No Tax Heavens BUT Corruption is Malawi’s biggest problem

While in power 2012–2014, President Joyce Banda lamented on the difficulties of running Malawi economy:

“It’s heavy, but I am able to carry it. Why? Because I am an African Woman. An African woman carries heavy loads anyway. That’s how we are trained; are brought up that nothing is unbearable. I use that now, positively. I use that now to have a thick skin that I have, and not fear, and move forward, and push; and push forward.”

Joyce Banda had inherited a tanking economy from her predecessor, the late Bingu wa Mutharika; and at the same time, Mrs Banda was facing pressure from the IMF to devalue the country’s currency by nearly 50%, a decision with possibilities of catastrophic consequences for the majority of the population, majority of whom leave below the poverty-line.

Looking at recent report findings by anti-poverty campaigners, Action Aid, perhaps Mrs Banda, her predecessors and her successors could have had it easier had it not been for tax avoidance strategies used by some multinational corporations.

The Action Aid report argues that multinational corporations are depriving the world’s most impoverished communities of vital revenues. The report observes that tax revenue is one of the most important, sustainable and predictable sources of public finance there is. Adding: “It is a crucial part of the journey towards a world free from poverty – funding lasting improvements in public services such as health and education.”

The observation is correct and Action Aid should be commended for their relentless campaign on tax justice, especially in poorer countries. Tax is very important for any country, let alone countries with meagre resources to go around for everyone. John Christensen of Tax Justice Network Production has called tax “the greatest invention”, meaning that tax is the best system of redistribution of resources in the hugely economically unequal societies throughout the world.

Among others the Action Aid report has identified a colonial era (1955) United Kingdom (UK) treaty with Malawi – then Nyasaland, which the report notices is “outdated and unfair.” Citing International Monetary Fund figures, Action Aid observes that in 2014 developing countries, such as Malawi received US$134 billion in aid from wealthy countries but lost US$200 billion a year from tax avoidance.

In particular, the Action Aid study has established that the UK-Malawi treaty limits the ability of Malawi government to tax UK companies operating in the country:

“UK companies had investments worth US$157 million in Malawi in 2010 (the latest year for which UN data is available). While this may seem small by UK standards, Malawi’s economy is so small that it equates to 13.7% of all foreign investment, making the UK the third largest investor in the country (after Switzerland and South Africa). This means renegotiating this treaty could potentially have a significant effect on Malawi’s tax revenues, at little relative cost to the UK,” observes the report.

One wonders why Malawi government continues to accept such treaties, especially that the country has been running on a tight financial rope in the last three financial years, in part due to donor withdrawal of up to 40% of annual budgetary support. Malawi has been struggling raising domestic tax to plug the financial gap left by the donors. The country’s 2016/ 2017 national budget has been reduced to MK23.7 billion against MK50 billion revenue shortfall.

The situation is bad; the country has shortage of food, the health system is struggling, moral within the civil service and education standards continue to fall. The government is yet to find ways of increasing its tax-base. These are some of the areas that Action Aid says could benefit from a fairer tax treaty with UK multinational corporations, which the report has not named.

Action Aid is theoretically right on this, Malawi must demand justice and push for fair tax treaties. It makes no sense for Malawi claiming its independence from Britain while it remains financially shackled to Britain and its multinational corporations. It is said that economic independence of a nation produces true political independence of a nation state, political independence is only a façade if the nation is not economically independent.

Organisations like Action Aid can only do so much and their work falls short as it ignores political realities of the countries it is fighting for. Fear of political infereference does not do these charity organisations and their commendable campaigns any justice. Tax justice campaign makes so much sense but it becomes ineffective when it ignores the fact that among the key reasons countries like Malawi are struggling today is corrupt, self-serving leadership and cronyism.

Corruption and senseless looting of government resources by senior civil servants, politicians and business persons is the reason donors withdrew their aid from Malawi. In just six months, US$31 million was stolen from government coffers in a corruption scandal called cashgate.

It is estimated that about 35% of government funds have been stolen from Malawi government over the past decade. While this is by no means to downplay Action Aid’s work, it is important to note that there is no guarantee that any money rescued from the unjust tax treaties will benefit the most needy Malawians. Evidence suggests that Action Aid’s conclusions that lost revenue from unjust tax treaties would improve the living standards of Malawians are inadequate, flawed and a miscalculation of facts.

Condemning Corruption While Ignoring Corruption

“Whoever fights monsters should see to it that in the process he does not become a monster. And if you gaze long enough into an abyss, the abyss will gaze back into you.”  – Friedrich Nietzsche.

