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DIVIDENDS, DEFICITS, AND DEVELOPMENT: Can Kenyan Millennials Ride the Demographic Wave?

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Falling fertility and mortality rates have put Kenya in line to reap the same demographic dividend that powered the rise of the Asian Tigers – but only if it gets its social and economic policies right. By PAUL GOLDSMITH

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DIVIDENDS, DEFICITS, AND DEVELOPMENT: Can Kenyan Millennials Ride The Demographic Wave?
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The population surge now taking place across sub-Saharan Africa is this continent’s equivalent of the Western post-war Baby Boom. The congruence with demographic transitions elsewhere suggests that in theory, Africa’s “Baby Boomer” millennials are well positioned to affect a radical transformation. The case for a generational social movement intersects Kenya’s potential for a demographic dividend similar to the one underpinning the rapid rise of the Asian Tigers.

Two thousand years ago, Africans comprised an estimated 12 to 15 per cent of the world’s population. Africa’s share had dropped to 9 per cent by 1500 AD. By the end of the 19th century, the export of African slaves to the Americas and environmental calamities contributed to its decline to 6 per cent. Initial conditions, including the continent’s low population densities, physical and spatial barriers to communication, and historical isolation from other world regions, made it vulnerable to European exploitation.

Africa’s population began catching up during the decades of colonial rule, and spiked after independence. The continent’s share of the world’s population reached 17 per cent in 2017, and Africa is projected to host over a quarter of the world’s people by 2050. Naturally, the exceptionally high growth rates of the past several decades pose some formidable developmental challenges for Kenya and for the many other African nations with similar demographics.

Fewer births each year results in a country’s young dependent population decreasing relative to the working-age population. With fewer people to support, a country has a window of opportunity for rapid economic growth, but only if it gets its social and economic policies right. The decline in fertility, albeit slower than was the case in Asia, should exert a similar effect on African countries.

Kenya’s population has been surging since independence, growing from 8 million in 1960 to 13 million in 1975, and doubling to 26 million in 1995. These numbers confirm the fact that all the generations of Kenyans alive today were “Baby Boomers” when they came of age. The result is a population pyramid that over time has more in common with Mt. Kenya than with Mt. Kilimanjaro.

Since the colonial era, Kenya’s lopsided population distribution, where over 80 per cent of the population is concentrated in the 23 per cent of high potential land, has combined with the threat of environmental degradation to provoke Malthusian predictions of impending calamity. During the 1990s, urbanisation and the numbers of new university graduates entering the economy provoked a new set of concerns.

Kenya’s population has been surging since independence, growing from 8 million in 1960 to 13 million in 1975, and doubling to 26 million in 1995. These numbers confirm the fact that all the generations of Kenyans alive today were “Baby Boomers” when they came of age. The result is a population pyramid that over time has more in common with Mt. Kenya than with Mt. Kilimanjaro.

In 1998, I reviewed an internal US State Department analysis of the problem that outlined three future scenarios for Kenya: economic take-off; collapse; and muddling through. Where the document highlighted the prospects for political instability in the future if the then Moi regime of public mismanagement and political corruption were to persist, I opined that Kenyans were a resilient people who would somehow manage as long as the rains were okay.

This proved to be true. The rise in annual GDP growth during the following years may have partially offset the spreading rot, but the large numbers of educated youth entering the work force exposed the unsatisfactory state of affairs, as the accounts of urban millennials published in The Elephant over the last two months have shown.

Demographic dividends and deficits

Population growth in the form of natural increase and mass migration is one of the primary forces of historical change. However, demographic structure is acknowledged to be the more important indicator for developmental policy. The latest population numbers for Kenya provide the quantitative parameters of the country’s shifting generational balance.

Kenya Population Structure, 2017

Kenya Population Structure, 2017

Source:  CIA World Factbook

The backlash against the elders highlighted in many of the Elephant’s Millennial Edition is tempered by their relative scarcity. The elderly – people over the age of 65 – now comprise only three per cent of Kenya’s 48 million population. The 25-54 age group’s current share of the population is now one-third larger than it was in 1975.

One notices the difference conveyed by these statistics as soon as you step off the plane almost anywhere in the northern hemisphere. America’s retiring Baby Boomers, for example, are 16 per cent of the U.S. population. In South Korea, so often cited to underscore the two countries’ diverging economic pathways over the past several decades, the figure is 13.5 per cent. The world’s estimated average is edging towards 10 per cent and growing; the trend will translate into a global reduction in household savings and returns on financial assets. This will reduce the growth of household wealth from the historical mean of 4.5 per cent to 1.3 per cent over the next two decades, according to research on global demographic trends.

These numbers qualify the demographic dividend David Ndii referred to in his contribution to the discourse. Formally defined, the demographic dividend is the accelerated economic growth assisted by a decline in a country’s mortality and fertility and the shift in the age structure of the population. This dividend can be activated when pro-human capital policies combined with a large working-age population create virtuous cycles of wealth creation.

The dividend accounted for an estimated two-fifths of the Asian economic miracle. Now it may be Africa’s turn. Population numbers are moving in this direction, but there are basic prerequisites that must be in place for it to happen. Flexible labour markets, quality education systems and health services, and outward-looking economic policies are conventional elements of the formula.

Kenya’s formal policy framework meets most of the criteria. Despite the slower than expected fertility rate decline, Kenya’s dependency ratio is hovering between 76 per cent and 80 per cent. This means one working individual currently supports up to four dependents, but the ratio will decline, bringing Kenya in the rank of countries expected to reap the dividend. But there is no guarantee that this will happen, as the dividend is time-bound. The equation has real and potential implications for millennials, especially considering that important economic indicators, such as investments and savings, are trending in the opposite direction.

The demographic surge raises the stakes for getting policy right. In the case of Latin America, weak governments and closed economies saw large areas forfeit their dividend during the years between 1965 and 1985. Comparative analysis indicates the interactive effect of policy and demography accounts for 50 per cent of the growth gap between Latin America and East Asia. The corresponding observations about demographic deficits, or the failure to maintain living standards due to population decline or other systemic inefficiencies, underscore the imperative of getting the long-term policy equation right.

The demographic surge raises the stakes for getting policy right. In the case of Latin America, weak governments and closed economies saw large areas forfeit their dividend during the years between 1965 and 1985.

Japan and Europe are now going through the decline phase of their demographic transition. Socio-economic change diminishing the role of extended families and other social mechanisms exacerbates the problem, requiring that the state enact effective social policies to bridge the gap. Although post-war Japan maximised its dividend, it is still having problems coping with a population that is shrinking and aging at the same time. Despite its sustained economic growth, almost half of South Korea’s citizens aged over 65 now live in relative poverty, defined in this case as earning 50 per cent or less of median household income. High levels of isolation and depression have led to a dramatic rise in suicide among the elderly, from 34 per 100,000 people in 2000 to 72 per 100,000 people in 2010.

The United States, in contrast, has traditionally relied on immigration to maintain its working-age population. This has countered the aging variable while sustaining a major source of socio-economic revitalisation in the form of new blood and cultural diversity. The noise from President Donald Trump and his base conflicts with the fact that the 75 per cent of Americans support immigration, and they report that the diversity of immigrants makes the country a better place. The country has systematically capitalised on this multicultural dividend to rejuvenate the population and refresh its economy throughout its history. Present controversies over uncontrolled immigration and refugee influxes camouflage the fact that Europe has lately been following a similar – though undeclared – policy pathway.

