Contradictory relations with Africa

Greenpeace International’s report about the German-Swiss Logging Company Danzer Group highlights some of problems that characterize the relations between rich and poor countries. Let me mention three aspects:

1. Taking more than one gives?

In the public controversy about development aid one often gets the impression that Switzerland’s relations to the countries of Africa are purely altruistic and consist of nothing but free help and gifts. In reality, each stream of development aid that flows into the continent’s poorest countries is matched by a stream of money flowing out – to Switzerland or some other industrialized country. In a normal year, Switzerland’s trade balance with all these countries is positive. In 2007, the trade surplus with the two Congos – the Republic and the Democratic Republic of Congo – was ten million Sfr. On the other hand, Swiss aid to these two countries was only 7.6 million Sfr. (in 2006). For the two Congos, hidden money streams that also leave the country, like those of the Danzer Group, further compound this negative balance. While this company spares no effort to keep its tax bill small or to avoid taxes in both Congos altogether, a number of donor countries, Switzerland1 among them, are using public aid money to improve the social services and the infrastructure there. In other words – relations could hardly be more contradictory.

2. Taking responsibility and improving tax collection

Rich countries, including Switzerland, have long been pushing the governments of poor nations to raise their taxes and go after businesses and the small number of wealthy citizens who are not paying their share. Rich countries are right in doing so. However, while this suggests that developing countries alone are to blame, a study prepared by Greenpeace shows that this is only half the picture. Western multinationals like the Danzer Group go to great lengths to avoid taxes especially in the weakest countries, the very ones that Western governments are leaning on to raise their tax revenues.

3. Investor friendliness without obligations?

Industrialized countries have also pointed out that developing countries could attract far more foreign investment if they introduced investor friendly laws, rules and procedures. As the case of the Danzer Group shows, the two Congolese governments would be well advised to subject the activities of the wood industry to clear targets and rules.

Both points (taxes and investments) will be discussed at the second UN Conference on Financing for Development in December. At the first conference in Monterrey six years ago, developing countries made a commitment to improve the collection of taxes and take steps toward a more investor friendly climate. They have made some progress. This year developing countries are expecting concessions from the industrialized world such as international rules to prevent tax evasion by transnational corporations. Also, developing countries are looking to win back the right to regulate the investments of multinational corporations in accordance with their own development strategies. Under current WTO rules they have no such right. As the nominal home country of companies like the Danzer Group, Switzerland should feel obligated to support these demands.

Contact: Peter Niggli, Alliance Sud