No fiddling with Civic Space-CSOs affirm at Paris EITI Meeting

We demand that an independent, external review be commissioned to analyse the EITI’s tools to assess civil society participation; and we demand that Myanmar receive “meaningful” rather than “satisfactory” progress during its validation

By Governance and economic analysis centre team, Paris

At the Extractive Industries Transparency Initiative (EITI) global conference which took place in Paris between 17th and 20th of June 2019, Civil Society Organizations (CSOs) warned governments accross the world and vowed that they will not accept anything less than an unequivocal guarantee that Civic space and participation in EITI governance processes will continue to be safe guarded and protected.

This followed what CSOs described as an encroachment on Civic space by selective interpretation and application of the EITI standard.

A collective statement issued by the global CSO extractive transparence movement coordinated by Publish What you Pay observed that Civic space is shrinking worldwide, including many EITI Countries. Civil society is carefully monitoring the situation and gravely concerned with what we see.

The EITI is a global standard for good governance for the oil, gas and mineral resources currently implemented in 52 Countries around the world.

In recent board decisions, the board has taken what CSO view as a double standard or non-balanced approach in interpreting the standard. We have seen some Countries punished for violating the CSO protocol while others are treated with ‘kid gloves’

The Standard requires that member states undergo regular validation on implementation of the EITI Standard after which implementing states are ranked as having achieved either satisfactory or made meaningful progress or suspended for failure to meet the standards. Under extreme conditions countries are delisted from the EITI. The status of the EITI in different implementing Countries can be viewed via:  https://eiti.org/

The Civil society protocol is one of the benchmarks required to be assessed during the EITI validation and implementing countries are required to demonstrate that the operational environment in the country is conducive for civil Society to freely operate and participate in the extractive sector governance.

To achieve accountable management of natural resource citizens must have access to relevant information about the sector is managed. EITI’s main historical purpose is to provide this transparency. Civil Society has been a driving force behind progress in the types of transparency and granularity of data provided by the EITI over the years, most recently with advocacy on contract transparency.

Transparency should be accompanied by meaningful participation. Participation is about the ability of people to have agency in natural resource governance decisions that directly affect them or their livelihoods.

How to interpret and enforce EITI requirements for civil society participation has been contentious and recurring over years. It has been debated in relation to a number of countries such as Equatorial Guinea, Ethiopia, Azerbaijan and Niger. In recent years both Azerbaijan and Niger have withdrawn from the EITI after facing suspension linked to Civic space concerns.

Several times have been made to clarify the interpretation and enforcement of civil society participation; notably with 2015 civil society protocol.

These documents make it clear that EITI is meant to assess the general political environment and that EITI requirements cover any civil society expressing views related to natural resources government (not just MSG-Members) along a spectrum of activities, expression, operation, association engagement and access to public decision making.

None the less, interpreting and enforcing EITI’s requirements regarding civic space remains contentious, more recently with the validation of Myanmar.

Against a backdrop of shrinking space globally, now is the time to review whether EITI’s mechanisms for assessing civic space are fit for purposes and serving the broader objective: Ensuring civil society’s ability to participate freely, independently and meaningfully in the national dialogue on natural resource governance.

According to data provided by the Civicus Monitor indicates that our of 50+ EITI implementing Countries 40 have seriously restricted Civic space, including 2 listed as closed. 13 repressed, 25 obstructed and a further 6 with narrowed Civic space and 5 as open.

Activist working on transparency in the extractive sector are among the most targeted globally. Attacks against activists working on transparency in the extractives include killings, torture and disappearances as well as criminalization of their activists. The business and human rights resource centre has identified attacks on human rights activists working on business related activities in approximately 36% of the 50+ EITI implementing Countries in the last three years.

Myanmar represents a test case for how the board assess requirement 1.3 and will be a bell weather for similar scenarios in Countries like the Dominican Republic. It is important to uphold EITI’s commitment to review the broader environment in which EITI operates and to assess whether the broader objective of Civil society protocol has been fulfilled, Ms Elisa Peter, Executive Director of Publish What You Pay Global CSO Coalition stated.

What Does this year’s budget have for you?  How Tanzania, Kenya and Uganda prepare and manage their budgets differently to minimise perpetual deficit

 

As East Africans continue to dissect and internalise what impacts this year’s national budgets will have on the economy and standards of ordinary citizens, the questions remain whether these budget targets can be achieved. But what are national budgets and how have these coveted statements and speeches resonated with citizens interests over time? The trend and results from previous budgets show mixed feelings and perhaps, it is time to reflect on how national budgets are made. 

By Moses Kulaba; Governance and economic analysis centre

What are national budgets?

A national budget is a statement of how government plans to raise and spend revenue or public money collected from various domestic and external sources. Domestically, the government largely raises revenues through taxation.

The legendary Economist and tax theorist Adam Smith stated that states as sovereign entities have the right to impose taxes and to spend these proceeds from taxation to meet the public financial needs of its citizens. 

The tradition of taxation is rooted in ancient empires which required that every able citizen makes a mandatory contribution to the state and in return the state provides protection and social services.

Taxes in ancient Egypt, Greece and Rome were charged to finance war but the idea of sales taxes, income taxes, property taxes, inheritance taxes, estate taxes, gift taxes are said to be a modern invention. The concepts of taxation that evolved and developed were transported to other empires and cultures where tax ideas took root. This pattern continues through today as nations are influenced by tax practices from other Countries

There is no art which one government sooner learns than that of draining money from the pockets of people-Adam Smith

In commonwealth traditions, proposed government collections and expenditures are articulated in a national budget statement and speech always presented before the state parliament or legislature on the budget day. In Tanzania, this is presented on every second Thursday of June of every year.

What are the key priority areas for this year’s national budgets?

The budgets from the three East African states appears to have been informed by the regional consensus on theme of promoting industrialisation. Driven to achieve this objectives governments have reshuffled its priorities towards agenda with Tanzania and Uganda pushing this through the five-year development plans while Kenya pushes its big four agenda.

Country

2018/19

2019/20

Tanzania
  1. Industrialisation
  2. Agriculture
  3. Social Services
  4. Infrastructure
  1. Industrialisation
  2. Infrastructure development and power generation
  3. Aviation sector

Kenya
  1. Infrastructure
  2. Education
  3. Information, Communication and Technology
  4. Poverty reduction and social protection
  5. Security for investment, growth & employment
  1. Education
  2. Energy, infrastructure, information, communication and Technology
  3. Public Administration
  4. Governance, justice, law and order
  5. National Security

Uganda
  1. Commercialisation of agriculture
  2. Industrialisation and productivity enhancement
  3. Financing private sector investment
  4. Minerals development
  1. Works and Infrastructure investment
  2. Debt repayment
  3. Security
  4. Education
  5. Mineral development

Who are the winners and losers?

Across the East African region, the major beneficiaries were the manufactures. The major beneficiaries in Tanzania are horticulturalists, manufacturers of packing materials and baby diapers. VAT has been exempted on imported refrigeration boxes used for horticultural farming while all imported horticultural products will be charged 35% instead of 25%.  Zanzibaris have a reason to celebrate as supply of electricity services from mainland Tanzania to Zanzibar will be zero rated. The tourist sector has also won big with reductions in taxes on some specific packages such as game hunting. While airline operators will have a sigh of relief airline tickets, flyers, staff uniforms and aircraft lubricants are VAT exempted.

Motorists and women will obviously take a brunt of the budget as the tax man has increased taxes on driving licence fees from Tsh 40,000 to Tsh 70,000 and registration card fees for all forms of motor cycles from Tsh 10,000 to Tsh20,000. The tax man has targeted women imposing 10% duty on locally produced synthetic hair whereas imported artificial hair will be charged at 25%. VAT on sanitary pads has been abolished.

In Kenya the manufactures are winners with a withholding VAT rate reduced from 6% to 2% and introduction of a refund formula which expedites VAT refunds and ensures a full refund of input tax credit rating to zero rated.  Agriculturalists have reason to celebrate with Ksh 1.0bln diversification and revitalisation of Miraa and Ksh 3.0bln for setting up the Coffee Cherry Revolving Fund, aimed at implementing prioritised reforms in the coffee subsector.  Digital employees have a reason to celebrate as they will enjoy an exempted tax on income earned under the Ajira Program. The measure is aimed at enabling over 1million youth to be engaged as a digital freelance worker. The health sector has some reasons for joy as an additional to Ksh47.8ln is allocated to expand access to Universal Health Coverage from 4 pilot counties to other counties.

Meanwhile drunkards and gamblers will continue to leak their wounds as they ache out an additional 10% in taxes is slapped on betting and 15% on tobacco and alcoholic drinks. Boda Boda and Tuk-Tuk riders will face an uphill task with amendments to the Insurance (Motor Vehicle third party risks certificate of insurance) rules to require all passenger carrying riders to have an insurance cover for passengers and pedestrians.

In Uganda, the works and infrastructure continue to enjoy a good share of the budget with Ush6.4trillion of the budget allocated to it.  The industrialists are perhaps the biggest winners with generous tax exemptions allocated for industrial parks expanded to 10 years for letting, leasing or expanding existing developers with capital of at least USD50Mln and operators with at least USD10 Mln capital.  There has been an introduction of income tax exemption on interest paid on infrastructure bonds such as listed bonds and securities. Removal of withdrawing on agriculture supplies and listing and other similar goods. Exemptions on aircraft insurance services, supply of services.  A beneficial owner and citizen have also been redefined to be in line with the East African Community Court ruling in the case of BAT Vs URA.   The importers of fresh or chilled or cooked potatoes, honey, granite, marble and ceramics are net losers with increased customs duties.

Amidst of all these changes in estimates, significant to note is that new creatives sources of tax revenues were presented.

Governments have perpetually faced narrow taxes bases with potentially same traditional sources facing the tax man. In recent years the government have developed affinity to indirect taxes, despite their regressive nature and inequitably targeting of the poor

What have been the trends?

Country

2017/18

2018/19

2019/20

Kenya

Ksh 2.3bln

Ksh 2.5bln

Ksh3 trln

Tanzania

Tsh 31.7trln

Tsh32.4trln

Tsh 33.11trln

Uganda

Ush 29 trln

Ush 32.7 trln

Ush 40.487trln

The trend shows that budgets estimates have been increasing over the years with this year’s budgets touted as the highest since independence. However, the actual budget out turns have fallen short of projections. Kenya, which is the biggest economy in the region has missed targets for the past seven years

In 2018/19 Tanzania recorded a shortfall in budget outturn only achieving 88% of its targeted revenue collection. This was attributed to a number of factors

  • Decline in domestic revenue
  • Tighter global conditions
  • Decline and delayed disbursement in government

The trends from previous budgets show that the government has been largely a net borrower and net spender. Governments rely heavily on domestic and external borrowing to fill its budget deficits. Very little is saved.

Generally, Government debt as a percent of GDP is used by investors to measure a country ability to make future payments on its debt, thus affecting the country borrowing costs and government bond yields.

Over the years the governments debt to GDP ratios have spiralled reaching record highs.  According to government statistics in Tanzania the debt to GDP ratio hit 34.2 % by end of 2017. The Bank of Tanzania reported that the external debt stock comprising of public and private sector debt amounted to USD 21,529mln at end of March 2019. Uganda’s debt to equity ratio was 41.2%.  Kenya’s debt to GDP ration was at a record 57.5% in 2017 and around 55 % in 2018.

Governments have constantly argued that their debt obligations are manageable and the current borrowing appetite is aimed at achieving a favourable debt mix of short term and long-term loans. The down side of appetite is that as government piles new debts, the maturity period of old debts is too short and puts a lot of pressure on government revenues to pay. In Uganda for example 11% of this year’s budget will be spent on debt repayment.

The debt burden is worsened by the near stagnant revenue growth, the Ugandan Planning Minister acknowledged in 2018. “Our tax base is not growing at the same rate,” he added, putting the tax to Gross Domestic Product (GDP) ratio at 14.3 per cent.

The government spends most of its money on recurrent expenditures such as salaries and its development budget on mega infrastructure such as roads, power generation and aviation have not been quick in generating commensurate revenues, leaving governments with perpetual financing gaps every budget year.

The question then which emerges is why increase budgets when the revenue targets for the previous years have not been met?

Do governments need to adopt a saving culture-amidst all.

As meeting domestic revenue targets becomes doggy and external aid and borrowing stringent, how can governments manage their budgets to ensure that some of the revenues collected are saved and used to cushion future deficits. The governments have options that can be considered.

Adopting a cost cutting

Cutting of nugatory public expenditures spent on running public administration can save governments massive recurrent expenditures on salaries and allowances. While Kenya has adopted a heavy devolution structure costing government billions of shillings to run Uganda has the largest cabinet in the East African region. The Ugandan government has rapidly created economically unviable local government districts, who rely heavily on central government subsidies to survive.