Demographic transitions typically involve a large jump in population followed by a steady decline as investment in fewer children replaces the risk-spreading and agricultural labour function of large families. In Kenya, where the fertility rate remained in the mid-3 per cent range until the last decade, perhaps the prolonged transition to “adulating” lamented in some of the millennials’ accounts may hasten the fertility rate to drop to the replacement level of 2.1 children per woman from the 2.7 of the past decade.

The employment numbers indicate that the process of reaping the dividend here is less linear and subject to the distinctive features of Kenya’s geography and domestic politically economy. The median age in Kenya is now 19, and Kenya’s 39 per cent overall unemployment rate translates into 22 per cent for youth. The numbers for neighbouring countries are much lower: 4.1 per cent for Uganda; 5.2 per cent for Tanzania; and 3.1 per cent for Rwanda. Even Nigeria, Africa’s most populous country, has a significantly-below-Kenya youth unemployment rate of 13 per cent.

Even though we should not accept all these economic numbers at face value (the less visible parallel economy that doesn’t show up in official statistics is an important source of informal sector livelihoods in Kenya), we may be facing the politically explosive demographic overload scenario that was detailed in the State Department study twenty years ago.

The median age in Kenya is now 19, and Kenya’s 39 per cent overall unemployment rate translates into 22 per cent for youth. The numbers for neighbouring countries are much lower: 4.1 per cent for Uganda; 5.2 per cent for Tanzania; and 3.1 per cent for Rwanda. Even Nigeria, Africa’s most populous country, has a significantly-below-Kenya youth unemployment rate of 13 per cent.

The demographic dividend has a finite window; it does not occur automatically. Both the policies and their timing are critical, which is why Kenya’s millennials are facing a two-pronged dilemma: unemployment is high yet some 47 per cent of the Kenyans sampled in a 2014 Pew Research Survey reported that aging is a major problem. The figures for populous Nigeria, crowded Egypt, and middle-income South Africa came in at 28 per cent, 23 per cent, and 39 per cent in comparison, respectively.

These factors raise the stakes for Kenya getting things right now. But there is more at the crux of the debate than economic policy and warm bodies. Technological innovation works with population increase to drive human adaptation, and developments are moving rapidly on this front.

The fast-moving advance of the fourth technological revolution suggests that Kenya and its neighbours in Rwanda and Ethiopia have the potential to jump the queue if they position themselves properly for the longer run. Negative implications of artificial intelligence for the future of work should not distract us from the benefits on the horizon. The technology sector and building the industrial Internet may serve the same role that manufacturing did in Asia, although the potential for the same demo-techno double dividend cannot be taken for granted.

Assessments of African economic trends now argue that Africa is not likely to transit through the phase of manufacturing and carbon-driven energy generation that powered the post-World War II rise of East Asia and other world regions. Fourth generation technologies, in contrast, can generate an equivalent rise in prosperity and economic growth. This will come about through their contribution to everyday economic domains like health care, resource management and precision agriculture. Digital platforms are already creating a new small-scale ecosystem for commodity marketing, financial inclusion, and women’s empowerment according to one Kenyan expert.

The potential for tech-driven growth will require more than the tech hubs being established in Africa’s tech-friendly countries. It requires the kind of unorthodox and often irreverent problem-solving mindset that the country’s education system is adept at quashing.

The dynamic relationships linking scientific research, applied technology, and venture capital are critical to contemporary processes of innovation. This requires an enabling cultural environment, as demonstrated by the rise of American tech hotspots in the San Francisco Bay area, North Carolina’s research triangle, and the northeastern corridor. These hotspots were not planned; rather, the presence of top research universities and a culture of critical thinking and entrepreneurial risk-taking enabled their rise to prominence over the past three decades.

Kenya’s economy was building towards a transformational tipping point before events saw the country drift into a nebulous purgatory of ethnic polarities and failed constitutionalism. Now deficit financing of infrastructural projects and massive corruption are continuing to remove from circulation critical resources that could be energising the younger generations’ pent-up human capital.

The future availability of such investment capital cannot be taken for granted. It may decline apace with the industrial world’s demographic deficit over coming decades. Then again, demographic trends and the historian John Illife’s treatise on The Emergence of African Capitalism suggest that the continent just may step into the gap. (This was in 1981.) The importance of this synergetic union of capital and labour happening now extend beyond the African continent due to the significance of Africa’s expanding share of the world’s economically active population for the world economy.

Kenya’s economy was building towards a transformational tipping point before events saw the country drift into a nebulous purgatory of ethnic polarities and failed constitutionalism. Now deficit financing of infrastructural projects and massive corruption are continuing to remove from circulation critical resources that could be energising the younger generations’ pent-up human capital.

Beyond demography and economic policy

The first thing that strikes me when I get off the plane back in Kenya is the high level of activity almost everywhere one looks. The country is bursting with energy, but some of it is misdirected and much of it is generating low per capita returns.

The former World Bank head for Kenya, Apurva Sanghi, attributes the mismatch between job requirements and the shortfall of skilled labour due to the poor quality of education. This mismatch clashes with the millennials’ claims about their high level of education. The dramatic growth in universities in Kenya saw quantity replacing quality and the acquisition of paper qualifications displacing the search for knowledge. The commercialisation of higher education has in effect been another drain on the economy that has deprived a large segment of the millennial generation of the skills commensurate with their degrees and diplomas.

The more one studies the data, the more muddled the already uncertain big picture becomes. Even so, the long-term fundamentals, including the country’s 5 per cent per annum growth rates, are at best just okay.

As the latest World Bank overview for Kenya states, Kenya has the potential to be one of Africa’s success stories. All the country has to do is address “the challenges of poverty, inequality, governance, the skills gap between market requirements and the education curriculum, climate change, low investment and low firm productivity in order to achieve rapid, sustained growth rates that will transform lives of ordinary citizens.”

This is a very tall order and until this happens the country will continue to face the risk of stagnation and a creeping demographic deficit. The clock is ticking. In any event, the country needs more than the population-based dividend to drive its transformation. Assuming that demographic growth and the right policies do account for up to 40 cent of the Asian economic miracle, where did the other 60 per cent come from?

Japan and the Asian Tiger nations achieved their reputation through rapid growth compacted within the space of several decades. The demographic dividend is the central component in the developmental mantra explaining East Asia’s remarkable transition. The dividend was activated by policies that combined agricultural commercialisation, liberalisation and the relaxing of state controls, fostering a combination of domestic industry and export-led growth with favourable international economic conditions.

South Korea, the most popular exemplar for other developing countries, implemented deliberate population policies and pragmatic economic guidelines that helped create an age structure facilitating its rapid transition from an agrarian to an industrial society during the short interval between 1960 and 1990. The mutually reinforcing economic and population policies resulted in a basic shift at the household level, with changes in women’s roles and the rise of a middle class in place of the formerly dominant land-owning aristocracy.

The Asian exemplars counteracted the influence of Malthusian assumptions on post-independence developmental thinking, and now the Chinese model figures prominently in the calculations of many African political decision-makers. The Lamu Port, South Sudan, Ethiopia Transport Corridor (LAPSSET) project is emblematic of the focus on large infrastructure projects, natural resource exports, and extractive industries. The proposed Konza Technology City is another worthy but flawed project representative of the central command approach. The coders, investors, nerds, and hackers are not thrilled about moving to a corporate complex in the hinterland in the tradition of sparsely inhabited cityscapes like Brasilia, Morogoro, and China’s Xiongan megacity.

