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Winter Is Coming: Why Our National Debt Is Illegitimate, Unjust and Unsustainable…and Why We Should Be Worried

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Greece teaches us, if we will listen, that the time is likely to come when Kenya will be unable to pay government workers’ salaries and will not be able to fund essential public services, such as security. At this point, the Government of Kenya will be forced to take on yet more borrowing to prevent a mass uprising. These “rescue packages” will be offered on grossly usurious terms, terms that the government will have no choice but to accept.

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Winter Is Coming: Why Our National Debt Is Illegitimate, Unjust and Unsustainable…and Why We Should Be Worried
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Recently the matter of Kenya’s national indebtedness has gained wide coverage in the media, not least in a presidential roundtable with the press on December 28th, 2018. In my opinion, our nation is grossly indebted, and in fact we are in a de facto state of emergency as far as our nation’s finances are concerned. I hope to demonstrate this fact below, and to suggest what options we have for dealing with our indebtedness.

Several indicators for measuring national indebtedness exist, such as Debt-to-Gross Domestic Product (Debt:GDP), debt per capita, etc. Probably the most widely-used indicator is the Debt:GDP ratio. This particular metric is so obfuscatory and misleading that it is not inconceivable that it was actually developed to mask the truth about national indebtedness the world over.

When we as individuals want to borrow salary-backed loans from banks, the banks attempt to assess our ability to pay off these loans by reviewing our payslips, sometimes going back 3 to 6 months. This effort is calculated to answer just one question: what is our take-home pay? In doing this, the banks are assessing our credit-worthiness, which helps to reduce the risk of default.

At the national level, however, this abundance of caution is thrown to the wind. The use of the Debt:GDP ratio to measure national indebtedness means that a country’s ability to take on more debt is assessed on the basis of its GDP. At an individual level, such an assessment would approximate assessing our ability to pay off salary-backed loans based on our gross pay. In fact, it is much worse: it is more like assessing an individual’s ability to pay off a loan based on how much revenue he generates for his employer. Even if such a company is just breaking even, the revenue an employee earns his employer must necessarily exceed his salary, or else that organisation would be unable to meet its operational costs, such as rent, electricity and other office expenses. Put another way, the revenue an employee generates pays a lot more than his salary). Since GDP attempts (poorly) to measure the total value generated by all the economic activity in a nation, to use it as a basis for measuring whether a country has room to borrow is patently unwise simply because not all the value created in a nation’s economy is available to pay a nation’s debt.

The revenue employees generate and the value an economy generates (GDP) are analogous in that both are measures of value created. However, whereas the revenue produced by employees accrues directly to their employers’ GDP, it does not so directly accrue to a nation. For example, after a loaf of bread has been produced in a country, that loaf is not submitted to the government, yet its production adds to the nation’s GDP. For this reason, even a revenue-based definition of employees’ income does not properly approximate the absurdity of using GDP as a measure of national income on which to assess indebtedness because not all of GDP accrues to the nation as income.

By masking true indebtedness, therefore, the Debt:GDP ratio encourages wanton borrowing. This works in favour both of fiscally irresponsible (or worse, corrupt) governments and of predatory lenders…

What is the net effect of all this? The more broadly a lender can define a borrower’s income, the larger the proportion of that borrower’s true income that will flow out as loan repayments, and the more the borrower’s assets stand at risk of repossession as collateral. This is what has happened to us as a nation. When we consider further stratagems like rebasing our GDP, which had the effect of increasing our GDP by 25% at a stroke, it can be seen that by nominally increasing our GDP the illusion was given that our nation was able to take on even more borrowing than before, opening the gates to yet more lending.

By masking true indebtedness, therefore, the Debt:GDP ratio encourages wanton borrowing. This works in favour both of fiscally irresponsible (or worse, corrupt) governments and of predatory lenders, both private and multilateral (the line between private and multilateral lenders is far thinner than is generally believed). We do not pay debt out of GDP. We pay debt out of our national revenues. The more revealing and honest measure would be debt-to-national revenue. For the same reasons of honesty and clarity, it is prudent to narrow the definition of national revenue down further to tax revenue, thereby eliminating grants, donations, monies realised from the sale of public assets, and other incidentals from the discussion.