Not that our political leaders are monsters but Nietzsche’s argument is similar to the argument that people, especially those in positions of leadership and power must always practice what they preach if they are to be taken seriously.

About a week ago Malawi’s state president, Peter Mutharika presided over anti-corruption day where he gave a resounding speech in which he identified corruption as “a deadly enemy we must fight in an all-out war!” “Corruption denies medicine from those suffering in our hospitals; it denies learning resources from our children to frustrate our future; and it drains resources for building roads and bridges to frustrate development of this country,” He said.

Mutharika asked Malawians to embody the spirit of hard work, honesty and integrity and accountability. President Peter Mutharika – Photo Credit: NyasatimesI fully agree with the president, and I am sure no well meaning Malawian could disagree with these observations. In fact, if we are to look around we will see Malawians crying for a corrupt-free nation – a country with accountable leadership where basic necessities are provided for; a country with servant leadership where bounties of the land are meant for all Malawians not for the privileged few; a country where patriotism means supporting the government when it deserves it and defending one’s country unconditionally.

It is however unfortunate that throughout 51 years of independence, these issues have been frustrated by the people Malawians have entrusted with power. Corruption is everywhere in Malawi and it is safe to say that it trickles from the echelons of power to the lowest denominator. It is the corruption of cashgate proportions that “denies medicine from our hospitals” – it is this kind of corruption that “denies learning resources from our children” – it is this kind of corruption that “frustrates development of [Malawi]”.

After two decades of democracy and Malawians pushing for accountable government and leadership, Malawi government has only just establish the office of assets declaration, which is still being frustrated by inadequate funding and no one is exactly sure what will come out of it. Here president Mutharika has an opportunity to make good of his desire for an accountable state.

Talking about accountability, why is that we have a democracy where political parties are not legally obliged to declare their assets and source of funding? Is this not fertile ground for corruption? Have we, as a nation, ever had an honest discussion why is it that it is only the ruling party that always has election campaigning resources? During his BBC HARDtalk interview, President Mutharika insinuated that Joyce Banda used the proceeds from the sale of presidential jet for her campaigning, shouldn’t this be a cause of concern that we need a law in place to regulate electoral funding?

President Mutharika has opportunity to make good of his desire by passing access to information bill, which successive governments have frustrated since the year 2000. His own government has added to frustration on this issue. One minute there is a commitment to passing to the bill, the following minute the same government is backtracking. Talk is cheap and Mutharika’s anti-corruption speech comes to nothing if his government does nothing to address issues fostering corruption – Mutharika should heed Nietzsche’s observations: “… if you gaze long enough into an abyss, the abyss will gaze back into you.”

Malawi’s Calculated and Manipulative Leaders

Malawi was a de facto police state during a good part of former president Hastings Kamuzu Banda’s 30 years rule. There was no rule of law or judicial system to speak of. Kangaroo courts and traditional tribunal were Kamuzu’s preferred systems. The late Orton and his Wife Vera Chirwa who were recognised as prisoners of conscious by Amnesty International were among scores of other innocent Malawians who became victims of Kamuzu’s Kangaroo courts.

It is not that Kamuzu believed in the fairness of Kangaroo court, he did not; this is why he favoured it because he could easily control outcome of any case. This saved his dictatorship – it was the most effective way of locking up anything he feared and did not like. Dictators hate a lot of things, mostly intelligent and patriotic people. Kangaroo courts were designed for these people.

The ironic thing is that after his presidency Kamuzu and his co-accused in Mwanza Murder Case was saved by a democratic and transparent judicial system, which he denied a lot of Malawians for 30 years he was in power.

It is regrettable to say that today those in power continue to disregard the rule of law where and when it clashes with their selfish narrow interests, as opposed to broader national interests. We saw this with the late Bingu wa Mutharika in 2011, as he sought absolute power, trying to stop Malawians challenging his increasingly autocratic rule through the courts. Mutharika initiated and failed with the so-called “injunctions bill”.
Again, the irony of this is that DPP, Mutharika’s party, heavily relied on the courts to obtain and vacate injunctions, as 2014 tripartite elections results got delayed day after day.

I am reminded of this as the DDP-led administration has decided to disregard recommendations for the revised Communications Act that the state president should not be a sole appointing authority for board managers and members of politically, and, let us face it, financially important telecommunication institutions, Malawi Communications Regulatory Authority (MACRA) and Malawi Broadcasting Corporation (MBC).

As MISA Malawi statement, released on 17th November 2015 has already stated, independence of MACRA and MBC from political interference was key issue in the review of Communication Act of 1998. MISA correctly observes:

“by maintaining the state president as the appointing authority for the boards and management of the two institutions, the cabinet has effectively rendered the review of the law useless.”

