
4. Remittances According to DFID, total UK remittances overseas were £2.3 billion. This is money sent from individuals working in the UK to family or friends in their country of origin. Including unofficial flows, this figure is likely to be double the official flows, or £4.6 billion. Globally, about 10 per cent of remittances from migrants overseas go to Africa. Since we do not know the exact total from the UK to Africa we have assumed the same proportions, so have assumed that 10 percent of £4.6 billion, or £460 million, is going from the UK to Africa every year.
5. Capital flight The Africa All-Party Parliamentary Group's 2006 report `The Other Side of the Coin' has a figure of £148 billion of capital flight from Africa annually. Capital flight refers to the transfer of funds from the wealth holders in one country to banks or other financial institutions in another country. This can be both legal transfers – like transfer pricing by multinational companies to avoid tax, or transfers by individuals to ensure secrecy for their assets.
Part of it represents the illegal transfer of money by corrupt officials, and some is the result of illegal transactions such as drugs or arms deals. Institutions and individuals in both Africa and the UK are implicated in this very large outflow of funds from Africa – it is multinational companies, usually based in Western countries, who are responsible for the majority of losses through transfer pricing. In addition, banks in the UK and other countries encourage capital flight through allowing banking secrecy and offering tax advantages through subsidiaries based in tax havens.
Only part of the total leaving Africa each year will come to the UK. According to data from the Bank of International Settlements, the UK has about 20 per cent of global banking assets, so assuming that capital flight is distributed evenly, this gives a figure of £17 billion for capital flight from Africa to the UK.
Christian Aid would like the UK government to adopt a series of measures to curb banking secrecy, including:
• legislate to prevent UK banks, accounting firms and lawyers from facilitating corruption by handling illegal financial flows.
• take a lead to eliminate banking secrecy and enable automatic exchange of information with financial authorities in other countries. All banks and other financial institutions should legally be required to disclose to the relevant authorities all interest, dividends, royalties, licence fees and other income that they pay to citizens and companies across the world. This information should be automatically exchanged between countries.
• provide compensation and incentives for tax havens to eliminate banking secrecy.