Adopting revenue saving culture

The government can adopt a revenue saving culture. Revenue management is largely a tax policy concern which hinges on economics that revenues from various sources should be spent in a sustainable manner to avoid long-term shortfalls and economic instabilities that might affect the overall economic tax base.

These views are reflected in Hugh Dalton’s ‘principles of maximum social advantage (Marginal Social Sacrifice theory) and  Arthur Pigou’s ‘principle of maximum social welfare benefits’ (Marginal Social Benefit)  theories of taxation and public expenditure which suggest that taxation (government revenue) and government expenditure as two key tools of public finance have to be balanced to achieve maximum social benefits. Neither excess is good for the society.

Sustainable economic growth can therefore be achieved when government balances its short term and long-term public revenue and expenditure needs.  The government does not need to exclusively spend on infrastructure or welfare benefits but it also needs to save and spend on strategic investment to safe guard its future revenue sources.

This saving culture should be embedded in a country’s budget policy and revenue expenditure management system and fiscal regimes governing expenditures of its revenue.

Investing in foreign government financial instruments

The governments can take the Japanese and Chinese approach of investing in foreign government financial instruments.  Globally, the Japanese and Chinese are among the highest investors in the United States government securities. Controversial as it may look, but by investing its wealth in secure foreign government bonds, the government can ensure that the dividends realised are ploughed back into the Country to support its economy.

This type of foreign investment has made it possible for the Japanese able to finance their domestic debt which is almost above 233% of GDP.  The other difference between Japan and other countries is that its debt is held by its Citizens.

Many other countries, including Greece, owe mostly to foreign creditors. However, most of Japan’s debt (including government bond liabilities) are held by its own citizen, so the risk of defaulting is much lower. Japan is still well-off because it can adjust interest rates at low levels so that repayment values stay low relative to the overall debt level.-Forbes

Introducing effective currency management

The governments can adopt the Egyptian model of devaluing its currency to ensure that the country exports more and attracts more foreign currency into the country than it spends in payment and servicing external debt. The attracted foreign income is invested into production to boost economic growth.  As an economy grows to higher level, it becomes able to generate enough revenues to pay off or reduce its debt burden.

Helpful Further Readings and references

  1. Afosa, K. (1985), ‘Financial Administration of Ancient Ashanti Empire’, The Accounting Historians Journal, Vol. 12(2), pp. 109–115.Google Scholar
  2. Blakey R. G. and Blakey, G. S. (1940), The Federal Income Tax, New York, Longman Green and Company.Google Scholar
  3. Crum, R. P. (1982), ‘Value-Added Taxation: The Roots Run Deep into Colonial and Early America’, The Accounting Historians Journal, Vol. 9(2), pp. 25–41.Google Scholar
  4. Garbutt, D. (1984), ‘The Significance of Ancient Mesopotamia in Accounting History’, The Accounting Historians Journal, Vol. 11(11), pp. 83–101.Google Scholar
  5. Jose, M.L. and Moore, C.K. (1998), ‘The Development of Taxation in the Bible: Improvements in Counting, Measurement and Computation in the Ancient Middle East’, The Accounting Historians Journal, Vol. 25(2), pp. 63–80.Google Scholar
  6. Kozub, R.M. (1983), ‘Antecedents of the Income Tax in Colonial America’, The Accounting Historians Journal, Vol. 10(2), pp. 99–116.Google Scholar
  7. Mann, H. (1984), ‘ Thus Spake The Rabbis-The First Income Tax?’, The Accounting Historians Journal, Vol. 11(1), pp. 125–133.Google Scholar
  8. Paul, R.E. (1954), Taxation in the United States, Boston: Little Brown and Company.Google Scholar
  9. Samson, W.D. (1985),The Nineteenth Century Income Tax in the SouthThe Accounting Historians Journal, Vol. 12(1), pp. 37–52.Google Scholar
  10. Samson, W.D. (1996), ‘The Evolution of the U.S. Income Tax: The History of Progressivity and Influences from Other Countries,’ in A. Richardson (Ed), Disorder and Harmony: 20th Century Perspective on Accounting History, The Seventh World Congress of Accounting Historians (CGA Canada Research Foundation Research Monograph No. 23), pp. 205–227.Google Scholar
  11. Seligman, E.R.A. (1909), Progressive Taxation, New York: MacMillan Company, 2nd edition.Google Scholar
  12. Seligman, E. R.A. (1911), The Income Tax, New York: MacMillan Company.Google Scholar
  13. Seligman, E.R.A. (1931), Essays In Taxation, New York: MacMillan Company.Google Scholar
  14. Shultz, W.J. (1926), The Taxation of Inheritance, Boston: Houghton Mifflin Company.Google Scholar
  15. Smith, A. (1976), An Inquiry into the Nature and Causes of the Wealth of Nations, Oxford: Clarendon Press.Google Scholar
  16. Solas, C. and Otar, I. (1994), ‘The Accounting System Practiced in the Near East During the Period 1220–1350 Based on the Book Risale-I Felekiyye’, The Accounting Historians Journal, Vol. 21(1), pp. 117–135.Google Scholar
  17. Wells, S.C. and Flesher, T. K. (1994), ‘Lessons for Policymakers from the History of Consumption Taxes’, The Accounting Historians Journal, Vol. 21(1), pp. 103–126.Google Scholar
  18. Yeakel, J.A. (1983), ‘The Accountant-Historians of the Incas’, The Accounting Historians Journal, Vol. 10(2), pp. 39–51.Google Scholar
How to manage transboundary petroleum resources as Somalia and Kenya talk conflict off East African Coastline

 

The war of words and negative diplomacy between Kenya and Somalia over the disputed potentially oil and gas rich territory in the Indian Ocean has rekindled the importance of understanding how to manage transboundary petroleum resources. Petroleum does not know political borders. The vagaries of geology have dictated that sometime petroleum resources occur in trans boundary areas. How nation states collectively manage these resources can determine whether they effectively harness the benefits from these resources without going to conflict.

By Moses Kulaba, Governance and economic analysis centre

Management of petroleum resources or revenues from ‘trans boundary or ‘disputed’ areas has always been an issue of controversy in most petroleum resource rich countries.  It is a source of disputes and a challenge to investors, planners and policy makers when parties or Countries fail to agree amicably on the ownership of these resources and revenue sharing mechanisms for resources from these areas.  Trans-boundary resources are also called ‘common’ or shared resources.

In Tanzania and the wider East Africa region management of resources in ‘potentially contestable areas’ and ‘trans boundary’ areas are becoming a major challenge as some of the petroleum resources are found closer or along the boundary areas. It will be even more challenging in the nearby future as the gas and oil starts flowing.  If not addressed it will be a big hindrance to investment and development of the petroleum sector. In East Africa, currently there is no concrete and pragmatic approach to addressing this challenge.

The East African dimension

In a broader East African context, seismic studies have indicated that petroleum resources may be largely found along Trans international boundary areas. This has created disputes and raised challenges for proper resource management and revenue sharing arrangements. For example the discovery of petroleum deposits in the Albertine basin generated trans boundary tensions between Uganda and the DRC along the Lake Albert. There are disputes over petroleum in Unity state along the South Sudan and Sudan border. There are disputes between Kenya and South Sudan along the Nadapal area (Block 11 A & B) and Kenya and Somalia along the Wajir border area (block 1, 2 &3) and Indian Ocean Coastline continental shelf.

In 2014, Somalia filed a before the International Court of Justice, accusing Kenya of encroaching on its potentially rich petroleum rich maritime territory off its continental shelf. Both countries have claimed ownership of an approximately 100,000 square miles in the Indian ocean waters suspected of having vast oil and gas deposits.

The conflict largely arises from a dispute in regards to how the international border between Somalia and Kenya should drawn and internationally recognized. In the case before the ICJ, Somalia wants the maritime boundary to run diagonal, as an extension of the land boundary, while Kenya wants it to run parallel to the latitude, east wards, south of Kyunga. Both countries have relied on the straight-line principle in the International Law of the sea. Somalia wants the boundary to run south east wards and has vowed not surrender what it considers, its territorial integrity.

Figure 3: East African Exploration Map 2010-Source: Vanoil Ltd Energy-Kenya

In recent months there has been an escalation the war of words and negative diplomatic relations. Kenya in April barred Somali Officials from entering into Kenya and further banned unaccompanied luggage from Somalia and required that all aircrafts flying into Kenya from Somalia should temporary land in the Northern town of Wajir for a mandatory security check before flying into Nairobi.

The recent diplomatic row represents a significant development between the two neighbors which could escalate into a full-blown out conflict. It further reflects the common resource quagmire that neighboring petroleum rich nation states often find themselves and further shows that latent conflicts emanating from transboundary petroleum resources exist in East Africa.

It is therefore important that viable solutions are reached even without addressing the international law (Law of the sea) challenges facing Kenya and Somalia and the international political concerns or interests in East Africa yet significant challenges and ways of resolving this problem do exist.

Specific problem

  • There is lack of clarity for policy makers, planners and tax administrators on how to share the revenues from these areas
  • Uncertainty and wavering Investor confidence to fully commit their investment and as a consequence petroleum resources in potentially disputed or Trans boundary areas have remained unexplored. For example, licensed blocks operated by Shell in Tanzania’s waters closer to Zanzibar have remained   unexplored for a long time
  • On a wider East African level there are missed opportunities for joint investment promotion.
  • There is a ‘Race to the bottom’ as East African Countries under cut each other with lucrative fiscal terms in competition to attract petroleum investors into their own territories, without looking at East Africa as a whole
  • There are ongoing and underlying territorial disputes which could erupt into full blown out conflicts, risking the current and future investments into the petroleum sector

Currently, a lot has been written about these possible challenges but very limited pragmatic steps have been taken to address these challenges. There has been some significant discussion about the issue but there have been no pragmatic viable options provided which can be acceptable to the protagonists in the conflict.

If some pragmatic solutions are found for Kenya and Somalia, similar suggestions could also be used to inform approaches taken by other East African governments within the wider East African framework to address similar other potential disputes along their border frontiers.

Some international approach to similar challenges

The answer to nature’s conundrum where petroleum resources migrates within or across a country’s border has always been unitization.  Unitisation is one of the legal devices which seek to remove the destructive competitive elements stimulated by the rule of capture (as advanced in the United States legal tradition under which the title to petroleum belongs to the owner who physically extracts it from a well on his land, even if petroleum has migrated underground from neighboring lands). With unitisation petroleum deposits are exploited as a whole, expenditure is reduced and recovery is maximized.  Unitisation is accomplished through a unitization agreement. A unitization agreement is an amicable solution between parties as individuals, group of individuals or states holding exploitation rights in common petroleum reservoirs by which the reservoirs will be exploited in an integrated manner.  The reservoir is treated as one whole and the costs and revenues shared between the parties according to an agreed formula defined by parameters such as geological technical factors, investment or operational costs and volumes of the reservoir. An international unitization agreement (Unit operating Agreement) can be signed between relevant international companies from both states subject to the bilateral treaty outlining the rights and obligations of each company and issues like selection of operator or determination of tract of participants.

International law remedy and Joint Development Areas

The International law remedy to offshore ‘trans international boundary’ petroleum resources is provided within the ambits of the United Nations Law of the Sea Convention of 1982 (UNCLOS) which obliges states which have not been able to agree on boundaries of their continental shelves and exclusive zones to make efforts to enter into provisional arrangements  of a practical nature to develop the petroleum deposit  located in the overlapping geographical area under dispute whilst not foregoing their sovereignty rights to the deposits  in place  in its territory or continental shelf.

This international law remedy is the backbone on which the idea of Joint Development Areas or Zones is built. Joint development is an arrangement between two states to develop and share in agreed proportions the petroleum found within a geographical area whose proportions the petroleum found in a geographical area whose sovereignty is disputed; and the geographical area is an overlapping area under dispute with undefined boundaries to which the two states are entitled under International law. The JDA is established by a treaty, agreement or any recognisable legal document stating the rights and obligations of each party. The JDA’s can be divided into separate contract areas where deposits can cross the internal boundaries of those contracts and those that cross the JDA’s into third party states.  Both approaches are geared towards securing mutual cooperation and maximizing benefits from the petroleum resources. The treaties or agreements incorporate procedures to minimize disputes and resolve disputes. The following country experiences can be benchmarked:

Possible country experiences for benchmarking

Norway’s experience with United Kingdom

Norway is a good example of the significant economic benefits that can be achieved through strong cooperation and bilateral relationship. Norway has entered various treaties as examples of successful border unitization and management of resources straddling across a vast maritime area between Norway and United Kingdom. On March 10, 1965 Norway and the United Kingdom signed a bilateral delimitation treaty and this agreement constituted the first detailed provisions for action to be taken in the case of a petroleum deposit straddling cross border. This treaty was a voluntary agreement of a maritime border and acceptable cost and revenue sharing formula based on the volume of resources. This treaty provided a basis for three more cross border unitization agreements covering the Frigg, Stratfjord and Murchison Field signed in 1976, 1979 and 1979 respectively.