Asia’s big blueprint approaches were consistent with the central planning tradition and Confucian ideologies of social harmony that justified past South Korean and present Chinese and North Korean dictatorships. But there was nothing particularly harmonious about the Asian developmental processes that grew out of the region’s intense internal and territorial struggles, all of which reflected the zero-sum stakes of the era’s ideological conflicts. The triumph of capitalism in that region was anointed with blood, napalm, and genocidal pogroms. The success of the Asian Tigers was the culmination of a long fight that began with imperialism and led to new policies midwifed by fierce competition within old societies sharing similar environmental settings and socio-economic constraints.

Africa’s distinctive features, however, contrast with the conditions underpinning the Asian developmental orthodoxy. In the case of Kenya, competition between communities and opposition to the state prevail whereas in Asia competition and conflict were over ideology and economic models. Growing local opposition to centrally-planned projects in places like Turkana, Isiolo, and Lamu is indicative of the kind of political and social obstacles now complicating the next phase of the proverbial way forward.

Milk, as the pastoralists’ blockade of the road to Lodwar indicates, is still thicker than oil in the Horn of Africa.

It is interesting that the Marxist planners of the superpower era in Eastern Europe saw artificial intelligence as the natural ally of socialist development. AI may still prove to be an antidote to the inequities promoted by neoliberal capitalism. Where Western advisors stressed population control, their socialist counterparts in Africa saw population growth as integral to the continent reclaiming its position on the world stage. The prospects of this happening over the next several decades reminds us that Marx was one of the few analysts to critique the natural laws of Malthus when he postulated that each society at each point in history has its own laws that determine the consequences of population growth.

In traditional African systems, these laws often reflected the dynamics of generational succession. The cultural emphasis on the wisdom of the elders supported their embedded cross-generational influence on decision-making. I witnessed negative examples of this tradition in my children’s schools, where on more than one occasion, I lost arguments with fellow parents over issues like setting up computer labs and Internet connections. Kenya’s fossilised education system is one of the culprits responsible for the under-35ers’ angst, and this is corroborated by another recent essay on the multidimensional crisis plaguing higher education, published in The Elephant.

Has the generational model of African development hit a wall? The unproductive transfer of generational assets that formerly sustained capital formation is undermining productivity in the highland areas that fueled Kenya’s post-independence prosperity. When parents die they bequeath their wealth to their children, and this powered economic growth and diversification in the past. This vector is now turning family farms into dead capital as the owners age and their children working outside the sector block the sale of family land. The widespread leasing of small acreages and the break-up of large farms into parcels for rent is one symptom of a malaise that impacts beyond the agricultural sector.

 

The economic planners that once fostered Kenya’s economic growth have morphed into bureaucrats trapped in the development administration contradiction Bernard Schaffer identified in 1969. Schaffer argued that the first imperative of state administrators is to conserve and protect their bureaucracies while “development” is essentially an entrepreneurial activity. Kenya’s cartels and tenderpreneurs offer proof of the term’s oxymoronic logic.

 

Everywhere the millennials look they see dead ends, or so it seems from the urban point of view. Ndii’s “Hustler Nation essay argues that multiple productivity enhancing interventions in rural areas will generate far more to youth employment and productivity than the mega project revenue vampires they have conjured up. The resources allocated to building a tech city, for example, would be better invested in interdisciplinary IT programmes hosted by universities across the country, and other nodes dedicated to addressing economic activities ripe for innovation.

Everywhere the millennials look they see dead ends, or so it seems from the urban point of view. Ndii’s “Hustler Nation” essay argues that multiple productivity enhancing interventions in rural areas will generate far more to youth employment and productivity than the mega project revenue vampires they have conjured up.

These are the kind of issues that the millennial generation intellectuals and activists would do well to explore and debate. Their future, if not present welfare, will likely depend on developing creative developmental formulae consistent with the region’s historical trajectory and distinctive socio-cultural variation. A shift in this direction is beginning to gather speed on the county level, where the stakeholders are much better situated to generate the adaptive policies needed to maximise the demographic dividend.

In any event, we now know that progress is more a function of trial and error than the strategic planning processes and interventions managed by actors who remain insulated from their failures and unintended consequences. Devolution generates local initiatives, like the Makueni County public health revolution, which can be replicated and tweaked to fit the conditions in other settings.

Considering the obsession with branding of almost every Kenyan enterprise, with its vision and mission statements, more expansive thinking on these issues is one area where The Elephant’s Millennial Edition articles came up short. But they are not, as David Ndii contended, “on their own”. In addition to their rural age-mates, there is a growing transnational movement out there that is beginning to coalesce into a mass generational movement.

I hope it happens. Africa does need to regain its rightful place in the world, and someone needs to rescue the species from the Trumpian values of late capitalism.

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Dr. Goldsmith is an American researcher and writer who has lived in Kenya for over 40 years.

Politics

No War, No Peace: Life and Death in Eritrea

Thirty years after Eritrea gained independence from Ethiopia, there has hardly been any meaningful development in this small nation in the Horn of Africa. On the contrary, the government’s authoritarian policies have undermined democracy and forced young people to flee the country.

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No War, No Peace: Life and Death in Eritrea
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Eritrea was an Italian colony from 1890 to 1941. Following the defeat of Italian forces by the Allied Forces during World War Two, Britain occupied Eritrea until its federation to Ethiopia in 1952. However, by 1962 Emperor Haile Selassie had annexed Eritrea, declaring that it was part of Ethiopia, and in this way ending the federation.

In 1961, a year before the annexation, the Eritrean Liberation Front (ELF) started an armed struggle for independence from Ethiopia. The armed struggle continued for 30 years against successive Ethiopian regimes until 1991, when the Eritrean People’s Liberation Front (EPLF), who had replaced the ELF, defeated the Ethiopian forces in Eritrea. Eritrea became formally independent following a United Nations-supervised referendum in 1993.

From the beginning, the EPLF (now the People’s Front of Democracy and Justice – PFDJ)’s strategy for achieving liberation and national unity was for it to dominate all social, political, and economic spaces. The PFDJ implemented a highly centralised and opaque two-track system of administration: an unseen, powerful inner circle of elites; and public structures that projected an image of egalitarian self-sufficiency. This centralised and opaque model of governance continues today.

Since liberation, PFDJ has banned all opposition parties and treats all non-mass-movement organisations (i.e. independent civil society) with suspicion; hence there are no independent national civil society organisations in the country. Without any consultation, the PFDJ has nationalised all land; it has established a unitary form of government, and it has changed the administrative boundaries within the country. Despite these totalitarian tendencies, in 1994, the PFDJ, as the Provisional Government of Eritrea, set up the Constitutional Assembly to draft the Constitution. The task was completed in 1997. But the Constitution remains unimplemented.

Border dispute

In 1998, hostilities and war between Eritrea and Ethiopia resumed over border demarcation issues, particularly in the town of Bademe. By December 2000, the two countries signed the Algiers Peace Agreement and established the Eritrea Ethiopia Border Commission (EEBC) to determine the limits of their shared border.

The EEBC delivered its border decision on 13th April 2002, placing the town of Bademe, the flashpoint of the border conflict, on the Eritrean side. The Ethiopian government contested the allocation of Bademe to Eritrea. Therefore, a situation of “no war, no peace” ensued between the two countries as President Isaias Afewerki refused any dialogue on the issue because the parties had agreed that the decision of the EEBC was final and binding.