The problem – from the viewpoint of irresponsible governments and predatory lenders, of course – is that once we do so, the scales will fall off our eyes and it becomes apparent just how much of our nation’s money is going towards servicing our debt. According to the national Treasury, our national debt, which stood at Sh1.894 trillion in the financial year (FY) 2013, had grown to Sh5.047 trillion by the end of FY 2018, a growth of 269 per cent.

In 2013, however, the government collected a total of Sh754.2 billion in taxes. The implication is that our Debt:Tax ratio stood at a whopping 251 per cent in that year. By 2018, although revenue collections had grown to Sh1.47 trillion, our debt had grown much faster, so much so that our Debt:Tax ratio in the FY 2018 stood at 343 per cent.

Our GDP in 2013, according to the same report, was Sh4.496 trillion, meaning our Debt:GDP ratio was 42.1 per cent in 2013. In 2018, our GDP was Sh8.845 trillion. (This suggests that our GDP has been growing at a compounded annual growth rate of 14.49 per cent, which would be news to most Kenyans; the effect of rebasing our GDP can now more clearly be seen.) These figures imply our Debt:GDP ratio in FY 2018 was 57 per cent.

In 2013, however, the government collected a total of Sh754.2 billion in taxes. The implication is that our Debt:Tax ratio stood at a whopping 251 per cent in that year. By 2018, although revenue collections had grown to Sh1.47 trillion, our debt had grown much faster, so much so that our Debt:Tax ratio in the FY 2018 stood at 343 per cent. In other words, if the Government did nothing else but pay off our national debt – if it did not pay teachers, doctors, nurses, the army, and the police; if it did not provide medical supplies; if it bought no textbooks; if it did not construct one metre of road or railway; if it did not construct one hospital room or classroom or police post – it would take us about three and a half years to pay off the national debt.

Table 1: Kenya's Debt:GDP vs Debt:Tax ratio, FYs 2013 - 2018

Table 1: Kenya’s Debt:GDP vs Debt:Tax ratio, FYs 2013 – 2018

This situation is untenable. National Treasury data indicates that in FY 2018 we spent Sh459.4 billion servicing our debt. By that measure, debt repayment was the single largest item in our nation’s expenditure, exceeding our expenditure on transport infrastructure (Sh225 billion), health (Sh65.5 billion) or education (Sh415.3 billion). In other words, we are spending more paying off our debt than we are spending providing good transport for our people and good treatment for our sick – combined.

A day of reckoning is soon coming for our beloved country, on which day we shall realise that indeed, as per the Holy Writ, “…the borrower is slave to the lender”, and that debt (even if the money is used well, let alone if it is actively misused as we have done) is the tool of the neo-colonialist. It will become starkly apparent that by a system of multilateral and international debt, there is a sense in which foreign powers have been able to be perhaps as extractive of our nation’s wealth as they were when they were in power as our colonial masters. There is in fact a very real sense in which the colonial powers never really left. The only major change is that China is now on the list of our foreign masters.

We have already seen multilateral lenders like the International Monetary Fund (IMF) force our government to impose VAT on fuel. This is not the first time this happened. In 2013, when our debt was less than half what it is now, the IMF backed changes in our VAT law that would have imposed VAT on milk and medicines, claiming that “…the changes in the law [would] put Kenya in line with other modern VAT regimes in the world by simplifying the way it operates while reducing the number of exempt items.” Although the Cabinet did not impose VAT on milk and medicines, other items, such as textbooks, periodicals and magazines, did not escape the taxman’s levy. The press reported that our national port in Mombasa was used as a security for the loan that was used to construct the Standard Gauge Railway (SGR). These are not isolated bellwethers of the dire situation our country finds herself in: the Daily Nation recently reported that we will require Sh1.04 trillion to service our debt in FY 2020. Where will it come from?

We must now examine possible solutions to what is clearly a monumental problem. The truth is this: debt can be dealt with either by paying it, or by not paying it. National debt can be repaid through austerity programmes and/or by the realisation of collateral. A nation may avoid repayment by pursuing debt forgiveness; defaulting on our sovereign debt; and/or overseeing a managed default on our sovereign debt.

