What the Pandora Papers mean for Africa
The continent endures all the ills of the global offshore economy without enjoying the dubious benefits others have derived from it, writes Ricardo Soares de Oliveira, professor at Oxford University and specialist in extractive industries and finance in Africa.
The Pandora Papers, the latest and most ambitious investigative effort yet to try and unravel the secrets of the offshore world, is an awe-inspiring feat by the International Consortium of Investigative Journalists. The numbers alone are staggering: 11.9 million files from 14 leading offshore services firms, poured over by more than 600 journalists from 150 publications. As a result, we now have scores of carefully fact-checked, often compelling stories involving 35 current and former heads of state and more than 330 politicians worldwide drawn from every conceivable latitude and political system. We also have an unprecedented view of the use by global elites of offshore financial structures, institutions and techniques that are designed to provide secrecy, asset protection and tax exemption for their benefit.
This infrastructure is now fully global. It is everywhere. It includes the sort of tax haven, like Panama, Monaco, Switzerland and a number of British Overseas Territories, that has garnered bad publicity in recent years; numerous “onshore” jurisdictions, like the United States, that are revealed to be massive providers of offshore services; and Asian financial centres such as Dubai, Singapore and Hong Kong. For long, advocates of offshore have argued that the problem was its misuse. But the Pandora Papers show that these practices are not an episodic violation of the system, but the system itself.
There is a strong African component to this global story. The Pandora papers involved 53 African journalists from independent media working across 18 countries, often at great personal risk. Their revelations, too numerous and politically significant to address in detail here, show that dozens of African politicians, businessmen and their families have substantial offshore holdings. This includes the heads of state of the Republic of Congo, Gabon and Kenya. The investigation of President Kenyatta’s offshore empire shows particularly extensive interests, including companies in the British Virgin Islands, the use of a private Swiss bank for transactions, and a foundation based in Panama. Tax evasion seems a secondary motive as the rich and powerful in many African countries risk paying little tax. For many of these individuals and families, it is rather the desire for secrecy, asset protection and immunity from potential criminal investigations.
The revelations are mostly not real shockers. Many of these politicians were long rumoured to possess large fortunes abroad, something taken for granted by citizens in their home countries. Some, like President Sassou-Nguesso, have recently been the subject of damning investigations. Other research has shown significant correlations between aid inflows and capital outflows as well as the economic damage done by capital flight out of Africa. But there is a difference between hearsay and speculation regarding an unusually data-scarce topic and the authoritative evidence we now have. Equally important, the Pandora Papers, in conjunction with other major leaks since the ICIJ’s Panama Papers in 2016, also provides a meticulous portrait of the actual mechanisms designed to siphon off and hide away African wealth.
At this stage we can identify at least four lessons from the Pandora papers that matter for Africa. The first is the way in which Africa doesn’t stand out amidst this global trend. Africa is now fully integrated in the global offshore economy. This is of course a negative dynamic for African development as its much-needed capital leaks into other parts of the global economy. But it puts paid to the view that financial globalization has somehow bypassed the continent.
Second, the role of apparently reputable professional enablers in major financial centres is again shown to be pivotal. None of this could happen without an army of real estate agents, accountants, wealth managers, company-formation executives, management consultants, PR operators and lawyers, as well as the politicians who establish the amenable regulatory environment in which they function with impunity. These service providers offer African Politically Exposed Persons (PEPs) the tried and tested offshore strategies that they have made available to their worldwide client base for the past decades.
Third, many African leaders are full agents in this process even while their populations are victimised by it. The class status of the prominent Africans featured in the Pandora Papers matters. Their relationship with the service providers who enable the laundering of their monies and reputations is essentially collaborative. Offshore benefits the global rich and powerful wherever they may be from.
Finally, there is one conspicuous absence. Africa is enmeshed in the offshore world but, other than Mauritius, Seychelles and a few other exceptions, it doesn’t “do” offshore. African states are perceived as too political fraught, and their banks and courts too unreliable, to provide the certainty expected from offshore financial centres. Wealthy foreigners do not want to hide their money in Africa, and wealthy Africans mostly want to get theirs out. This means the continent bears all the ills from the global offshore economy without any of the dubious benefits that others have derived from it.
What is the likely fallout from the Pandora Papers? It is doubtful that it will have immediate consequences for the domestic politics of most African states. Leaders often control the courts and the mainstream media, and in most cases will argue that holding an offshore account or foreign assets is not illegal per se. Popular cynicism about how public-spirited the leadership ever was can also lead towards apathy about such revelations. Still, these can only further delegitimise the status quo, especially in the eyes of younger generations.
In western financial centres, it is likely that the Pandora Papers will not just durably impact the reputations of those who are being outed but also unleash regulatory change that will come down hard on enablers. They must bear personal legal responsibility for their indispensable roles in advancing the interests of global kleptocrats. The critical offshore infrastructure has for decades resided in the West. This includes lesson-giving donors such as the USA and the UK whose hypocrisy is in retrospect breath-taking. They must clean up their act now.
Reform in OECD economies, however crucial, would still leave major gaps in the international financial system if it falls short of truly systemic transformation. The globalization of offshore means that it is thriving in many parts of the world where the reputational damage that results from the likes of the Pandora Papers, so feared by easily bullied small Caribbean tax havens, is seen as manageable. In places like Dubai or China-protected Hong Kong, there is robust support by strong authoritarian states for secrecy, low taxation and light, permissive regulation as well as the sense that there is a competitive advantage to be had from deploying them. African PEPs have noted that, with capital flight following suit. The fight is just beginning.
This article was originally published in French in Le Temps.