Norway is also a unique good example of managing Trans boundary petroleum resources by three neighboring states. This experience was demonstrated in the joint management of the Markham Field reserves. In 1965 the United Kingdom and the Netherlands signed a bilateral agreement to establish the boundaries of the Dutch continental shelf, when a petroleum reserve of approximately 700 cubic feet was discovered the licence was awarded to a Dutch company-Ultramar Exploration (Netherlands BV). The discovery was named Markham Field and jointly managed under the Markham agreement signed between the United Kingdom and Norway for unitization of petroleum resources straddling across the maritime borders. The United Kingdom’s health and safety authorities and their Dutch counterparts, the Straatstoezicht op de mijen, had unlimited access to all facilities and information related to the management of the resources. The UK and the Netherlands governments imposed taxes and shared profits as per their fiscal regimes and applicable double taxation conventions The Markham agreement provided a framework for successful development of the field and a possible template for any future unitization between three states

Norway has also taken a pragmatic framework agreement approach in resolving managing Trans boundary petroleum fields without involving distinct intergovernmental treaties. This approach was taken in 2005 by Norway and the United Kingdom in managing the Enoch & Balne Oil fields Norway’s focus has been on securing economic benefits for both states, with provisions made for possible development of resources with infrastructure located on the one side of the boundary. More examples of such approaches include the development of the Boa field which is mostly in Norway and the Playfair fields which are almost entirely in the United Kingdom. Since 2005 Norway has signed more treaties with Russia in the Barents Sea and thus excelled as a champion in managing off shore Trans boundary resources in contentious territories.

East Timor (Timor Leste) and Australia’s experience

In Asia-Timor Leste and Australia are good examples of joint management of Trans boundary petroleum resources. In 2002 East Timor and Australia signed the Timor Sea treaty between the two governments. This treaty enabled the joint development of petroleum resources in the maritime area located between East Timor and Australia. This area also known as the ‘Timor Gap’ had been controversially disputed and subjected to an earlier Timor Gap Treaty in 1989 between East Timor, Australia and Indonesia.

The Timor Sea treaty established a Joint Development Administration (JDA) and provides that Australia and East Timor shall jointly manage, facilitate, exploration, development and exploitation of the resources within the JDA for the benefit of the people of the two countries. The treaty has also provided an acceptable revenue formula whereby 90% of the revenues from the JDA would go to East Timor and 10% would belong to Australia.

The treaty resolved the long political impasse related to the management of the Sunrise and Troubadour petroleum reserves, also collectively referred to as the ‘Greater Sunrise’ which spanned across the Eastern boundaries of the new Joint Petroleum Development Authority (JPDA). The Sunrise and Troubadour deposits were unitized and an acceptable revenue sharing formula agreed. A joint management committee was established to oversee its implementation. To date the approach is a successful model of joint petroleum resource administration in Asia. Similar approaches have been taken by Qatar and United Arab Emirates, Saudi Arabi and Bahrain.

Nigeria and Sao Tome et Principe’s Experience

In cases where countries have longstanding territorial disputes, they can reach out for third parties or independent arbitration panels or international courts of justice to resolve or advice on the best alternative to manage the petroleum resources located in these areas. This approach is referred to as the third-party approach.

This was the approach taken by Nigeria and Sao Tome et Principe in Africa, to create a border upstream cooperation and Joint Development Zones (JDZ) through Unitisation of two major fields (Ikanga and Zafiro) between Nigeria and Equatoria Guinea. On this backdrop, the government of Sao Tome et Principe claimed an archipelago status under Article 46 of the United Nations Conventions of the Law of the Sea (UNCLOS) as based on the 200 miles Exclusive Economic Zone (EEZ) determined by a median line in the North East and the North West as the median line between Sao Tome and Nigeria. The Nigerian government based its claim on the Exclusive Economic Zones Act (CAP 116) and claimed an EZZ which overlapped with Sao Tome et Principe’s zone. The two countries agreed to resolve their differences by creating a Joint Development Zone in the area of overlap to enable exploitation and licensing to proceed. Both countries have since mutual benefited economically.

Relevancy of these Countries’ experience to Tanzania and East Africa’s trans boundary petroleum resources management

As a result of these experiences, unitisation is now a major compulsory feature in petroleum legislations of these countries. The United Kingdom Petroleum Act 1998 and the 1988 Petroleum (Production) (Seaward Areas) Regulations, the Nigerian Petroleum Act of 1969 and the 1969 Petroleum (Drilling and Production) laws impose a compulsory unitization. All licence holders or contractors have an obligatory requirement to agree on a unitization. They are obliged to cooperate if and when reservoirs straddling within or beyond national borders must be developed and it is within the national interests to secure efficient maximum recovery of petroleum. Resources and revenues are managed in agreed manner without losing national or international ownership and sovereignty.

Although the Nigeria and Sao Tome’s case was an arrangement between sovereign states, this approach is relevant to Tanzania, given the similarities of the issues involved. Zanzibar is an archipelago with a specific claim to territorial waters along its coastline. Mainland Tanzania’s 200 miles EEZ overlaps Zanzibar’s territory. Nigeria and Sao Tome’s approach could towards resolving Tanzania’s petroleum resources management challenge with Zanzibar.

These benchmarked examples indicate that geological constrains, territorial disputes, political and economic differences, constitutional limitations and international boundaries should never be a limiting factor to development of petroleum resources located or straddling from one territory to another. Tanzania and the wider East African region can draw alternative solutions to the current challenges facing management of trans boundary petroleum resources:

Possible alternative or supplementing solutions

  1. In Tanzania, within the current constitutional framework there could be a ‘Partial delegation’ of legal powers to Zanzibar to enter into agreements with oil companies (state and non-state actors) subject to the Union Constitution and the Union government’s Petroleum and fiscal management legislations
  2. Delimitation of temporary boundaries for oil and gas management purposes and earmarking specific petroleum blocks which could be legally assigned to Zanzibar’s control for revenue purposes
  1. Establish Joint Development Area (JDA) or Joint Development Zone (JDZ) arrangements modeled successful arrangements like Norway and United Kingdom, Timor Leste and Australia. Agree on unitization arrangements for licensed blocks straddling outside the JDA and develop a revenue sharing formula for managing resources from JDA and Trans boundary areas. Establish a joint petroleum revenue management committee for trans international boundary areas
  1. Develop East African guidelines for unitization and Joint Development Area Management and revenue sharing for Trans boundary petroleum resources.
  1. Either off the above approaches could be adapted in resolving the dispute between Kenya and Somalia

Benefits from these options

If resolved this could lead to peaceful co-existence and increased joint attraction of foreign investment into the areas

Increase investor confidence in East Africa and open up new avenues for investment and value creation in its Petroleum sector.

Unfreeze the current blocks which are closer to Zanzibar for licensing, exploration and development. These blocks have remained unlicensed for many years, despite expression of interests from petroleum companies to develop them

Provide avenues for possible cross border petroleum resources development and sharing of petroleum energy resources at low costs and thus reduce the acute shortages of electricity and over reliance on hydroelectricity for power generation in the region.

References

  • Beyene, Zewdineh and Wadley, Ian L.G. Common goods and the common good: Transboundary natural resources, principled cooperation, and the Nile Basin Initiative. Berkerley, UC Berkeley: Center for African studies 2004.(Breslauer Symposium on Natural Resources Issues in Africa😉 at pg4
  • Cameron P.D: Cross Border Unitisation in the North Sea (Vol. 5 OGEL 2007)
  • Denis V.Rodin: Offshore transboundary petroleum deposits: Cooperation as a customary obligation; Small Masters of Laws thesis in the Laws of the Sea; University of Tromso, Faculty of Law, Fall 2011
  • Perry A: Oil and Gas deposits at international boundaries-New ways for governments and oil and gas companies to handle an increasingly urgent problem (Vol. 5 OGEL 2007);  M.O Igiehon, Present International law on delimitation of the Continental shelf (Sweet & Maxwell 2006
  • Rod Chooramum; Notes to the Field: An English law perspective on the oil and Gas Market, August , 2014
  • Sustainable Development or Resource Cursed: Managing Timor Leste’s Petroleum Revenue, Chapter 4
  • URT: The National Natural Gas Policy, 2013
  • Zanzibar Oil, Gas win cools political heat; The East African Newspaper; http://www.lawteacher.net/free-law-essays/australian-law/joint-petroleum-developmet-area.php
  • http://www.theeastafrican.co.ke/news/Zanzibar-oil-gas-win-cools-political-heat/-/2558/2877248/-/view/printversion/-/1485oatz/-/index.html. Also read: Oil and gas: How EA Can become a key global player; http://www.theeastafrican.co.ke/oil-and-gas…
  • http://www.forbes.com/sites/christopherhelman/2014/01/08/the-10-biggest-oil-and-gas-discoveries-of-2013/ accessed on 19th May 2015 at 7:45 pm
Tanzania Gold Exports increasing, amidst standoff with mining companies

 

Pundits suggested that the faceoff with mining companies over tax payments and drastic changes in the mining legislations and practices indicated that Tanzania’s mining sector was on a cliff edge with some analysists suggesting that perhaps it was headed for the unknown. With the latest reports, it is evident that the government is wining some dividends.

Figure 1: The Permanent Secretary for the Ministry of Minerals Prof. Msanjila opens a Mineral trading Centre in Chunya, Southern Tanzania

According to the Bank of Tanzania (BoT) monthly economic review report indicates that value of Gold exports which accounted for more than half of nontraditional exports in March of 2019 grew by 9.8% to USD 1,684.6million.

The report adds that the value of Gold and diamond produced by large scale miners was USD325.9Mln in quarter ending March 2019, compared to USD324 mln recorded in the corresponding quarter in 2018. Production of gold increased by 7.8% to 10,063.4 kilograms quarter -on-quarter, while that of diamond rose by 18.2%

Foreign receipts from services which accounts for 47.8% of exports of goods and services increased to USD4,085.3million in the year ending march 2019 from USD 3,823.6Mln in the corresponding period in 2018. This was largely driven by travel and transport receipts.

The value of goods and services exported in the year ending March, 2019 increased to USD 8,544.5 Mln from USD 8,488.2Mln in the corresponding year period of 2018 owing to an increase in nontraditional goods, exports which accounts for 78.0% of goods exports and 40.7% of total exports.

The central bank reported that gold exports in 2018 was worth USD 1,549 bln compared to USD1,541 bln recorded in 2017.

These central bank reports show an increase despite the standoff between the government of Tanzania and mining companies such as Accacia-Barrick Gold Company for non-tax payment. This led to a government seizure and ban on export of Acacia’s gold concentrates forcing the company into financial and operational turbulence. Accacia has since scaled back and closed some of its mining operations in Tanzania.

The government move left mining companies and stakeholders guessing what would befall the sector. Since the standoff, many major mining investment decisions in the country’s lucrative mining, oil and gas sectors have stagnated.

Companies complained that the new laws passed in 2017 were onerous, costly and bad business which included hiking of taxes on Mineral exports and mandatory requirement for a higher government stake in all mineral operations.

Recently, the government established mining trading centers where gold miners can sell their gold to the government. In early 2019, the Prime Minister gave the Ministry of Minerals six months to establish government controlled mineral trading centres in all major mineral producing areas of Tanzania.

The first mineral trading center was inaugurated by the Prime Minister in the North Western town of Geita in March, 2019, close to the biggest Gold mine owned by South Africa’s Anglo Gold Ashanti. Since then similar mineral trading centers have been opened in Chunya, Tabora and Kyerwa.

The government said these efforts were aimed at accelerating efforts to curb illegal exports of gold and other processing minerals. The trading centers will give small scale miners direct access to a formal regulated market where by they can go directly and trade their gold. They currently struggle to access formal gold dealers who mostly based in the capital, Dar es Salaam and major towns, the government affirmed.

According to Reuters, Tanzania is Africa’s 4th biggest gold producer after South Africa, Ghana and Mali and gold exports are key sources of foreign exchange.

Small scale mines produce around 20 tons of gold per year in Tanzania but an estimated 90% of the output is illegally exported according to a parliamentary committee report.

These reports suggest that perhaps the recent government moves have reduced on smuggling gold to the neighboring Countries and this perhaps explains the increased sale.