President Isaias Afwerki, who is also the chair of the PFDJ, took advantage of the strained relationship with Ethiopia to:

  1. indefinitely postpone the implementation of the 1997 Constitution as well as the general elections;
  2. arrest and disappear dissenters, especially University of Asmara students and the members of the government known as G15 who promoted a democratisation process (2001);
  3. close the independent media and arrest journalists (2001);
  4. abolish the Eritrean National Assembly (i.e. the Eritrean Parliament) (2002);
  5. maintain a high level of militarisation of the country.

To maintain a high level of militarisation, the government vertically integrated the National Service to the National Development Programme (i.e. the Warsay Yikaalo National Development Programme) and to Education. This integration allows the Eritrean government to move students into the National Service and the National Development Programme from high schools (i.e. Grade 12) and indefinitely extends the period of service of the conscripts, hence taking full control over the working population.

In 1998, hostilities and war between Eritrea and Ethiopia resumed over border demarcation issues, particularly in the town of Bademe. By December 2000, the two countries signed the Algiers Peace Agreement and established the Eritrea Ethiopia Border Commission (EEBC) to determine the limits of their shared border.

Through the integration of the National Service into the Warsay Yikaalo National Development Programme and Education, the government has limited the citizenship rights of conscripts who while in service cannot: legally obtain a mobile phone or SIM card; get or renew a business licence; access land; and access travel documents and exit visas. Deserters or objectors are denied any rights and cannot access state services. Thus, the official Eritrean concept of citizenship is intrinsically linked to conscription and the fulfilment of National Service duties.

The National Service is a combination of military training and civil service, working for little pay in non-military activities such as agriculture, the construction of roads, houses and buildings and mining. The Warsay National Development Programme relies on the deployment of te National Service (Warsay) and defence personnel (Yikaalo) as a labour force. The programme operates under the umbrella of the Ministry of Defence.

Since 2003, the government has closed the University of Asmara (the only university in the country). It has also required that all Eritrean students complete Grade 12 at the Sawa military training camp. Students who have not completed their final year of secondary school at Sawa and have not sat for the National School Certificat, cannot access college education. The PFDJ has replaced Asmara University with regional colleges, which are administered jointly by an academic director and a military director.

National Service conscripts work for an indefinite period on development projects, the administration of ministries and local authorities, as well as in PFDJ-owned businesses. Such work is carried out for very little pay and in conditions that a UN Commission of Inquiry on Human Rights in Eritrea described as “forced labour”.

The Eritrean authorities’ control over the people includes the restriction of movement both internally and externally. Therefore, all Eritreans aged five and above cannot leave the country without an exit visa. The government will not issue an exit visa to any Eritrean above the age of five, irrespective of their situation (i.e. family reunification, health, etc.)

The government’s control over the Eritrean people is a political, social and economic process of deprivation and human rights violations for which it refuses to take any responsibility. It is systematically impoverishing the population. Therefore, Eritrean youth face having to choose between the life of slave labour or exile. They describe their situation as slavery: “[The] situation in Eritrea and long time ago with slaves is the same. We build the houses of the elites without money. We work on farms of government officials for no money. If you are educated, they deploy you to anywhere…for a short time, you can tolerate it…but this is for life.”

Faced with accusations of human rights violations, the government reverts to “threat” mode. It labels any reference to human rights violations as “lies” and “ploys” of its enemies to undermine the state. The PFDJ Head of Political Affairs, Mr Yemane Gebreab, dismissed the findings of the Commission of Inquiry on Human rights by saying: “….[it is] really laughable……There is no basis to the claims of the Commission of Inquiry…”

The Eritrean authorities’ control over the people includes the restriction of movement both internally and externally. Therefore, all Eritreans aged five and above cannot leave the country without an exit visa.

In addition to taking control over the working population, the government also took control of the economic sectors, including finance, import and export, transport and construction. It has achieved control over the economic sphere through a process of unfair competition with private business, facilitated by the fact that it does not pay taxes and does not comply with labour, environmental, and other regulatory requirements. Also, as the regime has control over the working population, it has unlimited access to a large pool of free labour, effecting a net transfer of the workforce away from the private sector. This policy of moving human resources to labour sites identified and controlled by the government has crippled the private sector, especially the agricultural industry, which still relies to a large extent on subsistence farming.

The government’s control and domination of the economy have not increased economic activity or productivity. The economy is stagnating, further weakening the private sector and restricting economic opportunities for Eritreans.

Notwithstanding PFDJ’s rhetoric, Eritrean youth experience the state as an albatross around their necks. They understand the state in terms of spy networks; as a human rights violator curtailing civil, political, and economic rights and as the as the source of torture and deprivation. They see it as the source of all restrictions and deprivations. This is the reason why they flee the country.

Peace Agreement with Ethiopia and its aftermath

In April 2018, the Ethiopia Prime Minister Abiy announced the acceptance of the EEBC decision, in particular the allocation of the flashpoint town of Bademe to Eritrea. In this way, he started a process that led to the signing of the Ethiopia Eritrea Peace Agreement in July 2018, thus ending two decades of “no war, no peace”. The land borders opened to much jubilation in 2018. However, by April 2019, the Eritrean government had closed them all. So far, the only achievements of the Peace Agreement are the reopening of embassies and telecommunication lines and the resumption of flights.

The signing of the Peace Agreement immediately raised expectations that there would be a normalisation of relations between the two states. It also raised expectations regarding reforms within Eritrea that would lead to a reduction in the number of Eritrean youth fleeing the country. Soon after the signing of the Peace Agreement, the Eritrean Catholic priest Aba Teklemichael pointed to the sweeping reforms implemented by Prime Minister Abiy in Ethiopia, and urged the Eritrean government to also undertake necessary reforms in Eritrea and to democratise the government. By Easter 2019, the Eritrean Catholic bishops were also calling for a constitutional government and the rule of law. They also encouraged the government to release political prisoners and start a process of reconciliation within the country. However, to date there have been no reforms in the country, a state of affairs confirmed by the UN Special Rapporteur on Human Rights in Eritrea who at the start of this year reported that she had: “ ……no tangible evidence of a meaningful and substantive improvement in the situation of human rights in Eritrea”.

The signing of the Peace Agreement immediately raised expectations that there would be a normalisation of relations between the two states. It also raised expectations regarding reforms within Eritrea that would lead to a reduction in the number of Eritrean youth fleeing the country.

The ongoing peace process is not transparent; it has mostly remained an elite political level agreement unable to deliver on the economic front or to resolve the issue of Bademe as both Prime Minister Abiy and President Isaias Afewerki have marginalised the Tigray People’s Liberation Front (TPLF) for political motives. The Eritrean government has increasingly identified the Tigray State and the Tigray People’s Liberation Front (TPLF) as an existential threat to Eritrea, thus justifying the maintenance of a high level of militarisation. Consequently, Eritrean youth continue to flee the country. In 2018, UNHCR ranked Eritrea as the ninth-largest refugee-sending state in the world.

Ailing health sector

The totalitarian agenda of the Eritrean government did not spare the health sector either. The task of reconstructing the Eritrean health system after the liberation struggle and following the 1998-2000 Eritrea-Ethiopia border war was monumental. It was an undertaking that the late and former Minister of Health Saleh Meki undertook with passion, commitment, and zest from 1997 to 2009 when Ms Amina Nurhussein replaced him.

