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Pandora Papers is a perfect example of how the poor work hard to finance the rich

NATIONAL
By Patrick Muinde | October 9th 2021

Pandora Papers banner. [Courtesy]

Exactly 25 years ago, about a time like now, I sat in my high school dining hall, pensively listening to the final counsel from my teachers. Finally, the time had come for me to fly out of the bosom of the watchful eyes of parents and teachers. We were about 150 boys and I was among the smallest in body size and youngest in age.

We had already applied for our national identification cards under the guidance of our principal. This was despite me being two months shy of my 18th birthday. The only thing that stood between us and the world was the Kenya Certificate for Secondary Education (KCSE) exam. The purpose of the meeting was to have the final word from our teachers on academics and receive some nuggets of wisdom to face the world.

To date, I still remember the many things that we were told. But one stands out with practical relevance to the essence of this moment.

One of the history teachers (now late) who had never taught me before (because I never liked history then) argued that as a historian, he absolutely believed that evolution can occur; and only those equipped with the right knowledge survive evolutions. So, we were supposed to not only pass our KCSE exam, but to go out there and equip ourselves with the right knowledge to travail life’s burdens and traps.

The Pandora Papers case files are a manifestation of a shifting world and evolution of societies. While it is not the first time similar leaks are happening, they have opened a lid on the financial dealings of powerful world leaders and royal families across the world.

For those mentioned to imagine it is nothing but a passing cloud, is to be naïve to the undercurrents of the knowledge edge and digital economies of the 21st century. But let us explore this further.

Not a question of law

I have followed the discourse trending on mainstream and social media. Many opinions seem to think this is purely a question of law as long as the cash is from legitimate sources. To these trails of thought,

President Uhuru Kenyatta and his family members mentioned have breached no written law in the country.

Whether this is true or not, we have no evidence. Of course, we understand Article 76(2) prohibits State officers from operating bank accounts outside Kenya, except in accordance with the law. We also understand the requirements of Section 19 of the Leadership and Integrity Act.

But nobody can authoritatively confirm if these details were provided in the wealth declarations forms or not, since they are not public documents. We, lesser mortals, have no capacity to prove if the authority of the commission was sought or not.

In any case, even the bodies enjoying constitutional protection have consistently crumpled in the face of powerful men and women in the land over the past 10 years. The intent of this article is not to argue the legal merits or demerits, since I have no competence there. Please, allow me to focus on what I know and understand best.

The matter at hand raises serious economic governance, ethical and moral questions in the nations’ leadership.

For instance, if the top leaders have no assurance and/or faith in the national financial system to safeguard their wealth, why should the rest of us or any investor for that matter have faith in it? How many more national and county bosses have such secret accounts and how much is stashed in those accounts?

If the top leaders lead the pack in secret accounts, do they have the moral authority to demand compliance and accountability from other public officers? If they are genuine sources, why go to such extreme lengths to keep the accounts secret? Could such secret entities be part of the shadowy contractors running multibillion-shilling infrastructure projects in the country? The list is endless.

Reason to worry

However, the more reason to worry is to relate these seemingly isolated cases to the broader economic system and international capital flow networks. There is overwhelming evidence that capital flight is a major economic problem in Sub-Saharan Africa and other developing countries.

On the contra side, empirical evidence informs us that Foreign Direct Investments (FDI) and Savings drive domestic investments, consumption and consequently, economic growth and development.

Capital flight does the exact opposite. It instead expatriates domestic capital stock to foreign developed nations. It is a classic case of the poor financing the rich. Interestingly, a casual gloss over online published articles shows most studies done in Nigeria. Can this be signalling something? James K Boyce and Leonce Ndikumana of the Political Economy Research Institute, University of Massachusetts, has been tracking capital flight data from Sub-Saharan Africa.

According to their updated report dated October 2012, a group of 33 sub-Saharan African countries lost an estimated $814 billion (about Sh89.54 trillion) for the period between 1970-2010. This amount is more than the official development aid received in the group of countries estimated at $659 billion (Sh72.49 trillion) and FDI flows estimated at $306 billion (Sh33.66 trillion) at current exchange rates over the same period.

They estimate that if this capital flight was invested at the modest short-term Treasury bill rates of the US government, this would translate to stock capital of $1.06 trillion.

This capital flight alone translates to over 11 times the size of the Kenyan economy. Unfortunately, the capital flight has accelerated with the acceleration of economic growth over the period. The oil-rich countries account for 72 per cent of the total capital flight.

For Kenya, the capital flight is estimated at $4.9 billion, translating to a Gross Domestic Product ratio of 15.2 per cent as of that date. Nigeria had the highest, estimated at $311.4 billion, translating to a GDP ratio of 158.2 per cent. In the Eastern Africa region, we trailed Sudan, Ethiopia, Tanzania, Rwanda, Uganda and Burundi.

Implications

The first obvious implication of these revelations is the loss of trust in the local economic and financial system. It opens the economy to widespread speculation since leaders at that level would be presumed to have access to privileged information.

Furthermore, would the leaders themselves have any incentives to strengthen the local financial system if they can easily expatriate capital using their vantage positions in government?

Secondly, a key reason why people prefer these tax havens is to avoid and/or evade taxes.

In a country where tax records of national leaders are not disclosed to the public, such disclosures open a sea of speculations. Even if the monies stashed in those accounts were legitimately earned, were the corresponding taxes paid to the country? Why should we pay taxes to a government headed by leaders, whom we don’t trust as tax compliant?

Third, we live in a country estimated to lose at least one-third of its budget to corruption networks and official waste. Given the audit trail for local transactions and stringent banking controls, it is obvious proceeds of graft will not flow through the local financial system. We have also seen sovereign bonds floated without making public the prospectus made several months later.

The question is: who are these international investors willing to put money in a sovereign bond without a publicised prospectus?

Could there be any chance we are borrowing our own money from these shadowy capital owners disguised as foreign investors? How about the opaque public infrastructure projects?

To those that wield State power and machinery, be warned societies are not static.

While those in authority continue to imagine an invincible status, the people they abuse are slowly evolving generation after another.

As the Swahili say: ‘mjinga akierefuka, mwerefu yu mashakani….tutafakari ya babu hayo’. 

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