Options for paying our national debt

Austerity programmes

Since the national debt can only be paid out of taxes, an escalation of the national debt can only result in an austerity programme. Austerity is a term that follows a very well-worn path of giving nasty, anti-common man policies honourable names (this is what is called “Economese”). Simply put, austerity necessitates the redirection of large portions of tax receipts away from normal government expenditure (including mission-critical social expenditure like health and education, and away from development expenditure) in an effort to pay off the debt. The Merriam-Webster dictionary describes austerity as “enforced or extreme economy”.

The fact that Kenya is – whether it has publicly announced it or not – well up the austerity road is evidenced by the earlier observation that debt repayment is the single largest item in our nation’s budget. By the time our lenders and leaders decide to announce that we are in an austerity programme, we will have been in one for years.

To examine where this road leads, we must turn to Greece. That nation has been locked in austerity’s deathly embrace for the better part of a decade. An Al Jazeera article notes that the austerity programme in Greece was occasioned by over-borrowing (sound familiar?) in the years leading up to the global financial crisis, which was exacerbated by a rise in rates occasioned by that crisis. In order to keep paying government salaries and finance public services, Greece had to accept an initial loan of EUR110 billion from its Eurozone partners and the IMF. To pay off this loan, the country was compelled to institute radical austerity measures. How did that go?

In August 2018, the Guardian summarized Greece’s experience thus:

The European Union, the European Central Bank and the International Monetary Fund loaned Greece a total of €289bn ($330bn) in three programmes, in 2010, 2012 and 2015.

The economic reforms the creditors demanded in return brought the country to its knees with a quarter of its gross domestic product (GDP) evaporating over eight years and unemployment soaring to more than 27%.

The fundamental contradictions between the envisaged outcomes of austerity and its outcomes in reality are also the reason we find multilateral lenders talking out of both sides of their mouths, first imposing these programmes, and then sheepishly admitting that they have not worked. The IMF, for example, actually produced a report stating that it made notable failures on its first rescue package to Greece.

Greece teaches us, if we will listen, that the time is likely to come when Kenya will be unable to pay government workers’ salaries and will not be able to fund essential public services, such as security. At this point, the Government of Kenya will be forced to take on yet more borrowing to prevent a mass uprising. These “rescue packages” will be offered on grossly usurious terms, terms that the government will have no choice but to accept. Then, in a strange twist of irony, the very people upon whom the initial injustices were visited will do the lenders’ marketing for them by way of a civil uprising. From then on, our nation’s expenditure will be “supervised” by these lenders, not to help the Kenyan people, but to ensure that these lenders are paid. These are doomsday scenarios, and I find it difficult to even write them. Yet it can get worse – and has, elsewhere in the world.

Realisation of collateral

Realisation of collateral is a method of debt payment that is as old and as basic as Shylocks. It is difficult to recall a time when national debt was collateralised to the extent that has happened in the recent past. It appears that the realisation of collateral appears to be the favoured method of China for collecting debt. For our case study on this, we must turn to the nation of Sri Lanka, as the New York Times reported:

Every time Sri Lanka’s president, Mahinda Rajapaksa, turned to his Chinese allies for loans and assistance with an ambitious port project, the answer was yes.

Yes, though feasibility studies said the port wouldn’t work. Yes, though other frequent lenders like India had refused. Yes, though Sri Lanka’s debt was ballooning rapidly under Mr. Rajapaksa.

…Mr. Rajapaksa was voted out of office in 2015, but Sri Lanka’s new government struggled to make payments on the debt he had taken on. Under heavy pressure and after months of negotiations with the Chinese, the government handed over the port and 15,000 acres of land around it for 99 years in December [2017].

There are examples closer to home. In December 2018, the US National Security Advisor, John Bolton, sensationally claimed that China was about to take over the Zambia Electricity Supply Corporation (ZESCO), which is Zambia’s version of Kenya Power & Lighting Company, before KenGen and Ketraco were hived off. Although this rumour was strongly refuted by Zambia’s presidential spokesman, Mr Amos Chanda, Mr Chanda did admit that Zambia owes China US$3.1 billion in debt. In Africa that kind of statement from that kind of person often means the figure is much higher; indeed, some sources have placed the figure at US$6.4 billion.

