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What price will the developing world pay for Brexit?

What price will the developing world pay for Brexit?
The UK's Prince Harry and Boris Johnson opened the UK-Africa Investment Summit in London on Monday, as campaigners warned Brexit could cost African economies dearly [Stefan Rousseau/Pool/Reuters]

In his new year speech, the United Kingdom's Prime Minister Boris Johnson said the upcoming decade would be one of "prosperity and opportunity" for the United Kingdom.

The idea is that once the UK leaves the European Union on January 31, the country will be free to pursue trade deals that will be better for the country, and also to enforce its own regulations, away from the old shackles of Brussels bureaucracy.

Britain will be able to turn away from looking just towards Europe, and will be able to look out towards the world - or, at least, that is the picture being painted by the Brexiteers. The problem is, as campaigners are pointing out, the UK's future economic moves may have a terrible impact on the developing world.

One of the main plans that has been touted by ardent supporters of Brexit, including those within the UK government, is that any potential economic losses that may occur will be more than compensated for by the benefits of economic liberalisation. This may potentially include tax cuts and deregulation.

Campaigners say the danger is that the UK turns into a tax haven, and one that will attract more and more capital from the developing world, depriving them of tax revenues they desperately need.


The Global Alliance for Tax Justice says that countries in "the Global South" already lose $1 trillion every year in capital flight and tax evasion.

African countries lose between $30bn and $60bn each year, the equivalent of 40 years worth of the aid that they receive.

"If the direction of flow is changed, Africa will have the resources to finance its own development, to improve the livelihood of its people, and to empower its own citizens to hold their governments to account for what they are doing," Dereje Alemayehu, executive coordinator for the Global Alliance for Tax Justice, told Al Jazeera.

Multinationals often conduct transactions between head offices and African subsidiaries that mask where profits are being made, thereby avoiding the payment of taxes, Alemayehu added.

"What the tax havens are enabling is that the companies can structure themselves in such a way that, through their transactions, they can inflate their costs in countries where they have to pay taxes," Alemayehu said. "They make profits appear only in countries where they have no taxes to pay."

The prospect that the UK may diverge heavily from EU financial regulations has left some economic liberals dreaming that the country's economy will become lightly regulated and that corporate taxes will be slashed. The vision of a future London is that of a "Singapore-on-Thames", named after the financially liberal city-state.

And while the promotion of the idea, first insinuated by Britain’s ex-Chancellor Philip Hammond in 2017, may be a British bluff, the UK has a strong relationship with tax havens. While Singapore is eighth in the 2019 Corporate Tax Haven Index, three British Overseas Territories - the British Virgin Islands, Bermuda and the Cayman Islands - make up the top three. The UK itself is 13th, and other British territories such as Jersey, Guernsey, the Isle of Man and Gibraltar are all high on the list.


The UK also gives rich people the peculiar option of a "non-domiciled" tax status. It is a way for the extremely wealthy to avoid paying taxes on their offshore income, by registering their permanent home as outside of the UK.

"Since the 1950s, Britain and its spider web of tax havens have been at the forefront of plundering countries of the majority world," said John Christensen, the chair of the Tax Justice Network. "The big fear after Brexit is that Britain will continue to enable plundering and will lead a race to the bottom on tax rates and financial regulation."

Christensen should know a fair bit about tax havens - he was previously an economic adviser to the government of Jersey for 11 years. He is fearful that the UK will come out of negotiations with the EU completely unaligned with Brussels regulations, as the UK is already insisting will happen.

"The lawyers and bankers who work around here [the City of London] will certainly do good business attracting more oligarchs, and more plundered money, and more multinational companies that want to use London as a base for tax avoidance," said Christensen.

"The real danger is that Britain, in moving to a Singapore-on-Thames model, will undercut regulation elsewhere in Europe, will undercut regulation in North America … and will precipitate a race to the bottom."

However, there are signs the UK is posturing in its negotiations with the EU, and that it may not go as far as campaigners fear. The planned cut to corporate tax rates, from 19 percent to 17 percent, will likely be repealed in UK Chancellor Sajid Javid's March budget.

The UK government’s Department for International Development (DFID) denied any planned liberalisation of tax legislation.

"There is no evidence of the UK planning to become an 'aggressive tax haven'," a spokesperson told Al Jazeera. "The government has been clear that it will continue to fight tax evasion and international fraud, along with other global partners."

"In reference to Africa in fact, there is a summit being held in London on Monday [January 20] with African leaders to discuss how to increase UK investment into the continent following an announcement of £400 million [$520 million] from the UK to help leverage more private investment into African development projects," DFID added.

But Africa is still losing more than it is gaining, says Alemayehu.

"African countries are losing resources that are much needed to make development work, to improve the livelihood of the country," said Alemayehu. "There is research showing that Africa is a net creditor to the rest of the world, which means that the rest of the world owes Africa more than what Africa owes to the rest of the world.

"The perception is that Africa is living off the life support of the North, but if you look at how the global economy works, Africa is actually subsidising rich countries."

SOURCE: Al Jazeera News

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