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Omar Shaban Ismail · QudsNet · 2017
Omar Shaban argues that the U.S. threat to cut aid over the Jerusalem vote illustrates the politicization of aid and its use to constrain the independence of poorer states. He contends that financial flows run largely from the South to the North, not the reverse: international studies estimated Southern countries received about $1.3 trillion in 2012 while the North received $3.3 trillion, a $2 trillion surplus, and net flows from 1980 to 2012 reached about $16 trillion, alongside $4.2 trillion in debt interest collected by rich countries. He identifies the main channels as multinational profits, tax havens, Southern capital invested abroad, looted wealth sheltered in Western banks, and trade imports, while noting that donor states have generally fallen short of their 0.7% pledge, averaging only 0.4%.
Omar Shaban, December 2017: Poor countries finance rich ones through net flows, profits, and offshore capital.
The United States of America warned the countries that receive its aid that it will stop doing so if these countries vote yes on the draft resolution calling for the rescinding of President Trump’s decision regarding Jerusalem. The American warnings fall within what is called the politicization of aid and its employment in the service of “donor” countries, and the stripping of recipient countries of their will and the independence of their decision-making under the pressure of threatening to cut off aid, grants, and other forms of international financing.
It is not easy to determine the financial relationship between the rich countries of the North and the poor countries of the South because of the multiplicity of interlocking factors involved in shaping it, because of the multiple channels through which money flows in both directions, as well as the overlap between funds that move legally and those that move illegally between the two regions. It is also difficult because many states and international financial institutions do not find it in their interest to disclose transparently the amount and form of financial flows between the North and the South, as the terminology has come to be known.
Many reputable international studies estimate the volume of funds received by the countries of the South at about $1.3 trillion in 2012, of which only $125 billion came in the form of aid, long-term loans, and humanitarian grants, while the remainder was obtained by the countries of the South—poor nominally, atomized in reality—in return for commodity exports and remittances from their sons working abroad. In contrast, the countries of the North received $3.3 trillion in the same year. That is, the poor countries injected $2 trillion more than they received.
These studies estimate that net financial flows between the North and the South from 1980 through 2012 amounted to about $16 trillion in favor of the latter, which is equivalent to total American GDP. These studies also confirmed that rich countries collected about $4.2 trillion in interest on their debts to the countries of the South.
The most important sources of money moving from the South to the North are the profits of international companies operating in the countries of the South, such as oil, gas, and precious metals exploration companies, and companies building infrastructure, bridges, desalination plants, electricity networks, and other massive projects that the countries of the South are unable to undertake and do not possess the expertise required to design and implement. It is worth mentioning here that these northern companies benefit greatly from investment promotion laws in force in poor countries, which grant these companies a full exemption from paying taxes.
Many of these international companies register themselves in areas known as “tax havens,” where they obtain the status of “foreign investor,” exempting them from paying taxes either to their original countries or to local governments.
Many of the companies operating in the Arab world and Palestine are companies owned by local investors, but they registered their companies in some African countries and some “tax haven” areas in order to enjoy the status of “foreign investor,” which exempts them from paying taxes locally and, of course, in the areas where they are registered.
It is noteworthy that donor countries have pledged since 1970, through successive international conferences discussing the relationship between the North and the South, to contribute 0.7% of gross domestic product to assist poor countries. In reality, however, this percentage has not exceeded an average of 0.4%, with variation in the degree of commitment among countries.
While Norway, Sweden, and Luxembourg each contribute about 1% of gross domestic income, which exceeds the pledges, the contribution of the United States reached 0.2%, Japan 0.23%, Germany 0.35%, and the Netherlands and France 0.4%, which is far below what they pledged, taking into account the enormous differences in the sizes of these countries’ economies.
Another form of support from the South to the North is foreign direct investment (FDI). Governments and individuals in the countries of the South invest enormous sums in the markets of advanced countries in search of stability and the rule of law, which are foundations lacking in the countries of the South, including the Arab world.
There is not enough accurate information on the volume of Arab investments abroad, as is the case with much essential information, since the governments of countries lacking a democratic climate and transparency are keen to keep these investments completely secret.
Likewise, some of these investments are registered in the names of the sons of ruling families and influential figures, which adds another difficulty to the process of inventorying and monitoring them, as it is not possible to separate between state investments and those registered in or owned by individuals from the ruling class. However, a report by the American network CNN in October 2016 estimated Saudi investments in America alone at about $1 trillion.
The Council of Arab Economic Unity estimates the volume of Arab investments in the world at $2.4 trillion, and in my view this figure is very modest compared to reality. The volume of Arab investments flowing abroad annually is estimated at tens of billions of dollars, with $15 billion leaving the United Arab Emirates, $10 billion from Saudi Arabia, and $8 billion from Qatar each year. Meanwhile, the entire Arab world received only 0.81% in 2016 of the volume of international investment that travels around the world, which is estimated at $1.77 trillion annually—a very small share given the state of instability, lack of certainty, absence of democracy, and lack of the foundations of transparency, all of which are indispensable factors for attracting foreign investment.
Another no less important form is that the Western world is considered a safe haven for the funds of corrupt rulers and influential figures, as they plunder the wealth of their countries and deposit it in the banks of Western countries, far from local oversight and as savings for their future in the event they are removed from power. Many countries, Arab and non-Arab alike, have tried after the fall of their ruling regimes to recover these funds or some of them, but to no avail.
In addition to the above, there are hundreds of millions and perhaps billions of dollars that countries of the South spend annually to purchase and acquire thousands of goods, from weapons, cars, trains, clothes, and timber to cosmetics, perfumes, and cheeses.
The conclusion is that the impoverished countries of the South are the ones financing the North, not the other way around, and that dictatorship and instability in the Middle East and Africa clearly serve the interests of the West. The South is not truly poor; rather, it is dispossessed of its wealth, and most of what are called donor countries do not deserve that designation.
Topic: Palestinian Economy — Tax Justice · Poverty · Economic Inequality · Aid Politicization · International Finance — Text © QudsNet — archived here with attribution to the source. — Original source