Africa Luxembourg Ethiopia Congo state capacity facts of the day

Government revenues average about 17% of gdp in sub-Saharan Africa, according to the IMF. Nigeria has more than 300 times as many people as Luxembourg, but collects less tax. If Ethiopia shared out its tax revenues equally, each citizen would get around $80 a year. The government of the Democratic Republic of Congo is so penurious that its annual health spending per person could not buy a copy of this newspaper.

That is from The Economist.

Comments

In the case of Nigeria, the international oil companies are extremely happy with how cheap corruption is compared to paying the sort of taxes they would be required to in the U.S., UK, Norway, Canada, etc.

Thanks to FACPA and similar, no international oil company would risk corruption anymore. It’s not worth the risk. It is the smaller local companies either private or locally listed that do this. This is one of the benefits of international capitalism.

It is not a risk to make legal contributions to various political figures - with the added benefit that legally declared contributions are tax deductible.

As for smaller companies - well, it is undoubtedly just a coincidence that they just happen to have a business relationship with companies that do have to worry about enforcement outside of the country they are extracting oil from.

To put it differently - regardless of the figure submitted for tax purposes, the international oil company knows precisely how much oil was loaded onto a tanker and sold. That the official submitted figure is a fantasy - which the international company is fully aware of - is no skin off their nose, and would be an example of corruption, though none of that oil company's non-Nigerian customers care in the least about it. Corruption includes much, much more than illegal activities. I believe the term 'regulatory capture' is the term du jour in certain circles for certain types of fully legal corruption.

It would seem that Luxemburg is over taxed.

Considering that Luxembourg makes a lot of money from helping other people not pay taxes, it is likely that Luxembourg is taxed just right.

In one recent FCPA enforcement action, U.S. regulators deemed a donation made to a Nigerian political party had been paid to influence the award of a government contract. So campaign contributions are not a "safe harbor" if they are made with the expectation of corruption.

Interesting observation, are there stats showing that corruption (of this international sort) has been diminishing? I hadn't been paying close attention; there continue to be plenty of controversies involving multinationals but when I think about it they do seem to be about say Ghosn or Facebook rather than outright corruption. So maybe it has diminished.

The implication is that these African states should try to raise more revenue, but wouldn’t it just be lost to corruption?

Given the low cost of government, why aren't libertarians moving to Ethiopia, or Africa in general. The tax saving for billionaires running high profit tech companies would easily pay for private militias to defend their compounds from all Ethiopians, government and private.

Ditto for most of Africa.

Because we want a smaller government presence here, you know, where we live, rather than incompetent government in Africa?

Africans have so much more liberty and freedom than us Westerners. Low taxes and none of that socialized medicine crap. A real libertarian wet dream.

Unfortunately the miss the genetics so that's explains the level of misery.

Which genes specifically? If you can't list the Gene's, then you can't argue it's not environmental factors, like climate that promotes diseases or discrimination based on fake racist claims of inferiority based on skin tone or facial features, factors the Germans used to identify people for exterminating 6 million.

The pool of genetic data available is both large enough and sufficiently diverse that regression analysis has failed to identify any "race" genes.

On the other hand, the data on lead, mercury, niacin, etc establish clear environmental factors.

"Ethiopia’s economic freedom score is 53.6, making its economy the 137th freest in the 2019 Index....Ownership of all land remains in the hands of the state...Government officials and state institutions reportedly enjoy preferential access to credit, land leases, and jobs...The state has allowed the private sector to participate in banking, but it restricts foreign ownership."

"each citizen would get around $80 a year."

Get a job at Taco Bell and you could make $100k. America is so productive at making tacos that it can pay those wages. Ethiopia should take heed.

State capacity: if plotted on a graph, what would be its shape? Upward sloping? Upward sloping, then downward sloping? A bell, or an inverted bell? Is China's state capacity unique? Singapore's?

I hired someone in Africa for a job and I used the contact form on their official website to get information to pay taxes but nobody answered. They don't seem interested in collecting taxes.

The government of the Democratic Republic of Congo is so penurious that its annual health spending per person could not buy a copy of this newspaper.

Maybe the population of the DRC is much healthier than that of other places. Perhaps the individuals of that same population are able to pay for their health care themselves. It could be that health care in the DRC is organized on a different basis than in Europe.

Are we to assume that the general population of the DRC is staggering around on crutches with runny noses, coughing and vomiting for lack of government spending on health care?

"Are we to assume that the general population of the DRC is staggering around on crutches with runny noses, coughing and vomiting for lack of government spending on health care?"

They are not that lucky. They are being sent to early graves.

https://www.cia.gov/library/publications/the-world-factbook/fields/355rank.html

Is there a real correlation between life expectancy at birth and annual health spending per person? According to the OECD, the US life expectancy at birth in 2015 was 78.8 years with a per capita health expense of $9507. The corresponding 2014 figures for Costa Rica were 79.6 years and $1390, a little more than 14% of the per capita expense in the US. Ignored but assumed in these statistics is general health and happiness rather than life span. Living to be 85 years old, with dementia and inevitably failing health, while warehoused in a facility where one spends the day in front of a television near an attendant that changes one's diapers and speaks English as a second language isn't everyone's idea of life.

