African tax haven receives thousands times more UK investment than poorer nations

On 20 January 2020 the UK will host the UK-Africa Investment Summit. The Government’s aim for the summit is to strengthen the UK’s partnership with African nations, so that the UK is their “investment partner of choice”. It says this will build “a better future for all”

However, the pattern of UK investment in Africa to date raises questions about whether future investment will benefit the poorest countries there and how the Government intends to monitor this.  

The UK network for organisations working in international development (Bond) points out that the summit is largely funded by official development assistance (ODA) funds, so its main priority should be the economic development and welfare of developing countries.

Facts about the UK’s investment in Africa

The UK’s direct investment in Africa was worth £39bn in 2018, up from £34bn in 2017, though still lower than in 2012 (£42bn). However, behind the headline figures there are huge variations in the level of UK investment between African countries. 

In 2017 nearly half (47.1%) of UK direct investment to Africa was in just two countries, South Africa and Mauritius, which account for less than 5% of the continent’s population. UK investment in South Africa was worth £9.6bn, and Mauritius £6.4bn. Tax Justice Network has described Mauritius as one of the most corrosive corporate tax havens against African countries and one of the most financially secretive jurisdictions in the world.

UK investment figures are not available for many poorer African countries, but the figures we do have show that UK investment in low income African countries is a fraction of investment in South Africa and Mauritius. 

Tanzania has a similar population as South Africa (57 million), but UK investment there is 150 times smaller, worth £64m compared to £9.6bn in South Africa.

The Gambia has a slightly larger population (2.1 million) than Mauritius (1.3 million) but UK investment there is around 9,000 times smaller, worth £0.7m compared to £6.4bn in Mauritius. 

On average, UK investment per person in low income Africa countries is 150 times smaller than UK investment in South Africa and 4,500 times smaller than in Mauritius. The World Bank defines low income countries as those with Gross National Income per capita of $995 or less in 2017.  

The value of UK investment in most low income African countries, where we have data, fell between 2016 and 2017. UK investment was lower in Mozambique, Uganda, Malawi, Congo (Democratic Republic), Niger, The Gambia and Madagascar. Tanzania and Liberia were the only low income African countries to see increases.

Separate research shows that some of these countries spend a significant amount of their income (0.5-1% of GDP) on services from the UK.

UK outward Foreign Direct Investment (FDI) positions in Africa 2016-2017

Selected countries based on data availability

Sources

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What more could UK government tell us about its impact on developing countries beyond aid spending?

The Department for International Development (DFID) publishes an Annual Report which sets out what it has achieved over the year, providing statistics on everything from the number of people reached with humanitarian assistance, lives saved through immunisation and people supported to access clean water. But the UK has a much wider impact on developing countries than its aid spending, and is committed to a range of other policies that affect those countries.

Under the International Development (Reporting and Transparency) Act 2006) DFID needs to report the effect of these policies. It should report the ‘“effects of policies… pursued by government departments on sustainable development … and reduction of poverty”. Whatever the policy priorities of a new government, reporting this information is important to support coherent policy making. DFID’s annual reports do provide some information but could tell us more about the progress being made on policies beyond aid.

Four policies which could be worth billions of pounds to developing countries

To illustrate what DFID’s report could say more about, consider the impact of policies beyond aid spending on one country, Nigeria.

Nigeria is Africa’s biggest country by population and its second largest economy. Despite significant natural resources, about 94 million people – roughly half Nigeria’s population – live in extreme poverty, according to estimates from the World Data Lab’s Poverty ClockDFID recognises that Nigeria faces a number of challenges to its future growth and development and says that the UK is focused on helping Nigeria overcome its challenges. 

The examples below illustrate the relevance of policies beyond aid spending for Nigeria:

  • Anti-money laundering. Over $800 million of Nigerian government funds were transferred by JP Morgan from a London account to a company controlled by a former Nigerian oil minister convicted of money laundering.
  • Stolen asset recovery. Nigeria’s anti-corruption chief has said they suspect at least $37bn (£25.6bn) in stolen money from Nigeria was routed through London during 2014-2015.
  • Promoting responsible environmental management by UK based multinationals. Oil spills in the Niger Delta by the Nigerian subsidiary of UK-list Shell have had a disastrous environmental impact, with clean-up costs of at least $1bn, according a UN report.
  • Reducing migrant remittance costs. Reducing the average cost of sending remittances from the UK to Nigeria, to the SDG target of 3% could save nearly £100m a year.

These examples suggests that, in total, implementation of effective policies (beyond aid spending) could be worth many billions of pounds to developing countries.

Anti-money laundering 

DFID’s report sets out the actions it is taking to deliver its UK Anti-Corruption Strategy 2017 commitments, including “supporting the National Crime Agency (NCA) and Crown Prosecution Service to reduce incentives for corrupt individuals in developing countries to use the UK to launder money or for UK business and UK nationals to use bribes in developing countries.” 

Why UK policies are important for Nigeria

In its country profile on Nigeria, DFID recognises that the Nigerian government struggles with corruption and says it will support it in tackling corruption.

