Normally, observation has shown that it takes two to tango, but that isn’t a complete picture.  Always lurking in the background is a third force. Closer scrutiny in this blog is paid to the role of professionals, especially lawyers, in worsening or ameliorating Africa’s sovereign debt crises. The harmful effects of lawfare and warfare as corrosive substances to development financing, ultimately degrading public welfare in Africa, are discussed here. Intentionally, we have given the limelight to lawfare without undermining its entanglement with warfare, in both hard and soft terms. Where the law fails to address unjust economic relationships, it leads to impunity, and increased risks to peace and security. This further perpetuates socioeconomic justice.

A lucid illustration is made of some key challenges where some lawyers contributed massively to the leakages of public resources in Africa. Our main purpose is to make a compelling case for the use of the law to advance public welfare by contributing to efforts for tackling the scourge of illicit financial flows. Yesterday, the Pan African Lawyer’s Union (PALU) kick-started its 13th annual conference, 05-07 July, in Livingstone town, Zambia. The conference is running under the theme “The Sovereign Debt Crisis in Africa- The Role of the legal profession.” Delivering his opening remarks, Adv Lungisani Zulu, the president of the Law Association of Zambia (LAZ) highlighted that it is opportune that this conference on debt is being held in Zambia. After a protracted two-year struggle, Zambia has managed to clinch a debt restructuring agreement with bilateral partners. There are rich lessons to take from Zambia’s experience. Most importantly time is of the essence.

 

A recent paper produced by the Open Society Foundation (OSF) titled “The Human Costs of a Failing Global Debt System” reveals that public debt distress does not only bring massive financial misery. Collateral damages include “… declines in living standards, poverty increases, and a deterioration in health outcomes” are part of the according to the OSF Report, June 2023. If the debt crisis prolongs, the severity of pain is inflicted on the most vulnerable groups – children, women, and people with disabilities, people who hardly contributed to the crisis. This is quite telling considering that of the 54 lower-income countries facing debt distress globally, 24 are from Africa according to the UN Development Programme (UNDP) Report 2022.

Africa’s sovereign debt crisis, broadly speaking, is a symptom of the failed global economic and financial framework – trade, investment, tax, debt, and climate financing. Professionals must ask themselves who makes the rules governing their professional standards. It is not by coincidence that the African Forum on Network and Debt (AFRODAD) envisions Africa as a rule-maker, instead of a rule-taker. This quest is more daunting as Professor Attiya Waris pointed out in her keynote address to the PALU Conference, the debt restructuring agreements that are in the pipeline compel the African governments to adopt the OECD guidelines on global tax reforms. This is contrary to the political resistance of African governments to the OECD-led global reforms because they prefer a UN lead process for a more transformational and equitable sharing of global taxing rights. Professor Attiya Waris is a UN Independent Expert on foreign debt, other international financial obligations, and human rights.

A recent paper produced by the Open Society Foundation (OSF) titled “The Human Costs of a Failing Global Debt System” reveals that public debt distress does not only bring massive financial misery. Collateral damages include “… declines in living standards, poverty increases, and a deterioration in health outcomes” are part of the according to the OSF Report, June 2023. If the debt crisis prolongs, the severity of pain is inflicted on the most vulnerable groups – children, women, and people with disabilities, people who hardly contributed to the crisis. This is quite telling considering that of the 54 lower-income countries facing debt distress globally, 24 are from Africa according to the UN Development Programme (UNDP) Report 2022.

Three interesting observations made in the report about the financial and economic costs of debt distress are shared in the following snippets. One, fueling inflation, causing the erosion of income, savings, and ultimately purchasing power. Civil servants bear the biggest brunt as government financing expenditures through their reserve bank – quasi-fiscal measures. Two, a banking crisis occurs as people fail to withdraw their savings, with withdrawal limits and cash shortages being the norm because banks would have used savings to finance debt. Three, debt distress normally coincides with recessions, causing massive unemployment and disproportionately affecting low-income earners and the informal sector.

Zooming a lot more on the role of the legal profession in dealing with public debt crises, we see how lawfare has crumbled public welfare financing in Africa. The progressive realization of Environmental, Economic, Social, and Cultural rights forms the foundations of African people’s welfare – health, happiness, and prosperity. Shaking up the foundations of public welfare, to a large extent, lawfare and warfare have been deployed to dislocate Africans from benefiting equitably socioeconomically from their abundant natural resources.

Lungisani Zulu, the president of the Law Association of Zambia defines Lawfare “as the weaponization of the law against specifically targeted subjects.” He intimated that lawfare is commonly known in the political space, the use of the law's machinery to restrict opponents' civil and political rights. However, he emphasized that “In its widest sense, lawfare can take on economic and social connotations, which occurs when the instrument of the law is consciously or unconsciously deployed to slow down the socioeconomic well-being and prosperity of citizens.”

Before delving deep into the lawfare challenges, we give an overview of the state of warfare in Africa and its diabolic correlation with poverty. Conflict and wars are rife in Africa, rooted in the contestations for control of natural resources, and spanning over 400 years of plunder through slavery, colonialism, and neocolonialism.

Deemed a global geological scandal, the second largest country in Africa by land size, the Democratic Republic of Congo (DRC), has not known peace since its independence from Belgium, on 30 June 1960. DRC has globally competitive mineral deposits – cobalt, diamonds, copper, tin, and tantalum, not to mention the timber from the Congo rainforest.