Lucky Congolese going early to their reward!

There is a lot of 80/20 in the world.

For example, about 30% of Medicare spending occurs for patients in the last year of life. About 7% of Medicare spending occurs for dialysis (about $100,000 per patient year, with about 35% 5 year survival rate.).

On the other hand, cataract surgery with lens replacement costs about $4K per eye, which is generally a one time cost and provides a lifetime fix.

Tariffs. The answer is tariffs. When the West pushes for “free trade” agreements, it hurts countries without a developed tax base. Should the DRC send tax collectors into the Heart of Darkness? Or should they merely collect tariffs at their one port? And yet, more developed countries are rabidly anti-tariff and prevent African countries from supporting themselves.

The DRC’s total number of imports is less than $100 per person. Tariffs wouldn’t raise any significant revenue. For an extremely poor country like that, state owned enterprises in natural resources is probably the best way to raise money.

Isn't 17% of GDP comparable to the U.S.? It seems obvious that even if the number was 100% of GDP, these other figures wouldn't change qualitatively. They need pro-growth policies, not destructive taxes

Well, US federal government spending is about 21% of GDP, 38% if we add state and local government.

Still, your point stands that it seems unlikely that the solution to Africa's problems is higher taxes. Indeed, much foreign aid never reaches its intended destination due to corruption, which one can view as a form of taxation and inefficient government spending.

If I remember correctly, the colonies fought a war when the taxes were going up from around 3%. Was the median standard of living in the colonies less than 1/4th what it is in drc? If not, I think we can say tax rates aren't a good metric.

And what's luxemburg got to do with anything anyway? "Africa is poor, they don't tax much. But luxemburg is rich, they tax a lot" reverses causation.

Having recently returned from a visit to Ethiopia, I'll point out that most Ethiopians are small scale farmers or pastoralists and that their crops and livestock provide the bulk of their sustenance. Rents and land taxes are low if only because land is relatively unproductive. Teff, for example, is threshed by hand or by driving a draft animal. There are markets and people buy and sell things, but the cash value is low.

Manufactured goods are available, some made locally e.g. furniture, some imported, usually from China. Cell phone service has better coverage and is cheaper than in the US, but must phones are basic Chinese, Indian or Korean models. I know some of the tuktuks and buses were Indian brands. We were driven around in Japanese vehicles. I have no idea where the AK47s were made and wasn't going to ask. I have no idea where the on-street fusball machines were made, but I'm guessing the brightly colored dresses on street racks were Indian or Chinese. There's a whole other economy down there.

It might help reading some Chayanov to get a sense of the state of the Ethiopian economy as it is experienced by a large percentage of the population. Like Scots on the outer islands in the mid-20th century, the typical Ethiopian likely deals with surprisingly little cash money year to year.

P.S. Ethiopia has been literate since the days of the pharaohs. It even had its own schools of philosophy. Zera Yacob, for example, was a contemporary of Descartes and pursued a similar program which his school continued. Ethiopia, unlike most other parts of Africa, has never been colonized. They beat off the Italians, though they were occupied for a few years. Ethiopia has long been a crossroads with its conservative brand of Christianity and long Muslim presence, but it has also been a backwater. It will be interesting to see where it goes in the next few decades.

I suppose one would expect economists and journalists from the business press to think in terms of money, but it makes a lot more sense for the government to develop human capital through health and education initiatives and to provide better public goods like roads, transit, banking, research and markets. This probably means that there aren't a lot of profits to reap, at least not the kind that impress shareholders.

This interesting statistic reminds me of the underappreciated role of state capacity and ability to levy taxes (and the kind of taxes that can be levied) in the history of colonialism and decolonisation in Sub-Saharan Africa.

Colonial powers struggled to find the local tax base to sustain expensive (western style and European staffed) bureaucracies and had to subsidise heavily as colonial subjects and metropolitan as well as international public opinion pushed for higher standards of governance - and as a result largely lost interest in clinging on to power in the 1960s. Post-colonial states without access to metropolitan funding struggled to make the inherited form of government work with the revenue they were able to raise locally (with some external support) and, in some cases (DRC for example) were expected to honour obligations (pensions) entered into during the colonial era. State failure in the 1970s and 1980s seems to have had much to do with the mismatch between the inherited state institutions and the services they were expected to provide, and the means to pay for these.

The question of how to expand state capacity from a very narrow tax base and create a positive upward spiral is very interesting. I wonder if Ethiopia's experience can offer guidance, or whether the circumstances are more or less unique to it?

bla. bla,bla,blah bla,bla,blah

when the unpredictable East African Drought returns(and it will)

THERE WILL BE A FAMINE!!!

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