Corrupt money is sometimes laundered via the UK, so one way the UK can help tackle corruption is in ensuring it has an effective anti-money laundering regime.

For example, documents filed in a major corruption case show that JP Morgan Chase Bank transferred over $800 million of Nigerian government funds from a London account to a company controlled by a former Nigerian oil minister who had been convicted of money laundering. The bank says that it ‘received consent’ from the Serious Organised Crime Agency (SOCA, now part of NCA) before making the payments.

What more could DFID’s report tell us

The transfers in the above case were made in 2011 and 2013. Then in 2017 the Government committed to reform the Suspicious Activity Reports (SARs) regime, which banks and other organisations use to alert the NCA of potential cases of money laundering. A group of anti-corruption NGOs have called for greater transparency and accountability on the impact of modifications to the SARs regime.  

So, as well as telling us that DFID is supporting the National Crime Agency (NCA) and Crown Prosecution Service, the report could also tell us what progress has been made in improving the UK’s anti money laundering regime and reducing incentives for corrupt individuals in developing countries to use the UK to launder money. 

Stolen asset recovery 

In relation to assets stolen from developing countries, DFID says “From 2006 to the end of 2018, £783.2 million of assets were restrained, confiscated or returned to developing countries, including £57.3 million returned to the Government of Nigeria through our support”.

Why UK policies are important for Nigeria

At the 2016 anti-corruption corruption conference hosted in London, Nigeria’s president called for the return of assetswhich had been taken out of Nigeria via London. His anti-corruption chief said they suspected at least $37bn (£25.6bn) in stolen money from Nigeria was routed through London during 2014-2015.  Following the summit, in September 2016, the UK signed an agreement with Nigeria on returning stolen criminal assets to Nigeria.

The World Bank’s Stolen Asset recovery initiative estimated in 2007 that developing countries lose between $20 billion and $40 billion each year to bribery, embezzlement, and other corrupt practices.

What more could DFID’s report tell us

The figures quoted by DFID are total values for a 12 year period. The report could tell us what has been achieved over the last year and how significant these amounts are compared to estimates of the overall level of stolen criminal assets from developing countries. For example, it could clarify how much has been returned to Nigeria since the September 2016 agreement on asset recovery. 

A number of anti-corruption NGOs called for improved transparency and accountability in the asset recovery process in their 2018 report on UK compliance with the UN Convention against Corruption. The UK co-hosted Global Forum on Asset Recovery (GFAR) has established principles on transparency and accountability in asset return process, including that ‘information on the transfer and administration of returned assets should be made public and be available to the people in both the transferring and receiving country.’

Data on asset recovery cases is available on the Stolen Asset Recovery Initiative database. As at November 2019, the most recent UK asset recovery on this database was started in 2014.

Promoting responsible environmental management by UK based multinationals

DFID’s report tells us about many environmental programmes that the government invested in to mitigate and adapt to climate change and prevent environmental degradation. 

For example, DFID and Defra pledged up to £250 million to the Global Environment Facility (GEF), a mechanism for developing countries to address environmental challenges such as biodiversity loss, land degradation, international waters and chemicals and waste. 

Why UK policies are important for Nigeria

Oil spills by the Nigerian subsidiary of UK-listed Shell have had a disastrous environmental impact on the Niger Delta, according a United Nations report. The UN estimated that cleaning up the area will cost at least $1bn and take up to 30 years.  Shell’s subsidiary, which produces 39% of the country’s oilhas accepted that oil spills in 2008 resulted from the failure of old and poorly maintained pipelines. Other spills continue which Shell says are mostly caused by sabotage. Communities affected by oil spills have for years sought legal redress in UK courts. One community received an out of court settlement of £55m in 2015. Shell has sought to block another claim.

What more could DFID’s report tell us

DFID’s report could tell us about the effect of current policies towards companies listed and headquartered in the UK whose operations risk impacting the environment in developing countries.

For example, the report could tell us about the effectiveness of the UK’s ‘National Contact Point’ for the OECD’s guidelines for multinational enterprises. This aims to raise awareness of voluntary guidelines for responsible business conduct, which include environmental and human rights issues. Complaints can be lodged against businesses for breaching the guidelines and investigated by a ‘national contact point’ within the Department for International Trade, which can result in non-binding recommendations for the company.

The effectiveness of voluntary guidelines has been challenged by a group of civil society organisations who are calling for a law requiring UK companies to take action to prevent environmental harm, human rights and other abuses in their global operations and supply chains.

Reducing migrant remittance costs 

Remittances from migrants in the UK to Africa have been conservatively estimated at £4.1 billion in 2015, similar to the value of UK aid to Africa. However, the high costs of sending money to developing countries remains a challenge and the UK has committed to reduce the cost of sending remittances. The Sustainable Development Goals (SDGs) have a target (10c) to the reduce transaction costs for migrant remittances to less than 3% by 2030 and to eliminate remittance corridors with costs higher than 5%. As at September 2019, the global average for remittance costs is around 7%.