In his efforts rebuild the Eritrean health system, Saleh Meki sought to establish strategic partnerships with critical international health institutions, private practitioners, faith-based organisations, such as the Catholic Church, as well as professional members of the Eritrean diaspora. The former Minister of Health carried on with his efforts despite the enormous pressure to conform to the dictates of President Isaias Afwerki, and the concerns generated by the closure of international non-governmental organisations, as well as the restriction of movement imposed on all organisations working in the country. Against all the odds, he re-established the medical school known as the Orotta Medical School.

Saleh Meki died on 2nd October 2009. Soon after his death, all the medical missions of international organisations that he had worked so hard to bring to Eritrea ended. By 2011 the Eritrean Government forced the closure of all private medical clinics. And, by 2018 a total of 29 Catholic health facilities providing maternal and child health support and serving some of the more remote communities in the country were closed. The seizure and closure, of the Catholic health facilities was carried out in complete disregard to the health and safety of the patients, most of whom were left to fend for themselves.

There was no clear justification for the closure of the private health facilities. However, the closure of the Catholic health facilities was justified as an enforcement of the 1995 Proclamation to standardise and articulate religions institutions (Proclamation No 73 of 1995). The Proclamation prohibits religious bodies from engaging in social and welfare services. This position is contested by all faith-based organisations, especially since there was no consultation in the development of the law. The Eritrean Catholic bishops’ communication with the government on the seizure and closure of their health facilities point out that the facilities operated by abiding with all the requirements of the Ministry of Health.

Poor COVID-19 response

The closure of health facilities has reduced the number of available beds and the overall capacity of the health system. Hence, Eritrea, with a score of 0.434, was ranked 182nd out of 189 countries by the 2019 Human Development Index. The low Human Development Index combined with a hospital bed capacity of 7 beds for 10,000 people, and no available data as to the number of health professionals (i.e. doctors and nurses) available per 10,000 people, suggests that the situation might be even more dire. And the poor connectivity of the country (i.e. mobile phones, internet, broadbands) means that the country’s capacity to deal with pandemics such as COVID-19 is low.

The low capacity of the Eritrean health system to deal with the COVID-19 pandemic was also of concern to the diaspora Eritrean Healthcare Professionals Network (EHPN), which urged the Eritrean government to immediately implement the World ealth Orbanization (WHO) and Centre for Disease Control (CDC) guidelines and advisories to contain the pandemic. EHPN expressed concern that the country lacks the necessary prerequisites to implement hygiene measures because: “There is a shortage of water, disinfectants, laboratories that carry out diagnostic tests and medical professionals, including nursing and technical staff. There is also a lack of functioning intensive care units with adequate ventilation equipment needed to properly treat patients. The reality is that many Eritreans will not be able to seek and obtain medical treatment in their homeland or neighbouring countries. In short, the Eritrean health system is not adequately prepared for COVID 19.”

Fears regarding the poor state of the Eritrean health system were further heightened when the Eritrean government refused COVID-19 emergency supplies donated by the Chinese billionaire Jack Ma and his Alibaba Group. Mr Hagos “Kisha” Gebrehiwet, the head of Economic Affairs in the ruling PFDJ, justified the rejection of Jack Ma’s donation by saying that it was unsolicited.

The government’s willingness to reject donations has, however, launched a COVID-19 appeal among citizens. The appeal is remarkable for the lack of information as to how the funds raised will be used. There is no single COVID-19 emergency response bank account designated for the appeal; hence, in the diaspora, funds are collected in different foreign bank accounts set up by Eritrean embassies. Consequently, there is a real danger that the funds will never enter the country and will disappear into the government’s opaque offshore financial system. Also, there is no information as to how the Ministry of Health will use the funds. Reports by Eritrean human rights activists say the appeal is coerced, confirming the lack of transparency and accountability of the fundraising process.

There is also no transparency in the COVID-19 data that the Eritrean government is providing. It reported the first four COVID-positive cases on the 21st and 23rd of March. One patient was an Eritrean national resident in Norway, and the other three positive patients were Eritrean nationals returning from Dubai. Because of these events, by 26th March, the government banned all commercial passenger flights for two weeks. It also closed schools. And, by 1st April, it imposed COVID-19 lockdown measures.

Fears regarding the poor state of the Eritrean health system were further heightened when the Eritrean government refused COVID-19 emergency supplies donated by the Chinese billionaire Jack Ma and his Alibaba Group. Mr Hagos “Kisha” Gebrehiwet, the head of Economic Affairs in the ruling PFDJ, justified the rejection of Jack Ma’s donation by saying that it was unsolicited.

The lockdown measures did not include the closure of the Sawa military training camp or the release of political prisoners. The government has recently released 27 Christian prisoners, who were imprisoned without charge or trial for as long as sixteen years. Their release is conditional on their family lodging their property deeds with the government as a guarantee that the people released will not leave the country.

While maintaining a strict lockdown, the Eritrean government has allowed mass gatherings to celebrate the graduation of the 33rd round of Sawa military training camp graduates as well as the transfer of Grade 12 conscripts to the facility.

From 1st April to 18th April, the Eritrean government reported 39 COVID positive cases, all linked to Eritreans visiting or returning from their travels. Then, for two months, there were no new cases reported. After that, the number of COVID-positive cases increased, and by the 12th of October, Eritrea reported a total of 414 COVID-positive patients and 372 recoveries.

Though the government makes repeated references to quarantine centres, it has not shared a list of the centres, their location or capacity. It is also not reporting the daily number of COVID tests. Nor has it reported any COVID-related deaths or any community transmission of the virus. It continues to attribute all the new COVID cases to Eritreans returning through “irregular land and sea routes” from Ethiopia, Sudan, Djibouti and Yemen. But there is no explanation as to why so many nationals are travelling despite the government’s strict lockdown procedure that prohibits all movement between towns and that restricts te movement of any vehicles, including buses and taxis, which require movement permits. Such permits are not easy to obtain.

Finally, there are only five incidents of Ministry of Information reporting the number of individuals tested or in quarantine:

  1. 3,000 quarantined – 8th May 2020;
  2. 5,270 quarantined – 3rd June 2020;
  3. 7,158 nationals returned through irregular land and sea routes. Not clearly stated but the implication is that they were all quarantined – 14th June 2020;
  4. 18,000 citizens allegedly returned through irregular land and sea routes. This movement occurred in the last four months. Again, not clearly stated but the implication is that they were all quarantined – the 12th October 2020;
  5. 41,100 tests – 12th October 2020.

In a recent report, the Eritrean Ministry of Information asserted that the rate of COVID infection in the country was “a paltry 0.02%”, based on one (1) positive result during 4659 random tests done in Asmara”. The data shared by the government (41,100 tests and 414 COVID-positive cases) suggests that the rate of infection is just 1 per cent.

The COVID lockdown in Eritrea, like in other countries, has brought economic activities to a standstill. The difference between Eritrea and other countries is that the Eritrean economy was already on its knees before the lockdown and the Eritrean government has not made any attempt – beyond extorting donations from its citizens – to alleviate the suffering of the people with economic support packages. Consequently, Eritreans are hungry and desperate and have started to ignore strict lockdowns. They are on the streets selling all kinds of goods. Women are out in the streets, making tea and cooking food for sale. Family and friends describe Asmara, the capital city, as full of mobile tea shops.