EITI Stakeholders convene in Paris for Global Assembly in June, 2019

EITI Stakeholders convene in Paris for Global Assembly in June, 2019

Global stakeholders of the Extractive Industries Transparency Initiative (EITI) will convene in Paris for the Global Assembly and conference which takes place every three years.

The EITI is currently a global standard which promotes transparency norms in the extractive sector.  The organization has currently 52 member states from all over the world, committed to transparency and in the extractive sectors. The initiative brings together from implementing member states, companies and civil society organizations.

This year’s agenda will be packed with election of a new EITI Board Chairperson to replace Mr Fredrik Reinfeldt (Former Prime Minister of Sweden), who declined to serve another term. A new EITI Global board comprising of representatives from governments, mining and oil companies, Civil society and experts drawn from all over world will be also elected. This follows a rigorous search, vetting and selection exercise which started in March, 2019.

During this Global assembly, the new EITI Standard 2019, which was developed and passed during the last board meeting held in Kyviv, Ukraine will be endorsed by the EITI members.  Amongst the new changes and developments to the EITI standard are provisions which will now make it mandatory for EITI implementing countries to openly publish mining and oil contracts related mining after 2020.

The new standards will require implementing countries to declare gender and social and environments payments made by companies.

The new requirements are significant developments within the EITI as they will raise the bar of transparency in the extractive sector and make it possible for citizens to track payments and revenues coming from the extractive sector and therefore be able to hold their governments, mining and oil companies accountable.

The Global assembly will also be with a large meeting of Civil Society from all over the world under the global Civil society and transparency movement, Publish What You Pay. The CSos will be pushing for further transparency and respect for the civic space and protection of human rights defenders and activists for extractive sector governance. For more about the EITI please visit: https://eiti.org/

Basic understanding of Tax justice and illicit financial flows in extractive sector

Basic understanding of Tax justice and illicit financial flows in extractive sector

By Moses Kulaba, Governance and economic analysis centre, Dar es Salaam-Tanzania

The call for tax justice has in recent years gained credence as alarming evidence now shows that while ordinary tax payers are sinking under the burden of taxation on the other hand,  multibillion profiteering corporate and well connected individuals use both illegal (illicit) and deemed appropriate means to dodge taxes and shift their profits and financial proceeds   outside the country and the African continent to other destinations and largely low tax jurisdictions. The amounts moved out of less developed countries and the African continent is estimated in billions of United States dollars. The extractive sector is evidently of one of the major conduits of this illicit game of sorts and hence the focus on illicit financial flows as a subject in the extractive sector makes sense.

This policy brief highlights the basic concepts and practice of this increasing murky subject and the relevancy of   talking about tax justice and tax dogging in the Extractive Sector with various stakeholders such as professionals and students in higher institutions of learning. Students in higher institutions are a critical nexus in defining the current and future landscape of fiscal policy, taxation, tax justice and curbing illicit capital flight from Tanzania and the African continent as a whole. They are;

  • Citizens and have a right to know the intricacies of taxation, dodging tax and development
  • Scholars and Researchers
  • Future politicians and leaders
  • Future policy and decision Makers
  • Future Government Negotiators
  • Future Corporate professional and executives
  • Future Civil Society Activists, Community and Development workers

In simple terms, the future lies in the present!

Taxation and tax justice

A tax is a compulsory imposition of the state on its citizens. The tenor of Tax Justice is that everyone should pay a fair amount of tax so that the government can be able to finance or provide social, public and development needs for its citizens.

Taxation and a strong tax system may contribute to improved governance through 3 maximum channels. Taxation establishes a fiscal social contract between citizens and the taxing state. Tax payers have a legitimate cause to expect something in return for paying taxes and are more likely to hold their governments to account. Governments have a stronger incentive to promote economic growth when they are dependent on taxes.

The major concern from a tax justice point of view is that in recent times, it is evident that those who are able and should pay more are paying less or none while poor and less privileged carry a big burden through payment of various direct and indirect taxes like VAT which are regressive and unfair in nature

In this case, the concern is that available data shows that Corporate persons in the extractive and telecommunications sector dodge paying taxes by enjoying generous tax exemptions and by engaging in tax planning , tax avoidance, outright tax evasion and moving their proceeds out of the country or African continent where its generated to low or zero tax jurisdictions through illicit or deemed legal means.

These illegal movement of tax proceed and capital from one jurisdiction to another is what has been described as Illicit Financial Flight (IFF). According to reports, IFFs typically originates from three sources: Commercial tax evasion (trade mis-invoicing and abusive transfer pricing); criminal activities (including drug trade, human trafficking, and illegal arms dealing, smuggling of contraband; bribery and theft by corrupt government officials.

According to experts (Ndikumana, Boyce and Ndiaye 2015), Africa’s high level of poverty has been aggravated by the high level of capital flight. As a consequence of IFFs, tax revenue collection is low, social delivery has remained poor and development agenda are stagnating in most poor countries where it occurs

Tanzania’s Tax Collections and tax gap 2016/17

According to Tanzania’s Revenue Authority (TRA)

  • Tax Collection of 12.6% of GDP (Tsh15.1Trillion) was envisaged in 2016/17
  • However, proportion of GDP collected has not increased
  • Tanzania’s tax revenues are also low compared to international standards
  • Tax to GDP ratio is 11.9% below the EAC standards which is at 13.1% to 14.7%
  • The current tax to GDP ratio of 12% is far below the targeted mark of 20% by
  • PAYE  and VAT as largest contributors

Illicit capital flight or Illicit Financial Flows (IFF)

Illicit or illegal Capital flight is the transfer of assets abroad in order to reduce loss of principal, loss of return, or loss of control over one’s financial wealth due to government-sanctioned activities”

  • Also referred to as movement of resources from one jurisdiction to another through illegal means.
  • Legal means are supported by the law or through tax avoidance measures which are used to exploit the weaknesses and lacunas within the tax laws
  • Illicit flows take place through transfer mis pricing, tax scheming, illicit profit repatriation, tax dodging and money laundering.
  • In Tanzania capital flight was reported to be taking place through both legal and illegal means

Statistics of Illicit Financial Flows from Tanzania

  • According to existing studies, it is estimated that Tanzania loses USD1.83Bln (Tsh4.09Trillion) every year from tax incentives, illicit capital flight, failure to tax informal sector and other forms of evasion. This figure is an estimate and yet to be confirmed by the Tanzanian government which commissioned its own independent study.
  • If estimated loss was collected, it would triple government budget on health and nearly double spending on education.
  • Global Financial Integrity (GFI) estimates, USD7.73bln lost from Tanzania illegally in the past five years as a result of trade –mis-invoicing
  • At corporate rate of 30% Tanzania could have lost an average of USD464Mln annually

Statistics of Illicit Financial Flows in Extractive Sector

  • Export revenue from mining increased from 16% in 2013 to 26% in 2015 due to increase in taxes paid by companies. However, this is still low compared to an average 30% for other Countries such as South Africa.
  • TMAA Audit showed Mining (Including Construction) had not paid up to USD688Mln worth of taxes between 2013-2015. An average of USD229Mln annually is not paid
  • This figure has since increased as per the estimates made by the Presidential Commission reports (Dr Osoro report).

Some statistics on Gold mining and Resource leakage in Tanzania in 1998-2005

According to available study reports

  • Gold worth more than USD 2.54bln was exported between 1998-2005
  • Only USD 28mln received in Royalties and taxes
  • This was equivalent to only 10% over a 9-year period
  • The 3 % royalty charged then brought government only an average USD 17mln a year in recent years
  • Cumulatively, USD 26.5mln lost in excessive low rate, government tax concession
  • In 2005 at least 400,000 small artisan miners were unemployed since 1998 when they were evicted from the mining areas and therefore denying government billions in tax revenue.

Consequences of extractive resource leakage and development potential

  • According to the UNDP and World Bank measure of poverty and development standards, Tanzania is still among the poorest Countries in the world. At least 12mln out of 39mln live in abject poverty. Yet, Tanzania processes around 45mln ounces of Gold.  At current prices, Tanzania has a fortune of USD39bln. If well, harnessed Tanzania would be compelled to a middle-income country within less than 10 years.

Vents for extractive resource leakage

  • As per the Mining Act of 2010, mining companies offset 100% after their capital expenditure
  • 100% ownership of Gold mining Companies
  • Mining dominated by two foreign mining companies-Barrick Gold and Anglo Gold Ashanti
  • In 2005-AGA paid USD144mln in Royalties
  • It sold gold worth USD 1.55bln, paid only 9% royalty
  • Barrick Gold paid only 13% of its export. No accurate data on total exports was available
  • The Parliamentary Accounts (PAC) reported in 2007, both companies declared losses worth USD1.045bln. Tanzania Extractive Industries Transparency Initiative (TEITI) reconciliation reports also indicate that Barrick has persistently reported loses and never paid corporate tax
  • Yet, a leaked ASA tax audit report indicated companies overstated losses by USD502mln between 1999-2003
  • Government thus lost revenues worth USD132.3mln between that period alone.

Tanzania’s tax incentive regime as at 2017

  • Non tax incentives include
  • immigration quotas on employment of foreign staff,
  • guaranteed transfer of net profits or dividends of the investments,
  • payment in respect of foreign loans, remittance of proceeds net of all taxes and other obligations, royalties, fees and other charges on emoluments and other benefits to foreign personnel
  • Under mining Act , 2010, Royalty of 3% execpt for diamonds which is 5% & 12.5% for petroleum
  • No tax, duty, fee or other fiscal impost on dividends
  • No capital gain tax
  • No windfall tax
  • Losses carried forward for unrestricted period
  • Duty rate at 5% and VAT charged after 5 years of commercial production
  • Yearly appreciation  of unrecovered capital in investment, exploration, prospecting, mineral assaying, drilling or mining company of goods, imported are eligible from duty under customs law
  • Services  for exclusive use in exploration, prospecting, drilling or mining activities
  • Zero rating of all capital goods, spare parts, fuel, oils together with explosives
  • Corporate tax of 30% and capital allowance of 50% on  Y1 of income
  • All capital expended on  prospecting and mining is expended
  • 100% transferability of  profits  to foreign accounts

Major strategies for facilitating illicit financial flows in Extractive Sector

Tax Base Erosion and Profit Shifting (BEPS)

  • Collective tax planning strategies used by multinational companies that exploit gaps and maximizes in tax rules to artificially reduce its tax base or obligations by shifting profits to low or no tax locations where there is little or no economic activity. In 2012 the OECD Countries initiated collective efforts to tackle concerns over BEPS and perceived international tax systems facilitating tax avoidance (BEPS project and action plan).

Tax avoidance

  • Tax ‘avoidance’ constitutes an ‘arrangement of tax payer’s affairs that is intended to reduce his ability and that although the arrangement could be strictly legal it is usually in contradiction with the intent of the law it purports to follow’
  • Justice Reddy in Mc Dowell & Co. Ltd Vs CTO 154 ITR 148 (19985) India, has defined tax avoidance as ‘the art of dodging tax without breaking the law. It is the avoidance of tax payment without the avoidance of tax liability.
  • Tax avoidance simply involves structuring your affairs legally so that you are paying less tax than you might otherwise pay. It could involve exploiting lacunas with the law to ones advantage.