DFID last provided an update on remittance costs in its 2016/17 annual report. That report stated the UK’s commitment to reduce costs and actions taken during the year, although it did not provide information on the level of remittance costs between the UK and developing countries. DFID’s 2018/19 annual report did not provide information on remittance transaction costs.

Why UK policies are important for Nigeria

World Bank estimates show that Nigeria was the biggest destination for UK remittances, worth around £2.9bn in 2018, and ten times larger than UK bilateral aid to Nigeria (£297m). The UK was the second largest source of remittances to Nigeria, after the USA. In 2018, the average cost of sending remittances from the UK to Nigeria was 6.3%, so reducing costs to the SDG target of 3% could save around £95m a year.

What more could DFID’s report tell us

The report could provide an update on implementation of The UK National Remittance Plan and the impact of this, specifically changes in the cost of sending remittances form the UK to developing countries, including major destinations like Nigeria.

DFID has provided funding for the World Bank’s Remittance Prices Worldwide database to include additional UK remittance corridors, and data from this could be used to show what progress is being made on reducing remittance costs. 

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What are the biggest reported flows between the UK and developing countries?

Development Monitor has crunched public data on trade, aid, remittances and investment to investigate which developing countries send and receive the most from the UK.  

Here is a taste of what our new dashboard can tell us about the UK’s interactions with low-income countries in 2017.

The World Bank classified 34 countries as ‘low-income’ in 2017.[i]  They are around 50 times poorer than the UK, with per capita incomes averaging around £1.60 per day in 2017. [ii] Many low-income countries are in sub Saharan Africa but also include Afghanistan, Nepal and Yemen.

For these low-income countries:

  • Their biggest reported outflows to the UK are payments for UK services. Seven low income countries spend 1-2% of their GDP on services from the UK, such as management consulting, financial services, engineering services. They are: Zimbabwe, Sierra Leone, Afghanistan, Liberia, Senegal, Mozambique, The Gambia. As noted in our earlier article, these payments are sometimes worth much more than the bilateral aid they receive from the UK, e.g. Zimbabwe (£279m versus £93m), Senegal (£160m v £1.4m).
  • Remittances are more significant than aid for some countries. UK remittances are estimated to be a bigger inflow than UK bilateral aid to Uganda (£289m v £140m), The Gambia (£28m v £15m) and Nepal (£111m v £100m). UK remittances to Uganda are estimated to be larger than bilateral aid flows to any low-income country other than Ethiopia.
  • Ethiopia has top spot (though it depends how you look at it). UK bilateral aid to Ethiopia was £326m, exports to the UK were worth £350m, bigger than other reported flows between the UK and low-income countries. Ethiopia was also the largest importer of goods from the UK (£220m). But Ethiopia is the biggest low-income country, by population and by GDP, so we get a different picture taking that into account. UK bilateral aid as a percentage of GDP is lower for Ethiopia (0.5%) than for many other low-income countries, for example UK bilateral aid to Somalia is worth 4.9% of its GDP.

Top reported financial flows between the UK and Low-income countries (2017)

Ranked by % of developing country GDP

Try out the dashboard to see all the data and investigate trends for other income groups, Least Developed Countries and Commonwealth countries.


[i] World Bank threshold for low income countries was $995 or less GNI per capita  (Atlas method) in 2017 https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country-and-lending-groups Comoros, Senegal and Zimbabwe were classified as low income in 2017, but moved to low-middle income in 2018.

[ii] Average GNI per capita in low income countries in 2017 was $752; UK $40,580 GNI per capita; Atlas method (current US$) https://data.worldbank.org/indicator/NY.GNP.PCAP.Cd?end=2017&start=2016  USD-GBP exchange rate in 2017 = 1.29 https://www.ofx.com/en-gb/forex-news/historical-exchange-rates/yearly-average-rates/

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World’s poorest countries spent £2.5 billion on UK services in 2017

Analysis by Development Monitor shows that the UK exported £2.5 billion of services – such as management consulting and financial services – to Least Developed Countries (LDCs) in 2017, up from £2.0 billion in 2016. The UN defines LDCs as low-income countries that face severe impediments to sustainable development. The UK also imported £0.7bn worth of services from these countries in 2017, unchanged from 2016.

The value of UK services provided to LDCs was almost as much as the UK’s bilateral, country-specific aid spending on those countries, which amounted to £2.6bn in 2017.

Several LDCs spent more on UK services in 2017 than they received in UK bilateral aid, including:

  • Afghanistan: UK service exports £241m, UK bilateral aid £227m
  • Bangladesh: UK service exports £352m, UK bilateral aid £176m
  • Mozambique: UK service exports £114m, UK bilateral aid £58m
  • Zambia: UK service exports £72m, UK bilateral aid £53m.

The Solomon Islands spent the highest proportion of its income on UK services, worth 4.74% of their GDP in 2017, and equivalent to around half their spending on education.

On average LDCs spent a greater proportion of their national income on UK services than richer developing countries. In 2017, imports of UK services exports were on average worth:

  • 0.31% of GDP for Least Developed Countries
  • 0.12% of GDP for Upper Middle Income countries (such as Brazil and China)

More trends and analysis can be found on Development Monitor’s financial flows dashboard.

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