In a recent report, the Eritrean Ministry of Information asserted that the rate of COVID infection in the country was “a paltry 0.02%”, based on one (1) positive result during 4659 random tests done in Asmara”. The data shared by the government (41,100 tests and 414 COVID-positive cases) suggests that the rate of infection is just 1 per cent.

The Eritrean Afars have, through the Red Sea Afar Human Rights Organisation (RSAHRO), issued a press statement, describing their situation under lockdown as a: “… siege imposed by the Eritrean regime on the citizens of the region.”. They warn of the danger of hunger in their area. They also describe confiscation of boats, camels and supplies by the military, closed health centres, unprepared quarantine centres, as well as lack of medical supplies. The human rights organisation also accuse General Tekle Manjus of confiscating trucks of emergency food sent from Asmara for distribution among the Afar.

The Afar coastal area is not the only area in danger of hunger. The information from Eritrea is that hunger is very real all over the country. The government media and social media accounts do not report the danger of hunger or any of the difficulties that the people are facing during this COVID-19 emergency. Their postings give the impression that Eritrea is doing just fine.

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The Search for a Puppet Chief Justice

The emotional energy invested in controlling the recruitment of the next Chief Justice could turn out to be a source of great frustration when administrative fiat and bench-fixing do not deliver the anticipated results.

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The Search for a Puppet Chief Justice
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Anxiety over who will replace Chief Justice David Maraga exploded into the public domain on Friday, October 16, 2020, when a member of the Judicial Service Commission (JSC) alleged a plot to delay the recruitment process. Macharia Njeru, one of the two representatives of the Law Society of Kenya (LSK) to the JSC, claimed in a public statement that the Chief Justice and a few others were “hellbent on derailing the orderly recruitment of his successor and leaving the institution of the Judiciary in a crisis of leadership”.

LSK immediately dissociated itself from Macharia’s position and asserted that the “state capture of the Judiciary and the Judicial Service Commission would not be executed through its representatives”.

The parliamentary Justice and Legal Affairs Committee had earlier failed to prevail on Justice Maraga to take early terminal leave, and subsequently published a proposal to change the law on when to begin recruitment of a new Chief Justice. The Chief Justice will officially retire on January 12, 2021, when he turns 70, but he is expected to take leave on December 15, 2020.

Powerful individuals in the country’s politics cannot wait to see Justice Maraga’s back because of his surprising show of spine. On September 1, 2017, the mild-mannered and soft-spoken jurist led a four-judge majority of the Supreme Court to annul the presidential election in a decision that reverberated across the globe. Last month, Justice Maraga advised the President to dissolve Parliament for failing enact laws to increase representation of women in national elected leadership on the strength of a High Court declaration and six petitions.

Between the two monumental decisions, the Chief Justice has called out the President over judiciary budget cuts, disregard for court orders and verbal attacks on the institution he leads.

Justice Maraga’s name conjures up odium and foreboding in state organs at the executive and legislative levels, expressed through punitive budget cuts in the Judiciary, disregard of courts’ authority, and derisive rhetoric. None of these backhanded actions have brought the politically powerful any satisfaction, hence the abiding desire to find a more user-friendly Chief Justice.

Vacancies in the Judiciary can only be advertised fourteen days after they open up, according to the law, which means that the Chief Justice, who also chairs the JSC, plays no role in recruiting his successor. Previously, individuals in the presidency unsuccessfully sought to influence who becomes Chief Justice since the Constitution of Kenya, on its promulgation in 2010, retired Justice Evan Gicheru in February 2011. At the time, President Mwai Kibaki nominated the Court of Appeal’s Justice Alnashir Visram for Chief Justice without inviting applications or conducting interviews. He was countermanded by the newly-constituted JSC, which then conducted one of the most brutal public interviews for the position before choosing civil society icon and law scholar Willy Mutunga.

Justice Maraga’s name conjures up odium and foreboding in state organs at the executive and legislative levels, expressed through punitive budget cuts in the Judiciary, disregard of courts’ authority, and derisive rhetoric.

Dr Mutunga’s transparent recruitment freed him from the usual baggage that would accompany a political appointment to lead the transformation of the judiciary into an independent, publicly accountable institution [Full disclosure: I was communication advisor in the Office of the Chief Justice from 2011 to 2015]. By the time Dr Mutunga chose to retire a year early in June 2016, he had trebled the number of judges to increase efficiency, built confidence and secured the highest funding ever for the institution. He also ring-fenced decisional independence that would enable courts to act as a check on executive and legislative power.

After the Supreme Court upheld the 2013 presidential election, an internal corruption investigation in the Judiciary sucked the institution into a confrontation with the National Assembly, which petitioned the President to appoint a tribunal to investigate six members of the JSC. A five-judge High Court bench neutered the tribunal before it could sit and presented the first contest between Dr Mutunga and President Uhuru Kenyatta.

President Kenyatta would play possum with a list of 25 judge nominees presented to him by the JSC, first appointing 11 and then keeping the other 14 in abeyance for a year. An amendment to the law to require the JSC to send the President three names from which he could choose the Chief Justice was struck down on account of unconstitutionality.

When Dr Mutunga wanted to retire, the President declined to meet him, and the Speaker of the National Assembly refused to respond to his request to address Parliament. By the time interviews for Dr Mutunga’s replacement began in September 2016, the Executive was disoriented and unable to muscle its substantial vote strength in the JSC for a single candidate.

Although the presidency nominates two non-lawyers as members of the JSC in addition to the Attorney General and a nominee of the Public Service Commission, thus controlling 36 per cent of the vote, the Judiciary has five members – the Chief Justice as chair and one representative each for the Supreme Court, the Court of Appeal, the High Court and the magistrates – and has 45 per cent voice. The Law Society of Kenya’s two representatives – 18 per cent – provide an important swing vote for the Executive or the Judiciary whenever there is no consensus.

Justice Maraga of the Court of Appeal emerged as the dark horse in the three-month search for the Chief Justice on the strength of his electoral law jurisprudence. Earlier attempts to name Supreme Court judge Jackton Ojwang as acting Chief Justice were abandoned. Justice Ojwang trailed fellow Supreme Court judge Smokin Wanjala, Kenyan-American law professor Makau Mutua, and constitutional law expert Nzamba Kitonga.

When Dr Mutunga wanted to retire, the President declined to meet him, and the Speaker of the National Assembly refused to respond to his request to address Parliament.

The Supreme Court’s annulment of the presidential election in September 2017 produced voluble complaints from President Kenyatta, who threatened unspecified action against the Judiciary. The independence of the Judiciary, represented in the person of the Chief Justice, has clearly rankled President Kenyatta and his supporters. He subsequently began a systematic reorganisation of the Executive’s representatives to the JSC by picking a judiciary insider, Court of Appeal president, Kihara Kariuki, to replace Attorney General Githu Muigai. Even before the terms of public representatives Winnie Guchu and Kipng’etich Bett were midway, he recalled them and replaced them with Prof Olive Mugenda and Felix Koskey. And then he declined to gazette the re-election of Mohammed Warsame as Court of Appeal representative to the JSC. Judge Warsame was finally seated without re-taking oath courtesy of a court decision that obviated the need for his election to be gazetted. He joined the judiciary column led by the Chief Justice, Deputy Chief Justice Philomena Mwilu, who had been elected to represent the Supreme Court, and Justice David Majanja, who represents the High Court.

Fears have been rife that the election of the magistrates’ representative to replace Chief Magistrate Emily Ominde in December and the replacement of LSK woman representative Mercy Deche could provide an opportunity for the Executive to support pliant candidates, in addition to Macharia Njeru.