Tax Evasion

  • Tax evasion can be defined as a deliberate measure to escape one’s tax obligation through illegal means
  • tax evasion is also defined as the illegal non payment or under payment of taxes, usually by making a false declaration or no declaration to tax authorities; it entails criminal or civil legal penalties
  • Tax ‘evasion’ involves ‘illegal arrangements through or by means of which liability to tax is hidden or ignored’ as a consequence of which “the tax payer pays less than he is legally obliged to pay by hiding income or information from the tax authorities

Tax planning

  • Tax planning’ is defined as the arrangement of a person and or private affairs in order to minimise tax liability
  • It enables reduction in the liability through the movement or non movement of person, transaction or funds or other activities that are intended by the legislation
  • There is also something called as ‘aggressive Tax planning’ which is the severest form of tax planning -illegal

Differences and similarities of Tax Evasion and Tax planning

Tax Evasion

Tax Avoidance

A deliberate refusal to pay a tax

Exploitation of the weakness in the low to pay less or nothing at all

Clearly illegal

Appears to be legal

Similarities

Thin line exists between the two and quite often all use to achieve the same goal-minimal or none payment of the tax

Both are unethical in the face of tax Justice

Overlap between tax evasion, avoidance and tax planning

How is tax evasion

  • Failure by a taxable person to notify of a tax authority of a presence of its operations, if they are taxable operations,
  • Failure to report full amounts of taxable income, deduction claims for expenses that have not been incurred or which exceed the amounts incurred but not for the purposes stated,
  • Falsely claiming reliefs that are not due, for example VAT refund and exemptions
  • Failure to pay over to tax authorities’ due taxes,
  • Departure from a country leaving taxes unpaid without intention to pay and
  • Failure to report items or sources of taxable income for example profits or gains where there is an obligation to do so

Tax Avoidance measures include

  • Income splitting measures whereby incomes are shared amongst more than one tax payer for purposes of reducing tax rate or tax obligation.
  • where transactions between two related parties are inflated or fixed a Transfer pricing or mispricing measures above the average market price (arms-length) for purposes of avoiding taxes by minimising profits in a high tax location and maximising profits in a low profit location

Relevant readings

  • Marc Curtis, Tundu Lissu: A Golden Opportunity? How can Tanzania is failing to benefit from gold mining; A report for the Christian Council of Tanzania, Tanzania Episcopal Conference and the National Muslim Council of Tanzania, 2015
  • Marc Curtis, Dr Prosper Ngowi and Dr Attiya Waris: One Billion Dollar Question: How can Tanzania stop losing so much tax revenue; A report for the Christian Council of Tanzania, Tanzania Episcopal Conference and the National Muslim Council of Tanzania, 2012
  • CMI Chr Michelsen Institute: Lifting the veil of secrecy; Perspectives on international taxation and capital flight from Africa, Norway, 2017
Understanding the basics of Transfer pricing, mispricing and other aggressive tax planning measures and concepts

Understanding the basics of Transfer pricing, mispricing and other aggressive tax planning measures and concepts

By Moses Kulaba, Governance and economic analysis centre, Dar es Salaam-Tanzania

In a persistent ambition and search to maximize share vale and returns to their beneficial owners, Multinational companies use various means to gain a tax advantage. Some of these advantages are achieved by legally existing means while others such as Transfer mispricing are purposely designed to circumvent existing provision of the tax law.  As Countries grapple to increase their domestic resource mobilization, governments, policy makers and tax authorities will need to learn and adapt new techniques to debunk and disrupt the various tactics and schemes used by these MNCs. Such learning and adoption has to take place at a faster than lightning speed and gusto In less developed and resource rich countries where value and wealth is generated and sourced yet little is paid back in the form of taxes.

Transfer pricing is setting of the price for goods and services sold between controlled (or related) legal entities with an enterprise. For example, if a subsidiary company sells goods to a parent company, the cost of those goods paid by the parent is the transfer price.

Transfer price is not illegal if the goods are sold between related parties at an actual comparable price in the market (arm’s length price).  However, if the prices are distorted so as to achieve a tax advantage (by either selling below or above the market price), then transfer mispricing or aggressive transfer pricing is said to have occurred which is an illegality.

Multinationals engage in transfer mis-pricing for purposes of achieving a tax advantage by shifting profits from subsidiaries in high tax jurisdiction to low tax jurisdictions. By doing so multinationals pay less or no taxes at all in countries where they have economic activities (generate income) and should be paying taxes.

Demonstration of Transfer pricing arrangements

Figure 1: Transfer pricing arrangements of a telecommunications company-Source: http://thecastreet.com/introduction-to-transfer-pricing

From the above illustration the Company A located in India will sell goods and services worth 120 rupees to its 100% controlled subsidiary Company C located in a tax haven in Dubai and thereafter the Company C will sell to another Subsidiary B located in the US at a higher or inflated price of 130 rupees. The 30 rupees made in profit will be kept in Dubai where the pay company pays 0% tax.

Exemptions & Reliefs

Generous tax breaks and advantages given to a taxable entity for purposes of achieving a given economic or tax objective such as increasing or facilitating investment. Tanzania extends generous incentives and exemptions to foreign investment corporations.  In recent times, there is limited evidence to show that tax exemptions and reliefs are major factors influencing investor’s choice of investment destinations.  On the contrary they have been used for tax evasion by circumventing the provisions within the law

Round tripping

A self-explanatory term denoting a trip where a person or thing returns to the place where the journey began.

In illicit financing and tax evasion terms, it refers to a situation where money or income leaves the country through various channels such as inflated invoices, payments, to shell companies overseas (tax haven) etc and returns back to the same country as investment for purposes of benefiting from existing gaps and incentives within the Country’s laws.

False Declaration

A deliberate measure by a liable tax payer or corporation to under disclose or not to disclose at all the accurate taxable income or items or services for purpose of reducing the tax payers tax obligations or evading paying taxes completely. Individuals or corporations use this strategy to hide their taxable liabilities from the tax authorities.

Thin Capitalization

Thin capitalisation measures, where a company finances its operations with a high proportion of loans rather than shares and therefore reduces the business profits of its subsidiary in highly taxed jurisdiction and maximises profits via interests paid on the loan to a bank or financial institution located in a lower tax jurisdiction.

Profit laundering and re-invoicing

These methods also include profit laundering and re-invoicing measures;  a process which involves transferring profits from a territory in which they would be taxed to another in which there is either no tax or a lower tax rate or a sale to an agent based in a safe tax haven who subsequently sells on to a final purchaser.

The agent pays part of their mark-up price to the original vendor or to the purchaser, usually to an offshore account located in a secrecy jurisdiction

Use of Offshore, Secrecy Jurisdictions and Tax ‘Havens’

The use of low tax jurisdictions or tax havens has become the common strategy for hiding income from the tax authorities.

Tax havens are legal jurisdictions that offer a combination of low tax rates, limited regulations and total secrecy about ownership of registered corporations and individual assets.

In the Cayman Island there is a famous building called Ugland House, a small building, where 12,748 companies are registered and supposedly conduct their business (among them Coca Cola and Intel Corp). However, in reality these are shell companies and postal addresses and no real business activity goes on here. In a sarcastic remark of surprise, the US President Barack Obama on January 5th, 2008 said either this is the largest building in the world or the largest tax scam.

Characteristics of tax havens and examples of ‘Tax Havens’

  • Assured Total Secrecy on identity of owners, accounts and operations
  • Assured legal assistance
  • 0% Corporate tax or Low Tax rates on income
  • Financial and Auditing assistance
  • Logistics and supplies assistance
  • Human Resource Management assistance and facilitation
  • Reported Tax Havens or Secrecy Jurisdictions include:
  • Canary Islands
  • Bahrain
  • Ireland
  • Bermuda
  • Antigua
  • Bahamas
  • Panama
  • Andorra
  • British Virgin Islands
  • Jersey Island
  • The Netherlands
  • Liechtenstein
  • Isle of Man
  • Mauritius
  • Barbados
  • St Kits and Nevis
  • Guernsey
  • Cabo Verde
  • Hong Kong
  • Maldives
  • Albania
  • Brunei
  • Nauru
  • Azerbaijan
  • Monaco
  • Aruba
  • Belize
  • Curaçao
  • Armenia
  • St Vicent and Grenadines
  • Dominica
  • UAE-Dubai
  • American Samoa Islands

Selected corporations operating in Tanzania and potentially incorporated and using tax havens

Extractive Company

Country (ies) of Incorporation and Subsidiaries

Acacia Mining

Incorporated in UK. Has 3 subsidiaries in the Cayman Islands, One in Mauritius and one in Barbados

AngloGold Ashanti

Incorporated in South Africa, Has one subsidiary in the Isle of Man and One in New Jersey

Petra Diamond

Incorporated in Bermuda

Shanta Gold

Incorporated in Guernsey

Bezant Resources

Incorporated in UK. Has one subsidiary in the British Virgin Islands

Orphir Energy

Incorporated in UK, Has 24 Subsidiaries in Jersey, 14 the British Virgin Islands, 3 in Bermuda and 3 in Delaware

Stratex International

Incorporated in the UK has 100% owned subsidiaries in Switzerland and 33% owned subsidiary in Jersey

Wentworth Resources

Incorporated in Canada. Has 3 Subsidiaries in Jersey and in in Mauritius

Statoil

Incorporated in Norway, with one Subsidiary in Switzerland

Telecommunications

Bharti Airtel Tanzania

Incorporated in India. Has 25 subsidiaries in the Netherlands and one in Jersey

Milicom (Owns Tigo)

Incorporated in Luxemburg. Has 4 subsidiaries in the Netherlands

Estimated value of wealth held in Tax Havens

The actual estimates of the total size of wealth held in tax havens is not quite clear. However it is estimated that

  • The value of assets held offshore, either tax-free or subject to minimal tax, was estimated in 2015  at over US$11.5 trillion; over one-third of global GDP;
  • It is estimated Developing countries lose over $385 billion annually to tax dodging by wealthy individuals, profits laundering by companies and to untaxed activities in the grey economy
  • Recent financial leaks show that wealthy Africans hide their wealth in tax havens
  • It is estimated that USD 500 billion in financial wealth is kept offshore amounting to 30% of all the financial wealth held by Africans.
  • It is estimated that African Countries are among the fastest growing but capital flows to tax havens are one factor limiting the benefits of economic growth for ordinary Africans.

Comparison of living standards of poor families in Tanzania and the Caribbean tax havens

Examples of some documented tax planning cases reported in Tanzania

Examples of cases of Tax planning measure undertaken by companies to benefit from the various exemptions under the Investment Act and Customs and Excise Acts have been reported in Tanzania.

  • In the matter of the Commissioner General Vs Geita Gold Mining Ltd which appeared before the Tax Revenue Appeals Tribunal (Originating from Tax Revenue Appeals Board, Case No 22 and 23 of 2004, Geita Gold Mining Limited had failed to pay PAYE as required under section 41 of the Income Tax Act, 1973. In this case a TRA audit revealed that PAYE was paid as additional salary to the employees and recorded as expenses to the company and demanded it to be set off.

TRA argued such an act reduced the taxable income of the respondent and subsequently the tax paid by the company was reduced. Geita had illegally claimed expenses which it was not entitled to.

The Tax Revenue board also made reference to a provision within Geita Gold Mines’ Expatriate Conditions Terms of Service which was aimed at avoiding taxes.  Section 3.1 of the expatriate conditions terms of service stated that subject to Article 3.2 the employees offshore Salary component will paid free of local income tax into the employees nominated bank account. All other benefits may attract local taxation. The tax appeals board ruled in favour of TRA.

In 2017 there more reports of tax avoidance and evasion by the Canadian firm Barrick and its local subsidiary Acacia mining companies. The report was tabled by presidential commission appointed to investigate claims and suspicions of tax evasion by the mining firm. Following this report, the government confiscated the company’s consignment of Gold concentrates and required the firm to pay billions of dollars in accumulated tax arrears. The findings from the commission were disputed and negotiations to resolve the dispute were still ongoing

Causes or Aggravating factors for illicit Financial Flows

  • Weak legislative framework
  • Global Financial Systems which allows capital to move freely across jurisdictions
  • Poor –Interagency collaboration
  • Limited institutional capacity and technical competency
  • Corruption and poor ethical values amongst those entrusted with power and decision making
  • lack of Patriotism

Measures or initiatives that are being undertaken nationally and internationally to tackle IFFs

  • Establishment and training of international tax departments in National Tax Authorities
  • OECD- Base Erosion and Profit Shifting (BEPS) project which seeks to provide guidelines on how multinationals should conduct business abroad and requiring for mandatory disclosure and exchange of information on tax matters.
  • Advocacy for wider transparency through initiatives such as Extractive Industries Transparency Initiative (EITI) and Open Government Partnership (OGP).
  • Advocacy for governments and companies to publish what they pay and what they earn
  • Advocacy for improved reporting of corporate operations such as Country by Country reporting or Project by Project reporting of operations.

Relevant readings

  • Marc Curtis, Tundu Lissu: A Golden Opportunity? How can Tanzania is failing to benefit from gold mining; A report for the Christian Council of Tanzania, Tanzania Episcopal Conference and the National Muslim Council of Tanzania, 2015
  • Marc Curtis, Dr Prosper Ngowi and Dr Attiya Waris: One Billion Dollar Question: How can Tanzania stop losing so much tax revenue; A report for the Christian Council of Tanzania, Tanzania Episcopal Conference and the National Muslim Council of Tanzania, 2012
  • CMI Chr Michelsen Institute: Lifting the veil of secrecy; Perspectives on international taxation and capital flight from Africa, Norway, 2017
Why governments should not sign Economic Partnership Agreements (EPA) with the European Union without negotiation

Why governments should not sign Economic Partnership Agreements (EPA) with the European Union without negotiation

By Moses Kulaba, Governance and economic analysis centre, Dar es Salaam-Tanzania

From the tenets or principles and its design, the EPA offers critical economic challenges. Indeed, according, former Tanzanian President, HE Benjamin Mkapa, has cautioned that signing the EPA less developed Countries like Tanzania will be signing off an economic death warrant to their industries and jobs. Similar sentiments have been echoed by President John Magufuli when he described the EPAs as a form of colonialism and bad for our Country. Experts have equally warned against signing EPAs in their current form and content-perhaps there is reason to fear

The Economic Partnership Agreements (EPA) are bilateral agreements signed between less developed Countries and the European Union which allows free access of goods and services to   the European Union and vice versa. At the core of the EPA’s are said to be free trade between Less Developed Countries and the European Union.  They were set to replace the current existing trade relationships under the Cotonou Agreement and any other preferential trade related provisions such as the Everything But Arms (EBA).