Apart from DRC, other mineral-rich African countries engulfed by war and conflict are Burkina Faso, Cameroon, Ethiopia, Mali, South Sudan, and of late Sudan. According to the IMF’s latest ranking of the poorest countries in the world according to GDP per capita, Africa accounts for 30 out of the 40 poorest countries in the world.

However, their minerals, some of them critical minerals provide a huge opportunity for Africa to raise domestic revenue, not if they have total control over them in determining their value and price. Unfortunately, this is not the case given that such control is in the domains of developed countries mostly the West and China.

Even though Transparency International’s Corruption Perception Index (CPI) has some crevices, it is worth noting that African countries afflicted by conflict and wars are also the worst performers in tackling public sector corruption. DRC, for example, is ranked dismally, number 166 out of 180 countries, and number 178 for South Sudan, in the 2022 CPI.

Crevices of the CPI were laid bare by the High-Level Panel (HLP) on Illicit Financial Flows (IFFs) from Africa Report 2015, which was endorsed by the African Union Heads of State and Government, in January 2015. The HLP Report is generally referred to as the Mbeki Report because Thabo Mbeki, South Africa’s former President was the HLP chair.

In that report, although public radar strongly detects public sector corruption and the stealth nature of commercial-driven corruption unnoticed, the latter accounts for the bulk of the resources siphoned on the continent. Even more inconspicuous is the role of professionals like lawyers in the general discussion of government and private sector corruption.

Strive Masiyiwa, a billionaire and a prominent business mogul in Africa wrote in his blog that “Corruption often involves very sophisticated bankers and lawyers in Western financial centers. When corruption happens in Nigeria, or any other African country, it usually also happens at the same time with at least one accomplice on the other side of the world, whether in London, Geneva, or the like.”

Masiyiwa detailed his long-standing struggle in fighting corruption in Africa that resulted in the eviction of Econet as managing and operations partner in Econet Nigeria, with a 5% shareholding and 3% management fees on gross revenue. To cut a long story short, James Ibori, the then-governor of the oil-rich Delta State illegally diverted 10% of share payments due to Delta State’s public purse on top of bribes.

A law firm in the UK designed an elaborate scheme to try and conceal the transaction and hide the huge amounts in the UK. The lawyers, recipients of the loot, relatives of Ibori, and the Ibori faced the long arm of the law. Justice was painstakingly achieved as the corrupt actors hide behind the power of expensive lawyers and politically powerful cronyism to enjoy immunity from impunity. Masiyiwa says, “…public money meant for building schools, health clinics, roads, etc. was diverted by slick operators to several personal overseas bank accounts across the globe.”

Another case that illustrates professional ethical issues is the abuse of confidential government information in Australia acquired by PricewaterhouseCoopers (PwC) on tax law reforms to tighten crews for international tax avoidance schemes. The confidential acquired information was illegally used by PwC to bait corporate clients to dodge tax obligations posing a risk legally but illicitly to the government’s tax take.

Aggressive tax planning is a serious risk that undermines Africa’s quest for domestic resource mobilisation. If these grey areas are dealt with from both the global and national perspectives, it ameliorates Africa’s sovereign debt crises. This includes providing technical support and analysis when dealing with complex tax arrangements such as outdated double taxation agreements between countries that carve up tax rights, thus exacerbating the facilitatory role in many of the tax avoidance and tax evasion schemes, commonly referred to as illicit financial flows. Tax treaties have played a part in most well-known cases of aggressive tax planning, such as in Google’s and Amazon’s tax schemes. Many of the tax treaties that ActionAid has scrutinized have evidenced that money flows untaxed from less developed to developed countries, making the world more unequal and exacerbating poverty.

In her opening remarks during the PALU conference, Vimba Nyemba, the President of the SADC Lawyers Association emphasized the Africanization of the arbitration and dispute-handling mechanisms involving African governments and investors. She remarked that Africa has lost roughly US$40 billion has been lost through awards given by international arbitration centers outside Africa, mainly the UK, and France. The money lost, US$40 billion is significant enough to shave roughly two-thirds of Africa’s debt to China, hovering slightly at US$60 billion. Tanzania should inspire most of African countries to Africanize the international arbitration of investment disputes. Disputes involving Tanzania’s natural resource wealth can no longer be subject to proceeding in any foreign tribunal.

As a premier continental forum for lawyers and lawyers’ associations, PALU is determined to flip the coin. In their arsenal, lawyers can deploy several weapons to challenge the lawfare. Such weapons include but are not limited to public interest litigation, legal advocacy on development finance, legal research, case law analysis to inform arguments and strategies in courts, etc. Further lawyers need to tighten the screws and seal loopholes that permit revenue leakages by providing legal accounting and risk mitigation analysis, thus curbing tax policy gaps that are ordinarily manipulated by multinational companies through tax planning. Lawyers should instead help governments to counter companies’ tax planning initiatives.

Already precedence has been set in several countries. In Zimbabwe and Mozambique, courts have ruled in favor of the citizens who have challenged unconstitutional debts and unfavorable clauses. Countries such as Zambia canceling Double Taxation Agreements (DTAs).

Authored By:

Rangarirai Chikova is Economic Governance Officer within the Pan African Lawyers Union (PALU), the chairing organisation of the Stop The Bleeding Consortium.

Mukasiri is a Tax and Natural Resource Governance Advisor and coordinator of the Stop The Bleeding campaign, a consortium of organisations fighting illicit financial flows from Africa.

Dr Andrew Chikowore is the Acting Director of Action Aid Zambia.

 

 

 

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