It is likely that urgent attempts to start the Chief Justice’s recruitment could exclude the two representatives of the magistrates and the LSK, thus denying the panel two critical voices. Voting strength in the JSC could also be significantly altered if some of the commissioners apply for the Chief Justice’s position. For one, it is not clear if the 62-year-old Deputy Chief Justice Philomena Mwilu, who already represents the Supreme Court in the JSC, will act as chairperson of the commission once Justice Maraga leaves.

Although voting is an important factor in choosing the next Chief Justice, qualification is probably more important. And the public scrutiny candidates are subjected to, complete with court oversight when required, means that a naked attempt to install a puppet would backfire.

Political horse-trading with Parliament is a necessity for nominees to the position of Chief Justice and Deputy Chief Justice to be confirmed during vetting. Often, politicians view the Chief Justice’s position as one of the spoils to be traded during ethno-regional deal-making. So far, the Chief Justice’s position has been occupied by a kaleidoscope of Kenyans – including many ethnic and religious colourations.

The law only provides for the Deputy Chief Justice to act as Chief Justice “[i]n the event of the removal, resignation or death” and only for a period not exceeding six months pending the appointment of a new one. It remains to be seen if legal experts will argue that retirement is not equivalent to removal, resignation or death. Should Justice Mwilu also throw her hat in the ring for the top job, she would not be able to cast a vote as a JSC member.

Another JSC member who has to weigh between voting and chasing the job is 66-year-old Justice Kihara Kariuki, believed to be a front-runner to succeed Chief Justice Evan Gicheru in 2011 but has bided his time, rising to President of the Court of Appeal before accepting to serve as Attorney General. Meanwhile, Justice Mwilu has been embroiled in petitions seeking her removal from office since the Supreme Court annulled the presidential election. Two years ago, the Director of Public Prosecutions and the Director of Criminal Investigations launched a highly publicised effort to arrest and charge her with corruption before the High Court discharged her and advised that complaints against her be first have been processed through the JSC. Justice Mwilu has since tied the JSC in legal knots over the involvement of the Attorney General and one other member in hearing the complaint against her, claiming that they have shown bias.

Although the Constitution allows a Chief Justice to serve for a maximum of 10 years, the practice so far has been to choose individuals who are close to the retirement age, with the effect that those chosen preside over only presidential petitions from one election cycle before they reach the retirement age of 70. If appointments continue to be short-term to limit the pain individuals can inflict on the institution, candidates in their mid-60s appear to be chosen to navigate the 2022 election and leave before the 2027 one.

Although voting is an important factor in choosing the next Chief Justice, qualification is probably more important. And the public scrutiny candidates are subjected to, complete with court oversight when required, means that a naked attempt to install a puppet would backfire.

Although the Supreme Court’s Justice Smokin Wanjala gave a good showing at the 2016 interviews and was ranked second, his age – 60 – means that if appointed, he would hold the job for 10 years. Law scholar Makau Mutua, 62, who was ranked third in the 2016 interviews for Chief Justice, could also give the job another try, as would former Attorney General Githu Muigai, who would similarly be hampered by fears of serving out the 10 years in the post.

The Executive’s frustration with the Judiciary has been expressed as blame for the slow pace of corruption cases, where the courts are criticised for not pulling their weight to deliver quick convictions. The most evident sign of frustration has been the President’s refusal to appoint 41 individuals nominated by the JSC as Court of Appeal and High Court judges. The law does not permit the JSC to reconsider its nominees after the names have been submitted to the President, except in the case of death, incapacity or withdrawal of a nominee. Last week, judge designate Harrison Okeche died after a road traffic accident before he could be sworn in because the President has not published the names as expected. It remains to be seen how the JSC responds.

Chief Justices chair the Judicial Service Commission, and preside over the Supreme Court, which decides the presidential election petitions. Besides the very constrained and collegial power in these two sites, the Chief Justice also exercises administrative power in empanelling High Court benches for constitutional references, and posts judges – powers shared with the President of the Court of Appeal and the Presiding Judge of the High Court.

A Chief Justice cannot direct judicial officers – from the lowliest magistrate to the Supreme Court judge – on how to decide a matter. Much of the power she or he wields is moral and symbolic. The emotional energy invested in controlling the recruitment of the next Chief Justice could turn out to be a source of great frustration when administrative fiat and bench-fixing do not deliver the anticipated results for those seeking a puppet Chief Justice.

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African Continent a Milking Cow for Google and Facebook

‘Sandwich’ helps tech giants avoid tax in Africa via the Netherlands and Ireland.

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Algorithmic Colonisation of Africa
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Google’s office at the airport residential area in Accra, Ghana, sits inside a plain white and blue two-storey building that could do with a coat of paint. Google, which made more than US$ 160 billion in global revenue in 2019, of which an estimated US$ eighteen billion in ‘Africa and the Middle East’, pays no tax in Ghana, nor does it do so in most of the countries on the African continent.

Google Street View of the building registered as Google's office in Accra

Google Street View of the building registered as Google’s office in Accra

It is able to escape tax duties because of an old regulation that says that an individual or entity must have a ‘physical presence’ in the country in order to owe tax.  And Google’s Accra office clearly defines itself as ‘not a physical presence.’ When asked, a front desk employee at the building says it is perfectly alright for Google not to display its logo on the door outside. ‘It is our right to choose if we do that or not’. A visitor to the building, who said she was there for a different company, said she had no idea Google was based inside.

Facebook is even less visible. Even though practically all 250 million smartphone owners in Africa use Facebook, it only has an office in South Africa, making that country the only one on the continent where it pays tax.

Brick and mortar

The physical presence rule in African tax laws is ‘remnant of a situation before the digital economy, where a company could only act in a country if it had a “brick and mortar” building’, says an official of the Nigerian Federal Inland Revenue Service (FIRS), who wants to remain anonymous. ‘Many countries did not foresee the digital economy and its ability to generate income without a physical presence. This is why tax laws didn’t cover them’.

Tax administrations globally have initiated changes to allow for the taxing of digital entities since at least 2017. African countries still lag behind, which is why the continent continues to provide lucrative gains for the tech giants. A 2018 PriceWaterhouseCoopers report noted that Nigeria, Africa’s largest economy, has seen an average of a thirty percent year-on-year growth in internet advertising in the last five years, and that the same sector in that country is projected, in 2020, to amount to US$ 125 million in the entertainment and media industry alone.

‘Their revenue comes from me’.

William Ansah, Ghana-based CEO of leading West African advertising company Origin 8, pays a significant amount of his budget to online services. He says he is aware that tax on his payments to Facebook and Google escapes his country through what is commonly referred to as ‘transfer pricing’ and feels bad about it. ‘These companies should pay tax here, in Ghana, because their revenue comes from me’, he says, showing us a receipt from Google Ireland for his payments. During this investigation we were also shown an advert receipt from a Nigerian Facebook ad that listed ‘Ireland’ as the destination of the payment.

Like Google, Facebook does not provide country-by-country reports of its revenue from Africa or even from the African continent as a whole, but the tech giant reported general revenue of US$ sixty billion as a whole from ‘Rest of the world’, which is the world minus the USA, Canada, Europe and Asia.