It is from this perspective that as an expert and economic diplomat, I would advise Tanzania’s government and other least developed countries (LDCs) not to sign EPAs in their current form and pursue any future negotiations with utmost caution.

Firstly, EPAs would open up the Tanzanian market and industrial sector to extreme European competition this would be contrary to Tanzania government’s industrialization and job creation agenda. According to European Investment Reports in Tanzania, EU companies accounted for 68% of the total FDI in Tanzania. This makes the EU the single largest investment block into Tanzania. Under the EPA framework domestic industries will not be able to compete with their European counterparts. The EU also subsidizes its products through subsidizes extended to its farmers and industries making them unfavorably competitive.

The EPA does not guarantee free access of Tanzanian goods into the European Market. This is because the European market restrictions and non-tariff barriers such as quality controls and psytosanitary standards which are imposed by the EU on goods and services coming from less developed Countries.

According to the European Commission the net trade volumes between the EU and Tanzania amounted to1, 602 Million Euros. The EU also toped Tanzania as a trading partners with trade volumes estimated at USD2 Billion in 2016  Out of these Tanzania exported goods worth Euros632 million while it imported goods and services worth Euros 970 million creating a trade balance of Euros 338 million in favour of the EU. This therefore means that the trade imbalance would worsen   if Tanzania was to open up its markets to the European Union without any restriction.

Free trade between the EU and Tanzania would lead to high import revenue foregone by Tanzania. It is estimated that at the current figures (Usd2 billion in 2016) the trade created through signing of EPA would amount to 10 Billion. If an average amount of import duty charged on these goods is projected over the five-year period of the EPA, the government would lose billions in revenue foregone. This would be a major loss to the government which is struggling to build its tax base and aims to achieve a tax to GDP ratio of 19% by 2020.

There are other opportunities to trade with the EU exist under the Cotonou Agreement. The Everything But Arms provisions with in the current Cotonou Agreement allow Tanzania to export goods and services apart from arms to the EU on preferential terms. It does therefore not make prudent economic sense for the Country to enter into another agreement whose perceived economic benefits could be still achieved under the EBA. It would be to continue or re-negotiate with the EU under the EBA framework. The EPA may also be contrary to WTO rules of MFN. By signing the EPA Tanzania would be obliged to provide the same treatment to other nations. This would dangerously open up Tanzania’s economic to extreme competition and potential dumping from other Countries

The signing of the EPA would create a multiplicity and duplicity of membership to regional trade groupings. Tanzania is a member of SADC and EAC. By signing up to the EPA, Tanzania would also violate some of the economic rules of SADC which requires a common external tariff on goods coming from outside the SADC. The EPA requires that EAC signs as a region. This is requirement is oblivious to the fact that the different member states are at different economic levels. Kenya is a developing Country and therefore stands to benefit more from the EPA than Tanzania. Kenya’s flower market has already been a major export to the European Markets and this implies that Kenya would be a major beneficiary.

Obviously, by not signing up, Tanzania stands to lose its diplomatic darling status in the face of EU’s foreign policy to Africa. Tanzania’s good will have to meet high standards and heavily compete with other countries for entry into the European market. The non-preferential tax treatment and potential border taxes imposed by Tanzania on foreign goods may make EU products entering Tanzania’s markets to be highly priced and costly for local Tanzanians. Tanzania may be forced to seek alternative trading partners to replace on previously EU sourced goods.

Despite the potential economic benefits that appear to be offered by the EPA, if weighed the advantages of signing the EPA in their current forms has potential catastrophic consequences on Tanzania. A cautiously renegotiated approach would be the most appropriate pathway.

References

A comparison between the East African Community (EAC) and the   European Union (EU) in search for stronger Regional Economic Cooperation

A comparison between the East African Community (EAC) and the   European Union (EU) in search for stronger Regional Economic Cooperation:

By Moses Kulaba, Governance and economic analysis centre, Dar es Salaam-Tanzania

The East Africa Community (EAC) is a regional economic block comprising of 6 member states. The EAC was originally established in 1967, resolved in 1977 and later revived in 1999 comprising of three founding members; Tanzania, Kenya and Uganda.  It has since expanded to include Rwanda, Burundi and South Sudan.  Currently, discussions are ongoing to admit Somalia into the block. A comparison of the EU and EAC shows that the two blocks have some similarities but also fundamental differences.  Despite having the longest history, the EAC’s to maturity has remained punctured and slow like a tortoise while its younger cousin towers in speed and form like a mighty colossus. What lessons can be learnt?

The European Union (EU) is a regional economic grouping of 27 member countries. The history of the EU can be traced back to 1950 when the first proposal towards integration was made by the French Foreign Minister Robert Schuman towards integrating the Coal and Steel industries of Western Europe. 

This culminated in the establishment of the European Coal and Steel community (ECSC) in 1951 comprising of six members: Belgium, West Germany, Luxembourg, France, Italy and the Netherlands. The next steps towards the EU advanced further with the signing of the treaty of Rome in 1957 and establishment of the European Economic Commission (EEC).  Since its inception the EU has evolved through various stages into one of the most successful regional economic and political blocks.

Similarities between the EAC and EU regional economic blocks

Common economic theoretical motivation

All are economic regional blocks aimed at fostering trade amongst its members. By their nature, regional economic blocks aim at promoting the economic prosperity and development of its members.

The economic theoretical motivation of the blocks is informed by liberal and neo liberal school of thought that suggests the need for mutual cooperation and common collaboration by states to address global problems.   According liberal economists such as Adam Smith who suggested that countries benefited from free trade and elimination of tariffs while Gottfried Haberler suggested that those excluded from the preference arrangements arising from economic integration should lose.  There was value for states to cooperate for the sake of enjoying trade and economic benefits. 

Economically just like any other regional blocs, the EAC and EU seek to benefit from economies of scale, trade creation, product differentiation and efficiency gains through regional trade policies created within the community blocs.

Geographical proximity is a major success factor for economic integration. In both the EU and the EAC, respective member states abide to the factor of geographical proximity by sharing common borders. Expansion to countries that are considered not sharing common borders has been largely opposed and remained a politically divisive issue. For example, EAC member states rejected Sudan’s application to join the block because it did not share a close border.  Some EU countries have used the same reason, among others, to deny Turkey’s membership to the EU.

Common historical background is evident amongst both regional groups. The EAC is bound by a common historical background linking its members to a common African cultural and linguistic heritage embed in Bantu and Kiswahili as a language of the region. Although separated by artificial colonial borders the East African people are the same and related in many aspects. The EU is a diverse block of many countries with various linguistic backgrounds but common European heritage. In recent years, the EU has been gradually trying to build a European Culture, by allowing free movement and settlement of its citizens across EU member states.

Differences between EU and EAC

In order to make an informed differentiation of the two regional blocks, one has to look at the history, rationale, organization structure, operations and political economy of these organizations.

According to Njura, the fundamental difference between the EU and EAC lies in their respective rationale.

The EU was basically established to promote peace, economic prosperity, and the well-being of its peoples based on the constitutive act of the EU Article 3. While the rationale behind the establishment EAC  as set out in Article 5 of the Treaty for the establishment of the EAC, was to develop policies aimed at widening and deepening cooperation among the Partner States in political, economic, social and cultural fields, research and technology, defense, security and legal and judicial affairs for the mutual benefit.

The EU was conceived as a tool for peace. Between 1954 and 1959 the cooperation amongst European states was set up with the aim of ending the frequent and bloody wars between neighbors, which culminated in the Second World War. As of 1950, the European Coal and Steel Community began to unite European Countries economically and politically in order to secure lasting peace.

The current EAC was revived after the collapse of the first East African Community in 1977, whose prime motivation had equally focused on building economic development of the region after the struggle for independence. The first EAC had collapsed largely because of political indifference. Building a new EAC fundamentally anchored on economic cooperation made sense.

A deeper analysis reveals further that there are significant differences between the EU and the EAC in terms of stages of its integration, organs and operations. Its pillars and structures have (leadership, decisions making and accountability

Different sequencing and stages of economic integration development

The sequencing of integration is an important feature in regional economic integration. The various stages provide room for partners to build consensus on the shared degree of ambition, the size and diversity, and convergence of economic block

Classically, there are five major stages of economic integration. Free Trade Area, Preferential Trade Area, Customs Union, Common Market, Monetary Union and ultimately a political union.

The Free Trade Area (FTA) is the initial stage toward regional economic integration under which Countries agree to cooperate on selected areas. The Preferential Trade Area (PTA) is second stages where Countries agree to remove tariffs across member states while maintain independent tariff regimes on imports from outside countries. The third stage is the Customs Union where member states agree on all conditions in FTA and PTA and also establish a common external tariff (CET) on all imports from outside the block. The Common Market follows with features comprising of all the other stages including free movement of labour, capital goods and services across member states. The Monetary Union is the next stage where by member states agree to all the terms under the previous stages, including a common monetary policy and currency. The last stage is the Political Union, where the member states cooperate on political matters and cede considerable political power to a central authority.

The European Union is currently of Monetary Union with also some characteristics of a political union.  A close scrutiny of the EU shows that its stages of integration were not cleared distinct but inter-related in a reinforcing manner leading towards full economic integration.

Since the signing of the treaty of Rome in 1957 the European has developed into an internal single market through a standardized system of laws that apply in all member Countries and into a Monetary Union with a single Currency-the Euro.

EU policies aim to ensure the free movement of people, goods, services and capital within the market. It has enacted legislation concerning justice and home affairs, and maintained common policies on trade, agriculture, fisheries and regional development.

Has adopted a common external border control policy and within the Schengen Area, passport controls have been abolished allowing free movement across borders for all EU nationals and foreigners possessing a Schengen Visa. A monetary union was established in 1999 and came into full force in 2002. It is comprised of 19 EU member states which use the Euro as a common currency

On the contrary, the EAC has attempted to follow a chronological order of growth from one stage to another. The EAC was established in 1999 as a Customs Union. Because of its history and level of economic cooperation amongst its founding states, the EAC skipped the first stage of economic integration. It is currently a Common Market, which is the third stage of economic integration whereby there is supposed to be a common external tariff, free movement of labour, goods and services.

The EAC is still aspiring to achieve a monetary Union by 2024 and ultimately a political federation thereafter. Attempts to fast track to a political federation have not materialized because of a number of mitigating factors such as competing political interests and perceived leadership ambitions.

Major Timelines for EU and EAC Regional Integration

EU Timeline

EAC Timeline

Event

Year

Event

Year

European Coal and Steel  Cooperation (ECSC)

1951

Tripartite Commission for Cooperation signed

1993

Treaty of Rome –European Economic Cooperation (EEC)

1957

Treaty for EAC signed by Tanzania, Kenya and Uganda

1999

Single European Act (SEA)-Single Union

1986

Customs Union Protocol

2004

Maastricht treaty-European Union (EU) established-EU as Common Market

1992

Expansion of EAC by admission of Rwanda and Burundi

2007

Treaty of Amsterdam and Nice- Monetary Union and Euro as a Currency

2001/2

Common Market

2010

Treaty of Lisbon-Political aspects of the Union, including Constitutional issues and leadership

2007

Protocol for establishment of Monetary Union signed not yet implemented

2013

Organs of the EU and the EAC

The EU operates through a hybrid system of supra-national and intergovernmental decision making. Under this arrangement some of the member state powers have been delegated to be exercised by the EU Headquarters in Brussels on behalf and interest of its member states.

It has got seven principle institutions governing its operations. These are also known as Institutions of the European Union. These institutions do not actually directly represent the government members of the EU but actually operate within the dual supranational and intergovernmental structure. Based on the institutional provision, organization structures of the EU are:

The European Council which defines the general political direction of the EU. This is composed heads of state or government of the member states plus the president of the European Commission. The high representative of Foreign Affairs and security policy is also a member. This body forms the EU summit;

The European commission: Established in 1958, this is the EU executive body. It is the organ entitled with the management of the EU decisions, common policies and budget. It is composed of 28 members as commissioners, one from each member country;

The European Council or Council of the European Union: This is also known as the council of Ministers which was composed of 28 (27 after the exit of the United Kingdom) members. These are tasked with the responsibility of adopting EU laws and coordinating policy implementation.  It is comprised of Ministers from members from all member states and convenes regularly depending on the policy areas under discussion. The Presidency to this is held for 6 months on a rotational basis

The European Parliament: This is comprised of 751 members directly elected by the European Union member state citizens through direct adult suffrage for a five year term. They bear the responsibility of representing the citizens of the EU.

