Friday, July 12, 2013

A Give & Take Relationship

Is it really true that while rich countries give $130 billion in aid to poor countries, they actually extract stuff worth $ 2 trillion every year?

Data published by the UN shows that 300 years ago, rich countries were only three times richer than poor countries. By the end of colonialism in the 1960's this rose to 35x. Today, the difference is 80x!

Rich countries try to compensate by giving aid to poorer countries each year. This amounts to about $130 billion. If you think this is a large amount, consider the fact that large corporations are taking more than $900 billion out of poor countries each year in a form of tax avoidance called "trade mis-pricing". Also each year, poor countries pay $600b in "debt service" to rich countries, paying the originally borrowed amount many times over. Add biased trade rules that costs poor countries $500 b every year (Univ Massachusetts study), and you have the rich-poor divide in two startling figures:   Every year, in exchange for $130 billion in aid, rich countries take back home a total of $2 trillion!

Here is an info-graphic video that conveys this much better:

So, how does this work?

Take the case of Guinea, West Africa. A recent article in the New Yorker (see here), describes in detail how two transnational companies, Rio Tinto and BSGR, "lobbied" their way to gain control over the Simandou Mountains, which was, "without doubt, the top underdeveloped tier-one iron-ore asset in the world." In 1997, the Anglo-Australian mining giant Rio Tinto gained exclusive rights to explore and develop the mines.

Ten years later, Guinean officials passed these rights to a much smaller Israeli company, Beny Steinmetz Group Resources (BSGR). No fees were paid for the exploration license. Since BSGR had no expertise or experience in the iron-ore business, it sold a controlling stake (51%) to Vale, a Brazilian mining company,  for $2.5 billion. So, in exchange for 'investing' $160m (mostly bribes to the ruling elite?), BSGR got $ 2.5 million, plus a 49% stake in a $5 billion asset.

However, as of now, the Simandou mountains are still intact. The iron ore will continue to remain unexploited until the big boys settle their fight and find a way to transport the ore to a seaport. Until educated and public- spirited Guineans take control of their own affairs, the country may continue being one of the poorest in Africa.

Until then, perhaps it is good to remember what Joan Robinson had to say -- "The misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all."

Simandou mountains in Guinea are near Nzerekore, which is tucked away next to Liberia


* Simandou Mountains -
* Economics Quotes -
* Illicit Financial Flows from Developing Countries --

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