Facebook revenue by user geography

Facebook revenue by user geography

Irish Double

The specific transfer pricing construction Google and other tech giants such as Facebook use to channel income away from tax obligations is called an ‘Irish Double’ or ‘Dutch Sandwich’, since both countries are used in the scheme. In the construction, the income is declared in Ireland, then routed to the Netherlands, then transferred to Bermuda, where Google Ireland is officially located. Bermuda is a country with no corporation tax. According to documents filed at the Dutch Chamber of Commerce in December 2018, Google moved US$ 22,7 billion through a Dutch shell company to Bermuda in 2017.

Moustapha Cisse, Africa team lead at Google AI

Moustapha Cisse, Africa team lead at Google AI

An ongoing court case in Ghana — albeit on a different issue — recently highlighted attempts by Google to justify its tax-avoiding practices in that country. The case against Google Ghana and Google Inc, now called Google LLC in the USA, was started by lawyer George Agyemang Sarpong, who held that both entities were responsible for defamatory material against him that had been posted on the Ghana platform. Responding to the charge, Google Ghana contended in court documents that it was not the ‘owner of the search engine www.google.com.gh’; that it did not ‘operate or control the search engine’ and that ‘its business (was) different from Google Inc’.

Google Ghana is an ‘artificial intelligence research facility’.

Google Ghana describes itself in company papers as an ‘Artificial Intelligence research facility’. It says that its business is to ‘provide sales and operational support for services provided by other legal entities’, a construction whereby these other legal entities — in this case Google Inc — are responsible for any material on the platform. Google Ghana emphasised during the court case that Ghana’s advertising money was also correctly paid to Google Ireland Ltd, because this company is formally a part of Google Inc.

Rowland Kissi, law lecturer at the University of Professional Studies in Accra describes Google’s defence in the Sarpong court case as a ‘clever attempt’ by the business to shirk all ‘future liability of the platform’. Kissi is cautiously optimistic about the outcome, though: while the case is ongoing, the court has already asserted that ‘the distinction regarding who is responsible for material appearing on www.google.com.gh, is not so clear as to absolve the first defendant (Google Ghana) from blame before trial’. According to leading tax lawyer and expert Abdallah Ali-Nakyea, if the ‘government can establish that Google Ghana is an agent of Google Inc, the state could compel it to pay all relevant taxes including income taxes and withholding taxes’.

Cash-strapped countries

Like most countries, especially in Africa, Nigeria and Ghana have become more cash-strapped than usual as a result of the COVID 19 pandemic. While lockdowns enforced by governments to stop the spread of the virus have caused sharp contractions of the economy worldwide, ‘much worse than during the 2008–09 financial crisis’, according to the International Monetary Fund, Africa has experienced unprecedented shrinking, with sectors such as aviation, tourism and hospitality hardest hit. (Ironically, in the same period, tech giants like Google and Facebook have emerged from the pandemic stronger, due to, among others, the new reality that people work from home.)

With much needed tax income still absent, many countries have become even more dependent on charitable handouts. Nigeria recently sent out a tweet to ask international tech personality and philanthropist, Elon Musk, for a donation of ventilators to help weather the COVID 19 pandemic: ‘Dear @elonmusk @Tesla, Federal Government of Nigeria needs support with 100-500 ventilators to assist with #Covid19 cases arising every day in Nigeria’, it said. After Nigerians on Twitter accused the government of historically not investing adequately in public health, pointing at neglect leading to a situation where a government ministry was now begging for help on social media, the tweet was deleted. A government spokesperson later commented that the tweet had been ‘unauthorised’.

Cost to public

The criticism that governments often mismanage their budgets and that much money is lost to corruption regularly features in public debates in many countries in Africa, including Nigeria. However, executive secretary Logan Wort of the African Tax Administration Forum ATAF has argued that this view should not be used to excuse tax avoidance. In a previous interview with ZAM Wort said that ‘African countries must develop their tax base. It is only in this way that we can become independent from handouts and resource exploitation. Then, if a government does not use the tax money in the way it should, it must be held accountable by the taxpayers. A tax paying people is a questioning people’.

‘A tax paying people is a questioning people’

Commenting on this investigation, Alex Ezenagu, Professor of Taxation and Commercial Law at Hamad Bin Khalifa University in Qatar, adds that in matters of tax avoidance by ‘popular multinationals such as Facebook and Google, it is important to understand the cost to the public. If (large) businesses don’t pay tax, the burden is shifted to either small businesses or low income earners because the revenue deficit would have to be met one way or another’. For example, a Nigerian revenue gap may cause the government to increase other taxes, Ezenagu says, such as value added tax, which increased from five to seven and a half percent in Nigeria in January. ‘When multinationals don’t pay tax, you are taxed more as a person’.

Nigeria has recently begun to tighten its tax laws, thereby following in the footsteps of Europe, that last year made it more difficult for the digital multinationals to use the ‘Irish Double’ to escape tax in their countries. South Africa, too, in 2019 tailored changes to its tax laws in order to close remaining legal loopholes used by the tech giants. These ‘could raise (tax income) up to US$ 290 million a year’ more from companies like Google and Facebook, a South African finance source said. With US$ 290 million, Ghana’s could fund its flagship free senior high school education; Nigeria could fully fund the annual budget (2016/2017 figures) of Oyo, a state in the south west of the country.

Interior view of the Facebook office in Johannesburg, South Africa

Interior view of the Facebook office in Johannesburg, South Africa

Waiting for the Finance Minister

Nigeria’s new Finance Act, signed into law in January 2020, has expanded provisions to shift the country’s focus from physical presence to ‘significant economic presence’. The new law leaves the question whether a prospective taxpayer has a ‘significant economic presence’ in Nigeria to the determination of the Finance Minister, whose action with regard to the tech giants is awaited.

In Ghana, digital taxation discussions are slowly gaining momentum among policy makers. The Deputy Commissioner of that country’s Large Taxpayer Office, Edward Gyamerah, said in a June 2019 presentation that current rules ‘must be revised to cover the digital economy and deal with companies that don’t have traditional brick-and-mortar office presences’. However, a top government official at Ghana’s Ministry of Finance who was not authorised to speak publicly stated that, ‘from the taxation policy point of view, the government has not paid a lot attention to digital taxation’.

He blamed the ‘complexity of developing robust infrastructure to assess e-commerce activity in the country’ as a major reason for the government’s inaction on this, but hoped that a broad digital tax policy would still be announced in 2020.” Until the authorities get around to this, he said he believed that, ‘Google and Facebook will (continue to) pay close to nothing in Ghana’.

Comment

Google Nigeria did not respond to several requests for interviews; Google Ghana did not respond to a request for comment on this investigation. Neither entities responded to a list of questions, which included queries as to what of their activities in the two countries might be liable for tax, and whether they could publish country by country revenues generated in Africa. When reached by phone, Google Nigeria’s Head of Communications, Taiwo Kola Ogunlade, said that he couldn’t speak on the company’s taxation status. Facebook spokesperson Kezia Anim-Addo said in an email: ‘Facebook pays all taxes required by law in the countries in which we operate (where we have offices), and we will continue to comply with our obligations’.

Note: The figure of eighteen billion US$ as revenue for Google in ‘Africa and the Middle East’ over 2019 was arrived at as follows. Google’s EMEA figures for 2019 indicate US$ 40 billion revenue for ‘Africa, Europe and the Middle East’ all together. According to this German publication, Google’s revenue in Europe was 22 billion in 2019This leaves US$ eighteen billion for Africa and the Middle East.

This article was first published by our partner ZAM Magazine.

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