Shaming "Vampire States" Part Two

Marian Tupy | 31 Mar 2006
TCS Daily
Editor's Note: This article is Part Two of a series on African corruption and foreign aid.

The callousness of African leaders often beggars belief.

An acquaintance of mine used to be a U.S. diplomat. Among the tasks he was given during his diplomatic career was to negotiate the delivery of American food aid with the Southern Sudanese rebel leader John Garang. For much of the period between 1962 and 2004, Sudan was engaged in a bloody civil war between the Arabs in the north of the country and Christians in the south. Millions of people lost their lives and many more were starving.

My acquaintance sought Garang's permission for the United States to commence the food relief operation. After much negotiation, Garang graciously agreed to have his people fed courtesy of the U.S. taxpayer. He then demanded to know how much of an import tariff he could impose on the U.S. food aid without irking the American government. My acquaintance informed him that making money out of American food aid was "out of the question." It should be mentioned that John Garang was a highly educated man -- he received a PhD in agricultural economics from the Iowa State University -- and was generally considered to be one of Africa's more enlightened leaders.

Import tariffs are among the most damaging means by which African political elites inflict pain on their subject populations. Many African leaders have called for further trade liberalization in the past. But, although they urge an end to protectionist policies in rich countries, African leaders refuse to open their own markets to foreign competition. For example, the African Union (AU) meeting in Libya last June called for "the abolition of [the rich countries'] subsidies that stand as an obstacle to trade." The meeting produced no concrete results on intra-African trade liberalization, however. That is unfortunate, because Africa remains one of the most protectionist regions in the world. While rich countries reduced their average applied tariffs by 84 percent between 1983 and 2003 (to 3.9 percent), African countries only reduced theirs by 20 percent (to 17.7 percent). Strikingly, some of the highest tariffs on African exports are imposed by other African countries.

The World Bank has recently estimated the value of Africa's income growth resulting from full liberalization of global merchandise trade. Taking 2001 as the base year, the authors estimated that by 2015 annual income growth in Africa would be $4.8 billion greater than it would have been had no trade liberalization taken place. Trade liberalization in rich countries would only account for $1.92 billion of those gains. The rest would come out of trade liberalization in the poor countries, including Africa itself. Accordingly, the World Bank found that income gains from regional trade liberalization in Africa would account for $1.75 billion by 2015, or more than 36 per cent of all the gains that Africa stands to receive from full liberalization of global merchandise trade. To put it differently, Africa stands to gain almost as much from regional trade liberalization as from greater access to rich countries' markets.

African leaders are often oblivious to the negative effects of trade protectionism. They see trade through the prism of vested domestic interests. Speaking at the AU meeting, for example, Uganda's trade ambassador Nathan Irumba urged African leaders to "reject the straightjacket of radical tariff reductions, which would pose terrible risks for our domestic industries and jobs." The hungry multitude in dirty rags that could be fed and clothed more cheaply does not feature in Mr. Irumba's thinking or the thinking of those like him. But the most revolting example of African leader's callousness must surely be taxation of foreign medicines and medical equipment.

Death and Taxes in Africa

The United Nations' Human Development Index (UNHDI) measures human development or basic living standards on a scale from 0 to 1, with 0 being the lowest and 1 being the highest score. The score for Africa south of the Sahara was 0.468 in 2003. In contrast, the score for the world's richest countries was 0.929. In fact, Africa's score was lower than that of the developing world as a whole (0.655). According to the UNHDI, Africa lags behind most of the world in practically all indicators of human well-being. Africans suffer from shorter life spans; higher infant mortality; a higher incidence of HIV, malaria, and tuberculosis; and higher incidence of undernourishment. Yet, African governments have a dirty little secret -- the role they themselves play in making the suffering of their people even worse.

In a recent paper entitled "Taxed to Death," Roger Bate, Richard Tren and Jasson Urbach from a non-governmental organization called Africa Fighting Malaria, estimated the amount of taxes that governments of some of the world's poorest countries impose on imports of medicines from overseas. In 2005, the authors found, the combined value of the import tariff and value added tax on foreign medicines was 38 percent in Kenya, 36.2 percent in Tanzania, 31 percent in Uganda and 28 percent in Nigeria. In Zimbabwe, where AIDS and government's ruinous policies have caused the life expectancy to fall from 56 years in 1993 to 30 years in 2005, the government taxes foreign medicines at a rate of 22.5 percent.

The per capita GNI in Kenya, Tanzania, Uganda and Nigeria was $460, $330, $270 and $390 in 2004. (In Zimbabwe, inflation runs at 600 percent per year, making determination of living standards difficult). The combined effect of low incomes and high tariffs on imported medicines makes access to essential medicines in Africa difficult. According to the authors of "Taxed to Death," at least half of Kenya's and Nigeria's citizens lacked access to essential drugs in 1999, while at least 20 percent of Tanzanians and Ugandans had no access to vital medicines when they needed them.

Or consider the case of the war-torn Democratic Republic of Congo (DRC). According to a January 2006 report in the British medical journal The Lancet, the conflict in the DRC was killing approximately 38,000 people each month. Yet, the combined value of taxes on foreign medicines in the DRC was 21.8 percent in 2005. To buy U.S. medicine worth $100 (transport costs included), in other words, a Congolese citizen would have to pay 8.8 percent import tariff and 13 percent value added tax, bringing the overall cost of the medicine to $123. The gross national income (GNI) per capita in the DRC, it should be noted, was $120 in 2004.

The U.S. Trade Representative (USTR) initiative on "Open Access to Enhanced Healthcare" would eliminate tariffs on all products classified in Chapter 30 of the World Trade Organization's harmonized system of exports, as well as many Chapter 29 items. Goods classified in Chapter 30 include manufactured pharmaceutical products, while goods classified in Chapter 29 include basic organic compounds that are used in the manufacture of pharmaceuticals. If successful, the USTR initiative would see tariff elimination with respect to life-saving vaccines, antibiotics and vitamins, and a variety of medical and dental equipment, not to mention such simple items as gauze and bandages.

The response of African governments will be keenly watched. They will have a choice between improving the lives of the African people and preserving the system of political patronage that benefits corrupt officials and domestic production monopolies. The same applies to non-governmental organizations, such as Oxfam, which have been calling on Africa to retain its tariffs on imports from abroad. For if tariff reduction on medicines and medical goods makes moral, not to mention economic, sense, why not extend the same logic to clothing, food and industrial machinery -- all of which would make the lives of African masses more bearable? The office of the U.S. Trade Representative has issued a direct challenge to the protectionists around the world. What will their response be?

Marian L. Tupy is assistant director of the Cato Institute's Project on Global Economic Liberty.