In 2017, Zambia’s police force had to scrap plans to hire eight Chinese nationals following a public outcry. Zambians were concerned about having to salute a Chinese national in their own country. It is also true that in November 2018 police arrested over 100 residents in Kitwe (the country’s second-largest city) who were protesting the alleged sale of the Zambia Forestry and Forest Industries Corporation (ZAFFICO). There is a possible sub-plot here: Mr Bolton’s claim may mean that the IMF and Western allies are worried that they are losing their grip on the Zambian nation to China.

Options for not paying our national debt

In advocating for the non-payment of national debt I am not advocating injustice or dishonesty for this reason: “The government” is not a nebulous entity separate from the people. The government is the people. When the government borrows, it is the people who are borrowing; when the government pays, it is the people who must pay; indeed, it is their taxes that are used to pay.

As can be seen from the foregoing, over-borrowing, poor governance and/or the mismanagement of public funds can lead to adverse effects, not on “the government”, not on the lenders – even private lenders – but on the people. The stark truth is that austerity rarely, if ever, aids recovery – unless by recovery we mean the recovery of lenders’ money.

As can be seen from the foregoing, over-borrowing, poor governance and/or the mismanagement of public funds can lead to adverse effects, not on “the government”, not on the lenders – even private lenders – but on the people. The stark truth is that austerity rarely, if ever, aids recovery – unless by recovery we mean the recovery of lenders’ money. Austerity is a creditor-oriented policy, not a people-oriented policy, and it fails because cuts in government spending result in reduced consumption, unemployment and lower tax receipts. Yet tax receipts are what are needed in order to pay off the debt. The realisation of collateral (the other solution) is nothing but the seizure of a people’s land

There exists, therefore, a moral case for non-payment, which is this: that the betrayal of a people by its ruling class through the accumulation of a debt whose benefits the people never realised should not be visited upon the class of the ruled, who pay the debt. On this point, therefore, I am advocating for justice, not injustice; and for honesty, not dishonesty.

Debt forgiveness

Debt forgiveness is not a new concept; it is in fact a biblical concept. The concept of Jubilee meant that every 50 years, during the eponymously-named Jubilee year, all debts were written off, all enslavement ended, and everyone was allowed to return to whatever ancestral lands that they might have had to give up because of an inability to pay back debt. A thorough examination of the wisdom and justice of this law would take up a solid chapter in a good book; suffice it to say that it acted like a legislated revolution, resetting the kind of gross national inequalities that US Senator Bernie Sanders is grappling with – for the price of a trumpet blast.

Our gross national indebtedness means – or rather, dictates – that we pursue debt forgiveness, because we simply cannot pay back everything we have borrowed. The problem is that we are not considered a poor country any more – not even a low-income country. We are now a middle income nation, and precedent shows that debt forgiveness is the preserve of highly indebted poor countries. Our pleas for debt forgiveness, therefore, are quite likely to fall on deaf ears. Further, a significant portion of our national debt is owed to China and China, Sri Lanka might whisper, is not a nation one asks for forgiveness.

A note of caution must here be sounded: only 15 or so years ago, Zambia had its debts wiped clean under the IMF’s Heavily Indebted Poor Countries scheme. The same country then took “less than a decade” to run up fresh debt of 59 per cent of GDP, buying million-dollar fire engines and constructing roads twice as expensive as those of her neighbours.

A strategy of debt forgiveness is, therefore, useless in the absence of enforced legislation to ensure that future over-indebtedness and/or wastage is prevented. A law preventing the government from tying up more than 10 per cent to 15 per cent of the average tax collected in the previous five years on debt servicing would be a very good place to start. The laws preventing wastage and theft of what we actually do borrow do exist, but require radical enforcement.