The poignancy of this statement becomes pointless when you realise that like Kamuzu and his Kangaroo courts, like Bingu and his quest to ban court injunctions, the current administration is aware of this anomaly, and they are aware that those concerned with governance issues in Malawi will protest at its decision one way or another. But they do not care, so long as it fits the narrow and selfish interests of the incumbency – the stinking “so what” attitude from our elected leaders.

It is this attitude from the people we trust with power that is keeping Malawi in poverty. The worst part is that those in power know this but they are calculative and manipulative. There is no worse thing than a calculative selfish individual with power. Sadly, Malawians have been cursed with such leaders, coupled with the citizenry who are happy to take all the nonsense.

Unwritten Rule that Fosters Corruption in Malawi

It is now two years since Malawi was rocked by its biggest government corruption scandal in history. The systematic looting of public coffers by civil servants, private contractors and politicians saw them steal US$31 million from government coffers.

It is estimated that about 35% of government funds have been stolen over the past decade. The country’s national budget for 2013-14 was about US$1.3 billion (630.5 billion Kwachas) at today’s exchange rate.

But has the country learnt anything from its biggest scandal that saw donors withdraw support?

The University of Malawi’s Blessings Chinsinga recently pointed out that:
… efforts to root out corruption do not stick because the existing institutional milieu makes it almost impossible to introduce changes that can effectively stamp out corruption.

The observation is instructive in that the scandal spans two political administrations. Malawi was led by the late president Bingu wa Mutharika in 2004 and the scandal unravelled on the watch of Joyce Banda in 2013.

A number of factors contribute to the current state of affairs.

There is no clear distinction between a party in power and government activities in Malawi, unlike in established democracies. In Malawi, the party in power is the de facto government.

In Malawi, a party in power calls itself boma (a government). Ordinary Malawians look at abuse of state resources by those in power as acceptable. It is almost impossible to tell a party in power from the government.

Even more serious is the fact that political parties in Malawi are not mandated to declare their sources of funding. This breeds corruption and fosters abuse of public resources. This is not unique to Malawi. But in countries like Botswana, hailed as one of the model democracies on the continent, they at least have a debate on political party funding. Debates are also taking place in Nigeria and South Africa, respectively the continent’s largest and second-largest economies.

Another contributing factor is that after 21 years of multiparty democracy, governance in Malawi remains heavily centralised. Although the country has been independent since 1964, it only became a democracy in 1994.

Until then, it had been a one-party state decreed by its first post-colonial leader Kamuzu Banda, who banned political parties. He became president for life in 1971. Since 1994, the country has had local government representation for only six years – from 1999 to 2004 and from 2014 to now.

The central government has been reluctant to relinquish some of its powers. The president makes even the smallest of decisions and undertakes mundane tasks that should be reserved for line ministries. This encourages a system of patronage.

Lastly, government contracts, tenders and board memberships all go to sympathisers of the party in power and not necessarily to the best bidder or the most competent applicant. Government sympathisers or ruling party members get contracts regardless of their levels of competence.

This unfairly benefits the incumbents and weakens opposition parties. Businesspeople are afraid of funding opposition parties because they could lose state contracts and other business opportunities.

Malawians have always known that corruption is rife in the country. But the sheer size of the Cashgate scandal, both in terms of the amount and the wide number of people involved, has shown how deeply rooted the problem is.

The involvement of the country’s political class in the scandal is in stark contradiction to their penchant for standing on political campaign podiums promising to fight corruption with all their might.

Most of the people implicated in the Cashgate scandal were either members of the then-ruling People’s Party or its sympathisers.

There is an unwritten rule in Malawi that successful businesspeople align themselves with the governing party in order to protect their property and gain more contracts.

An aunt of Oswald Lutepo, thus far the main Cashgate convict and serving 11 years in jail, was heard in court lamenting that her nephew was advised that he did not need to join politics as he was already a successful businessman and multimillionaire. At the time of his arrest Lutepo was deputy director of recruitment in the People’s Party.

The aunt’s lament is instructive: people join politics in Malawi mainly to make money. In terms of this logic, the 37-year-old Lutepo was already a millionaire. He should have stayed out of it.

But he could not escape the lure of more riches that flow from being close to those in power. He knew the unwritten rule for success in Malawi only too well:

If you are unsuccessful, support the ruling party because this is where opportunities are.

Malawi is still learning to cope without support from donors and the jury is still out on whether it has learnt anything from its biggest scandal. A recent article in African Arguments underlines the hopeless feeling that Cashgate has left among most Malawians:

Malawi’s self-enriching officials need to know they will be judged not just by an imperfect judicial system, but by generation upon future generation of their compatriots.