The Court of Justice of the European Union (CJEU) established in 1952 comprising of 1 judge from each country and 11 advocates. This plays a significant role in interpreting the laws for the Union and its decisions and rulings have de jure binding powers on all its members.

The EU has other bodies such as the European Central Bank (ECB) and the European Investment Bank (EIB). The ECB conducts Economic and monetary policy and manages the Euro. The EIB provides funding for EU projects.

The European Court of Auditors and Office of the Ombudsman investigates all complaints against the EU institutions and bodies.

The EAC Organisation and Institutional Structure

There are seven main organs through which the EAC works, however in contrast to the EU, there are slight differences in how some of these organs operate and exercise their powers.  These organs include:

The summit of heads of states which provides strategic direction towards realization of the goals of the EAC: it is composed of the Presidents of the member states with the authority to make final decisions on the direction the community needs to take in terms of economic developments and political cooperation;

The council of ministers: it composes of the various ministers of member state governments in charge of the EAC affairs in their respective governments. Its major responsibility is policy direction but also keeps constant review and monitoring of the EAC programs. These are major custodians of the decisions taken by the summit.

The coordination committee whose primary responsibility is to foster regional cooperation and supervision of sectoral committees: it is composed of the permanent secretaries in various member governments‟ ministries responsible for the affairs of the EAC. The responsibility of the body is to prepare reports, submit and give recommendations on the implementation of the treaty

The Sectoral committees are composed of senior officials established by the council ministers with the major responsibility of conceptualizing programs, preparing comprehensive implementation and monitoring of programs. These meet on a regularly depending on the issues

The Secretariat: this is the administrative organ of the EAC. It is the one responsible for managing the everyday affairs of the EAC but has no powers to decide the direction on which the EAC need to go; this power is reserved for presidents. It is the guardian of the EAC treaty, ensuring that the treaty and decisions made by the other organs are implemented.

The East Africa Legislative Assembly: it is the legislative arm of the EAC; it debates and approves the community budget. It is composed of 45 members (nine from each member states) and 7 ex-officio members comprising of Ministers or Cabinet officials responsible for EAC affairs from the member states. These are elected by the members of the national parliaments of member states

The East African Court of Justice: this is the court of the EAC which has the responsibility of interpreting the laws, the treaties and hears the disputes among the party states members. It is the principle judicial body of the EAC. It is comprised of judges appointed from member states. It has jurisdiction to entertain all matters related to the implementation of the EAC treaty and its associated legislations.

According to the EU regulations, its organs appear to have more independent mandate to exercise their powers and take binding decisions while the EAC organs are still subject to approval by the Summit of Head of states of the member countries.  The summit is chaired one of the head of state of the member countries on a rotational basis.

Differences in EU and EAC operations

The EU is largely a treaty-based organization.  The treaties are the major binding agreements between EU member states.  Every major decision and step is taken and effected by treaty. No major decision can be taken and applicable to all member states without a treaty. Examples of the various treaties and their application include;

Treaty

Significant decision or changes made

Treaty of Rome (1957)

Establishment of European Economic Community (EEC)

Single European Act  (SEA) 1986

Deadline for single full market

Treaty of Maastricht (1992)

Widening of the EEA and establishment of the European Union

The treaty of Amsterdam (1997)

Expansion of the EU, admission of 10 members from former communist countries, absorption of Schengen Convention into EU Law, expansion of Common Foreign Security Policy

The treaty of Maastricht –Nice (2001)

Reformed decision making, changed procedures for election of Commission President, defined role of EU institutions

The treaty of Lisbon (2007)

Major amendments to the Constitutional basis of the EU

The Paris Treaty (2015)

Climate Change

The EU decisions are also made  and transmitted to the members through Regulations, directives / guidelines, decisions and recommendations.  Regulations are legally binding to all member states and must be implemented in their entirety. For example the EU regulations on Common safeguards on goods imported from outside the EU.  Directives are EU legislative acts setting out goals that all EU member states should achieve and member states left to devise mechanisms for domestic application (eg directive on elimination of hidden costs on the internet). EU decisions are applicable to those to whom they are addressed such as Countries or specific companies (For example participation in Counter terrorism and humanitarian measures) while recommendations remain largely recommendations for best practice such as best practices in use of e-commerce

The EAC operates based on treaties and protocols. The treaty to establish the EAC was signed in 1999. Thereafter subsequent decisions have been taken through protocols. Examples of such protocols include the protocol to establish the Customs Union (2004), Protocol establishing the Common Market (2010), the EAC Monetary Union Protocol (2013) and the protocol establishing the East African Kiswahili Commission (2012). The EAC also issues guidelines to member states and has passed various legislation in line with the EAC treaty.

Difference in EU and EAC membership and benefits

The EU allows none members to enjoy some of its benefits.  The members of the European Free Trade Association (EFTA) are not part of the EU but are subjected to EU economic regulations. Countries such as Liechtenstein, Norway, Iceland and Switzerland which are members of the Single market through the EEA are none EU members but enjoy trade benefits from the EU. Switzerland and Norway for example are also part of the Schengen area. Some member states of the EU such as the United Kingdom opted to keep their own currency, the Pound. The EURO is only used in only 19 member Countries of the 28 member block.

In the EAC, none members are restricted from enjoying benefits from the block. Countries such as Somalia have been given observer status since 2012 and may enjoy some economic privileges and benefits from the EAC. Discussions to have Somalia formally admitted has stalled since 2015

Differences in political development, roles and global influence

The European Union has advanced into a political organization with a formidable force on both economic, political security matters -while the EAC is still aspiring to achieve a monetary union and ultimately a political union. Through the Common Foreign and Security Policy, the EU has developed a role in external relations and defence.  The EU has permanent diplomatic missions (EU delegations) and represents itself at the United Nations, the WTO, the G8 and the G20.  Because of its financial and political global influence, the EU has been described as a current and potential super power.

The EU has succeeded in building common democratic values and standards that must be demonstrated and respected by the member states.  The different values of democracy are reflected in the manner in which the EU is administered, how its representatives are elected and participatory nature in which major decisions, such as to join, expand or changes to key treaty provisions are made. For example, countries only the EU after express approval of their citizens through a vote or referendum. Votes of this kind have failed in countries such as Norway. 

While in the EAC there are significant political challenges, such as lack of respect to constitutionalism, peaceful transition of power through democratic means such as elections. Political, ethnic and resource based conflicts are prevalent and these have been a major hindrance toward the fast progress of the EAC.  To date, the EAC has not garnered converging common political momentum towards a political union.

Differences in geographical, population and economic size

There are significant differences in terms of Geographical and Economic size between the two bodies. The EU comprises of 508.2 million people accounting for 7.3 of the world population and 4,324,782 Square kilometers. In 2014 the total GDP of the EU was estimated at 18.495 trln USD. This constituted approximately 24% of global nominal GDP and 17% if measured terms of purchasing power parity. The GDP per capita of its residents measured at PPP was estimated at 40.486 USD. The level of industrial growth and advancement is higher compared to its EAC counterpart.

The EAC’s size is 2.5 million square kilometers. Its population and GDP were estimated at 168.5 Million and 159.5 bln respectively.  The GDP per capita was USD918 and its economy was largely driven by agricultural and semi processed goods. The total export from the EAC was USD13.6 bln while it imported 40.2bln. The total trade volume between the EU and the EAC was 6,008 million Euros.  The exports to the EU from EAC were mainly coffee, cut flowers, tea, tobacco, fish and vegetables.  The imports from the EU into the EAC were dominated by machinery, mechanical appliances, equipment and parts, vehicles and pharmaceutical products. The EAC exported goods worth 2,415 Million Euros and Imported goods worth 3,593 Million Euros creating a trade balance of 1,178 million Euros in favour of the EU. From the statistics clearly, the trade balance and terms of trade between the EU and EAC was heavily biased in favor of the EU.  Perhaps this explains why the EU has been keen on establishing strong trade relations with the EAC through the Economic Partnership Agreements (EPAs)

In conclusion therefore, despite the fact that these two bodies are both regional economic integration blocks formed to achieve a common purpose of economic prosperity.  A careful scrutiny of the two reveals some subtle differences, their history, operation and structure, economic size and interest. Comparatively, the EU is far advanced as an economic regional block compared to its East African counterpart. Perhaps these differences explain why the relationship between the EU and EAC has been a subject of significant divergence and discussions in recent times.

The following lessons can therefore be learnt

  • Collective will and desire to unite is essential for a successful integration
  • People centeredness rather than state centeredness regional economic integration succeed
  • Elimination of personal ego and ‘big-man syndrome’ amongst the members and their leadership increases chance for success
  • Essence of having an anchor state rallying all the other member states together for the common cause and standing for and in bail of other member states whenever political and economic catastrophe strikes such as the economic meltdown and Euro financial turbulence in 2008 and indebtedness of Greece and Portugal.
  • Economic size is not a factor as both small and big member states stand chance to benefit if necessary, measures and structures are put in place and operational.

References

Jeffrey, A. (1990) “The European Community in the 1990s: Perspectives on Integration and Institutions

Monnet, J and Schuman, R. (2005), Paper series Vol. 5 No. 37. Dec. 2005 

Laursen, F. (2003). Comparing Regional Integration Schemes: International Regimes or Would-be Polities? in Jean Monnet/Robert Schuman Paper Series, Vol.3, No.8, Available at: http://miami.edu/eucenter (Accessed on 29th  June 2018). 

Njura, S, Odoyo (2016). A Comparative Analysis of the European Union (EU) and the East African Community (EAC) Economic Integration models: Lessons for Africa: A research project submitted in partial fulfillment of the degree of Master of Arts in International Studies at the Institute of Diplomacy and International studies, University of Nairobi, October, 2016

Online sources:

https://www.uneca.org/oria/pages/eac-–-east-african-community, accessed on 28th June, 2018 at 6:pm

http://trade.ec.europa.eu/doclib/docs/2013/november/tradoc_151901.pdf accessed on 28th June, 2018 at 10:00pm

http://ec.europa.eu/trade/policy/countries-and-regions/regions/eac/, accessed on 30th June 2018, 9:00 am

https://www.eac.int/documents/category/protocols; accessed on 30th June 2018, 11:00 am

https://europa.eu/european-union/law/treaties_en; accessed on 30th June, 2018 at 8:00 pm

https://europa.eu/european-union/eu-law/legal-acts_en; accessed on 29th at 11:00am

https://www.eac.int/eac-organs; accessed on 1st July, 2018 at 2:00pm

https://europa.eu/european-union/about-eu/institutions-bodies_en; accessed on 30th June at 2:00pm

Foreign Policy and state behaviour:  How US Foreign Policy to Africa changed during Presidents Bush, Obama and Trump Administrations

Foreign Policy and state behaviour:  How US Foreign Policy to Africa changed during Presidents Bush, Obama and Trump Administrations

By Moses Kulaba, Governance and economic analysis centre

Foreign policy has been defined as a set of principles, decisions and means, adopted and followed by a nation for securing her interest in international relations. In posture and practice, the US edifies a perfect realist state and its leaders have embraced realism as a theory of choice in exercising US foreign policy and relations with other continents such as Africa. By understanding state’s foreign policy, we can predict their behavior and how to engage with them

The United States (US) is by any account a dominant super power whose foreign Policy has global influence. Historically, the US was discovered by foreign immigrants and plunderers. It acquired its independence in 1776 after a bloody revolution against British rule. The federalist triumphantly christened the new Country as ‘the land of the free’ and adopted ‘E Pluribus Unum’ a latin word meaning ‘Out of many-One’ as a national motto.

At independence, the US adopted a Bald Eagle and a Bison (North American Buffalo) as its national symbol-signifying strength, power and dominance. Since then, this historical triumph has translated into how America views and relates with other Countries and Continents. The bald eagle clenches in its talons an Olive branch and thirteen sharp arrows, perhaps reminding the entire world of America’s power -the US is ready to deploy its power to achieve its interests.

Realism scholars such as Machiavelli have argued that states’ foreign policies are solely a product of the international system—merely a reaction to external conditions and other actors.  Realism operates on the assumption of anarchy—the absence of an overarching government in the international system—as one of the most important external conditions that affect foreign policies. In an anarchic world, states must look out for their own interests.

