Article: In truth, it is the poor who finance the rich

Omar Shaban – Gaza
Pal-Think for Strategic Studies

The United States of America warned the states that receive aid from it that it will stop doing so if these states vote yes to the draft resolution demanding the cancellation of president Trump's decision concerning Jerusalem. The American warnings fall within what is called the politicisation of aid and its employment to serve the “donor” states, and the stripping of the recipient states of their will and the independence of their decision under the pressure of waving the halt of aid, grants, and other forms of international funding.

It is not easy to define the financial relation between the states of the rich North and the states of the poor South, because of the multiplicity of factors intertwined in shaping it, the multiplicity of channels through which the funds pass in both directions, the overlap between the funds that move legitimately and those that move illegitimately between the two regions, and likewise because many states and international financial institutions have no interest in announcing transparently the quantity and form of the financial flows between North and South, as the naming has run.

Many eminent international studies estimate the scale of the funds the states of the South received at about 1,300 billion dollars in the year 2012 — of which only 125 billion as aid, long-term loans, and humanitarian gifts, and the rest obtained by the states of the South — poor in name, rich in truth — in return for goods exports and the remittances of their sons working abroad. Meanwhile the states of the North received in the same year 3,300 billion dollars — that is, the poor states pumped out 2,000 billion more than they received. These studies estimate the net financial flows between North and South from 1980 to 2012 at about 16,000 billion dollars to the latter's cost — the equivalent of America's gross domestic income. These studies likewise affirmed that the rich states have drawn about 4,200 billion dollars in interest on their debts to the states of the South.

The most important sources of the funds moving from South to North are the profits of the international companies working in the states of the South — such as the companies prospecting for oil, gas, and precious metals, and the companies building infrastructure, bridges, water-desalination plants, electricity networks, and other giant projects the states of the South cannot manage and for whose design and implementation they lack the required expertise. Worth mentioning here is that these northern companies benefit greatly from the investment-promotion laws in effect in the poor states, which grant these companies complete exemption from paying taxes. Many of these international companies register themselves in areas called “tax havens”, where they obtain the status of “foreign investor”, exempting them from paying taxes whether to their original countries or to the local governments. Many of the companies working in the Arab homeland and Palestine are companies owned by local investors who nevertheless registered their companies in certain states of Africa and certain “tax-haven” areas so as to enjoy the status of “foreign investor” — exempting them from paying taxes locally, and in the areas of their registration of course.

It is recalled that the donor states pledged since 1970, through the successive international conferences discussing the North's relation with the South, to contribute 0.7% of gross domestic product to help the poor states; yet this share in reality has not exceeded 0.4% on average, with variation in the states' commitment. While each of Norway, Sweden, and Luxembourg contributes about 1% of gross domestic income — more than the pledges — the United States' contribution reached 0.2%, Japan 0.23%, Germany 0.35%, the Netherlands and France 0.4% — far less than they pledged, taking into account the immense differences in the sizes of these states' economies.

Another form of the South's support of the North is direct investment, FDI: the governments and individuals of the states of the South invest staggering sums in the markets of the developed states in their search for stability and the rule of law — foundations missing in the countries of the South, among them the Arab homeland. There is no sufficient and precise information on the scale of Arab investments abroad — like much fundamental information — as the governments of the states lacking a democratic climate and transparency are keen to keep these investments entirely secret. Likewise some of these investments are registered in the names of the sons of the ruling families and the influential, which adds another difficulty to the process of inventorying and monitoring them, since one cannot separate the state's investments from those registered to or owned by individuals of the ruling class. But a report of the American CNN station in October 2016 estimated Saudi investments alone in America at about 1,000 billion dollars. The Council of Arab Economic Unity estimates the scale of Arab investments in the world at 2,400 billion — and in my reckoning this figure is very modest compared with reality. The scale of Arab investments heading abroad yearly is estimated at tens of billions of dollars: 15 billion leaves the state of the Emirates, 10 billion dollars from Saudi Arabia, and 8 billion from Qatar yearly. Meanwhile the whole Arab homeland obtained a share of only 0.81% in 2016 of the scale of international investment that travels around the world, estimated at 1,770 billion yearly — a very small share, given the state of instability, the loss of certainty, and the absence of democracy and the foundations of transparency, factors indispensable for attracting foreign investments.

Another form of no less importance is that the Western world counts as a safe haven for the funds of corrupt rulers and influentials, who plunder their countries' wealth and deposit it in the banks of the Western lands, away from local oversight and as savings for their future should they be removed from rule. Many states, Arab and non-Arab, tried after the fall of their ruling regimes to recover these funds or some of them, but to no avail.

The conclusion is that the states of the impoverished South are the ones funding the North, and not the reverse; and that dictatorship and instability in the Middle East and Africa pour plainly into the West's benefit. The South is not actually poor — it is stripped of its wealth, and most of what are called the donor states do not deserve this naming.