Default on sovereign debt

There exist exceptional circumstances in which nations default on their national debt. These times are usually presaged by significant external shocks or political ones, such as when Fidel Castro took over in Cuba in 1959, and simply defaulted on outstanding Cuban debt. The bonds on which he defaulted are in default to date.

Reference is often made to the Argentinian default (and one must be specific) of 2001. In 1998, Argentina’s economy entered a deep recession. The IMF’s by now predictable solution, of course, was austerity. Over the course of the following two years, it became increasingly clear that the toxic mix of an artificially fixed exchange rate, a steadily worsening balance of payments deficit (imports exceeding exports) and mounting debt, among other factors, meant that Argentina would never be able to pay off its debt.

Then the people began to protest, with increasing vociferousness, against austerity. When in December 2001 the IMF realised that default could not be avoided, it held back previously promised “support” so that the government was left without any external funding. Bank runs and riots followed: at one point the country had five presidents in ten days. Finally, on December 24, the country defaulted on a US$ 100 billion debt. This led to a social crisis of epic proportions, characterised not least by rampant unemployment.

Sovereign defaults of this nature tend to be devastating and ought to be avoided. The social cost ends up being far too high, even if one is a Castro leading a non-conformist Cuba. Firstly, in order to teach other would-be defaulters a lesson, lenders make an example out of one. Secondly, the world has become too interconnected for us to make ourselves a pariah state for any length of time: globalisation is a source of many ills, but it can help us as well, for we have a surplus of labour that we can offer the world (among other competitive advantages).

Managed default on sovereign debt

The way we might want to do it is the way Ecuador did it between 2007 and 2009. The then President Rafael Correa stopped payments on bonds that the country had taken out, and established a “debt audit commission” to conduct an audit on the country’s debt, which at the time was using up 38 per cent of the government’s budget. The purpose of this audit was to establish the “legitimacy” of the debt.

This was a brilliant first step. Firstly, it brought to the forefront the moral injustice of a people’s having to pay loans from which they never benefitted. Secondly, the reason given for the initial default was a moral one, as opposed to a financial one (even though the financial reasons lurk menacingly in the background). The genius behind the debt audit was that it was for establishing the morality (and not merely the affordability) of the public debt. Such a debt audit commission in Kenya – objective, apolitical (in a local sense), staffed with technically qualified, patriotic individuals and with an ability to trace the flows of borrowed funds – would likely produce spectacular results.

The way we might want to do it is the way Ecuador did it between 2007 and 2009. The then President Rafael Correa stopped payments on bonds that the country had taken out, and established a “debt audit commission” to conduct an audit on the country’s debt, which at the time was using up 38 per cent of the government’s budget. The purpose of this audit was to establish the “legitimacy” of the debt.

Ecuador’s debt audit commission found that the debt was illegitimate based on the manner in which negotiations were conducted. (The reasons for which debt can be illegitimate are myriad: here in Kenya, the factors would range from non-existence of the assets ostensibly purchased with the debt, overpricing of assets that do exist, payment of bribes and kickbacks, and lack of public participation and parliamentary approval, etc.) Arising from the stopped payments, and from the public establishment of the illegitimacy of the debt, the value of the bonds on the open market plunged. The Government of Ecuador then tendered to repurchase the bonds at 30 cents on the dollar. On the basis of the auction results, the government then offered to buy back the bonds at 35 cents on the dollar, expecting to retire at least 75 per cent of the bonds. Ninety-one per cent of the bonds were so retired in June 2009, that the government paid off its public debt for about a third of what it was worth and, according to President Correa, saved US$ 300M (Sh30 billion) per year in interest payments.

The Ecuadorian solution has an elegance that only simplicity gives. However, its success needs to be assessed against the backdrop of an important contextual factor: the retirement of the country’s debt happened at a time when markets were in the throes of the global financial crisis. Investors, therefore, were under pressure to liquidate their assets. Further, how successful this method would be as regards Chinese debt is anyone’s guess: simple and easy are vastly different things.

That said, the process presents a blueprint for any government that is ready and willing to ease the burden of over-indebtedness and is an option and a strategy this country should pursue – before it’s too late.

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The author is a Christian, a patriot and a financial professional. He tweets at @Chrenyan

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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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