Realists consider the state as the principal and rational actor in foreign policy, which seeks to maximise its own national interests and objectives since they believe that world politics exist in an international anarchy.  What drives realist foreign policy is its focus and responsibility to ensure national security and state survival, as well as its struggle for power.  Realists and Neorealists alike emphasise that the international system is anarchic and therefore because of this, states act the way they do in order to ensure their own survival.

As suggested by former US Secretary of state, Henry Kissinger, this has been the dominant view, taken by the US foreign policy relations with other Countries and continents such as Africa. A country’s foreign policy is determined by internal and external factors. Internal factors include; history, national values, geography, national capacity and political organisation. External factors include; international environment, internal organizations, world opinion and reaction of states to other states

Quick historical overview of U.S. Foreign Policy

US’s foreign policy has been largely influenced by its history. During the pre-World War I, the US pursued an isolationist foreign policy. The world was Eurocentric and Britain, France and German dominated global affairs. The US was protected by Oceans and technologies of the day did not directly threaten its vital interest. The US was sparsely populated and focused on its own internal destiny of building its democratic institutions and economy.  The US had trading partners, but did not exert influence globally.

The two world wars (1914-1945) ended US’s period of isolation. At the end of the Second World War, the US remained as the last standing global power. Europe and Japan were physically, financially and emotionally destroyed. German lost its industrial and military power foreign territories abroad.  Russia was financially destroyed and suffered severe losses of life. China, India and most of Asia were isolated peasant, colonial or post-colonial states with insignificant global influence. The US therefore took over this vacuum. It strengthened and asserted its global hegemony as a super power.

The years that followed the Soviet Union emerged as a superpower challenger to the U.S. In most of the world, America enjoyed an almost universal hegemony. When the Cold war ended (Fall of the Iron Curtain) in the 1990’s, America remained as the world’s only superpower.  America enjoyed world hegemony. It became de-factor world’s police and protector of the so called liberal world order. The US had financial and military power. Pax-Americana came into full flourishing replacing the Pax Britanica as the dominant world paradigm. The role of the United States was generally viewed as one of global leadership and significant engagement in international affairs. The US and its leaders have continue to pursue this view in shaping their foreign policy positions to other Countries

Extent of Change in US Foreign Policy to Africa during Presidents Bush and Obama Administrations

In order to understand the differences between Foreign Policy Approach of the two regimes, a comparative foreign policy analysis approach is used.  This is done by identifying foreign policy decision making processes related to the momentous events as well as patterns in day to day interactions of the United States and Africa during the two Presidential administrations.  The general posture of the US towards Africa and the world during the two administrations and the key policy instruments which characterized US foreign policy and presence on the African Continent between 2000 and 2015 are identified.

President George Bush’s Administration foreign policy towards Africa

President George’s Bush’s foreign policy was dominated with security and war on terror. When Bush took office before the 9/11 attacks, his foreign policy was to be based on various assumptions of classical realism. This thought assumes that the state is the main actor in foreign policy, and therefore the U.S policy would focus mainly on state-to-state relations. Classical realists also focus on the managing of relations with major powers since they are considered to be the main threats to the international system. In the case of U.S foreign policy of Bush prior to the attacks, he made it clear that the refurbishing of alliances would be a top priority in order to manage great-power relationships.

President Bush was to pursue symmetrical relations with other countries based on the view that oceans no longer protected the US from engaging overseas. However, the September 11 attacks changed dramatically President Bush’s foreign policy. The Bush administration developed a neo conservative foreign policy, focusing on regime change. He pursued an offensive realistic approach using pre-emptive force, conventional and unconventional warfare to secure American security and interests.  He divided the world as into a coalition of the willing and an axis of evil. In the war on terror President Bush asserted ‘You were either with us or against us’. The Bush administration linked the war with spread of democracy as defined by America’s foreign policy doctrine. America would pursue and defend its self and its interests anywhere in the world, including using war.

President Bush’s key foreign policy instruments for Africa

In pursuit of the war against terror, the Bush administration established an Africa Command as part of the US Military force based in Djbouti to oversee Counter terrorism and security operations in Africa. Support to African governments to establish anti terror-capabilities, including training and military equipment to African governments. The US facilitated legislative reforms supporting Counter terrorism.  The administration mobilised a coalition of other countries to counter Piracy and its threats to maritime traffic off the Coast of Somalia.

President Bush continued supporting the Africa Growth and Opportunities Act (AGOA). This was a trade arrangement through which African states were eligible to export a variety of goods duty free to the US. AGOA had started during President Clinton’s administration.

In 2003, Bush established the President’s Emergence Plan for Aids Relief (PEPFAR) through which African governments were supported to fight against Aids. In 2004 the administration established the Millennium Challenge Corporation (MCC) as an innovative and independent U.S. foreign aid agency that is helping lead the fight against global poverty.

President Obama’s Administration foreign policy for Africa

As a democrat, President Obama came into office with a neo liberal perspective with his commitments to ending war and seeking for negotiated settlements through for multilateral systems such as the UN. President Obama promised to use diplomatic engagement, internationalism and soft power.  Wanted to appease an international community feeling alienated by Bush policy. Obama wanted to pursue a liberal international order as core to America’s foreign policy. Promised military disengagement from wars oversees, but use of special operations, clandestine operations and drones to target terrorist leaders and security threats.

However, he was pulled back by America’s realistic and neo realistic values of US foreign policy.  Neorealisim or structural realism as supported by writers such as Waltz emphasise  that the international system is anarchic and therefore because of this, states act the way they do in order to ensure their own survival. He argues that although states are obliged to look after themselves and regard other states as potential threats, they are not inherently aggressive. 

Obama justified his American interventionist foreign policy with a neo-realistic argument that global peace was best achieved if there is a balance of power where great powers manage the international system. President Obama approved a troop surge of US military presence in Iraq and Afghanistan.  His administration facilitated the throw of foreign regimes in the North Africa and Middle East through the famous Arab Spring. The regime authorized drone strikes on suspected terrorist targets in Iraq, Iran, Syria, Yemen, Somalia, Pakistan and Afghanistan.  America’s perceived actions against the Muslim world fueled an insurrection of religious fundamentalist groups such as ISIL and Alshabab in Iraq, Syria, North Africa and Somalia.

Obama’s Key Foreign Policy instruments to Africa

President Obama’s administration was a continuation of US foreign policy towards Africa.  The administration supported anti-terrorism measures in Africa.  Obama authorized drone strikes in Somalia and parts of Central Africa. The administration deployed a small American Military tactical forces and equipment to help African states to combat terror. American Special Forces were deployed in Countries such as Uganda in pursuit of rebel leader Joseph Kony in Sudan and Central Africa republic

Obama continued support for previous foreign policy instruments such as AGOA, PEPFAR and MCC. In compliment to these, Obama’s administration established the Power Africa initiative aimed at supporting African states generate enough power. Also promoted US policy to support for Renewable energy –such as solar and wind.

With the two Presidents coming from two different political ideological backgrounds, Bush being a Republican and Obama a Democrat, it was expected that there would be a shift in U.S. foreign and Africa policy from one administration to the other. Yet the evidence as supported by various scholars and actions show that in substance there was little change in the foreign policy area with regards to the War on Terror and the fight against terrorism. There was no fundamental change in US national interests. What changed was the style and how to go about such policies.

To assert U.S. foreign policy interests in the world and continuity, explains the motives of such style and consequent U.S. foreign policy behaviour and outcomes of both administrations with regards to Africa.  Perhaps, the desire to defend America’s vital interest and global power aggressively contributed towards the election of President Donald Trump as new President for the United States in 2016.

President Donald Trump’s Foreign Policy approach

Since coming to power in 2016, President Trump adopted a neoclassical realism foreign policy approach towards the world. Neoclassical realism is a combination of both classical realist and neorealist approaches. It departs from neorealism by claiming that states respond to the international system when they conduct foreign policy.  Neoclassical realists put forward that domestic political processes act as a transmission belt ‘between systemic incentives and constraints, on the one hand, and the actual diplomatic, military and foreign economic policies states select, on the other.’ Therefore, the international political outcomes usually reflect the actual distribution among states

According to President Trump, the US was gradually losing its dominant position international system to new emerging powers such as China and Russia.  This power needed to be reclaimed.

President Trump’s foreign policy approach

The tenor of President Trump’s Foreign policy is to protect the homeland, the American people and the American way of life. He has vowed to promote American prosperity, preserve peace through strength and advance American influence

According to President Trump, a nation that does not protect prosperity at home cannot protect its interests abroad. A nation that is not prepared to win a war is a nation not capable of preventing a war. A nation that is not proud of its history cannot be confident in its future. And a nation that is not certain of its values cannot summon the will to defend them.”  Donald J. Trump, December 18, 2017

The theme of the National Security as espoused in Trump’s Foreign policy towards other states is “principled realism” of an “ever-competitive world,” where the question of “how we advance our goals is more critical than ever.”

Trump’s Foreign policy strategies and position towards Africa and the world

President Trump’s strategy aims to create a ‘New Global Order’ where the US goes from dominance to leadership.  As he declared in 2015-‘From now onwards it will be America First!  His foreign policy has focused on dividing and conquering of other states by withdrawal from major multilateral arrangements such as TPP, NAFTA and seeking bilateral engagement based on strength and interest. The regime has played off China against Russia and India and Japan against China.

US foreign policy undermines and seeks to out-compete emerging power centers such as China and the EU through various actions such as tariffs seeking to “Make America Great Again”.

US defense strategy and Military organization has been structured to patrol the world with the goal of preventing the emergence of regional hegemonies throughout the world.  Pesident Trump uses flexing military muscle and threats for war such as was the case with North Korean to advance American interest.  The administration uses coercive means such as sanctions as a foreign policy tool towards other states such as Iran, North Korea and Yemen.

According to Haas, President Trump’s policies have contributed the rise of nativism, nationalism and Isolationism from global affairs.  The United States is now engaged in a great foreign policy debate between a besieged traditional internationalism and an energized new isolationism. President Trump’s domestic policy position has taken a radical view towards immigrants from other parts of the world as a threat to US security.

Based on this, Trump’s view of the world, Africa has largely remained off the American Foreign Policy radar. Since his administration came to power in 2016, there has been no concrete plan for Africa. It was no wonder that in early 2018, President Trump referred to Africa as a ‘shit hole’.

Morality without security is ineffectual.

In Conclusion, foreign policy is largely driven by national interests. National interests can be categorized into core, important and peripheral.   For the US, securing US global dominancy is a vital interest.  An assessment of the different regimes shows that policy of securing the US core interest never changed. Peripheral interests such as US’s position on population control and aid to poor people could have changed because of the different political ideologies between the conservative republicans and the liberal democrats. However, it is evident that the vital and important interest remained at the core. Perhaps, the different instruments used by the two administrations such as AGOA, PEPFAR, MCC and Power Africa were used as tools to generate support and alliance from the African continent in regards to protecting US vital interests such as the war on terrorism, Nuclear weapons proliferation,  access to natural resources and  securing  US’s influence in the United Nations Security Council. It is no wonder that in 2016  President Trump switched to pursue this American realistic view aggressively.

References

Caroline Muscat,  ‘A Comparative Analysis of the George W. Bush  and Barack Obama Administration’s Foreign  Policy in the Context of the War on terror: A cases study-Pakistan’, A dissertation presented to the Faculty of Arts in partial fulfillment of the requirement for the  degree  of Bachelor of Arts (Hons) in International Relations, May, 2013

Henry A. Kissinger, ‘Continuity and change in American Foreign Policy, 1977

Lobell, S.E., Ripsman, N.M. and Taliaferro, J.W. (2009).‘Neoclassical Realism, the State and Foreign Policy.’

Richard Haas; ‘Trump’s No Isolationist. Is That a Good Thing?’

https://www.bloomberg.com/view/articles/2018-01-13/richard-haass-on-trump-s-foreign-policy-and-america-first accessed on 6th July, 2018 at 3:00pm

Jeffrey. S. Lantis and Ryan Beasley: Comparative Foreign Policy Analysis: Available at http://politics.oxfordre.com/view/10.1093/acrefore/9780190228637.001.0001/acrefore-9780190228637-e-398

McCormick, J.M. (2010) ‘American Foreign Policy & Process’ (5th ed.) p.206-207 – Europe and Asia were to be his top foreign policy priorities since they both carry American allies as well as potential rivals. 

Waltz, K.N. (1979).‘Theory of International Politics.’ http://www.popularsocialscience.com/2013/11/06/neorealism-in-international-relations-kenneth-waltz/; accessed on 6th July, 2018 at 11:00am

https://www.pepfar.gov/ accessed on 6th July, 2018 at 2:00pm

https://www.mcc.gov/about; accessed on 6th July, 2018 at 12:00pm