The political economy of endogenous funds for scientific collaborations – Taxation and tax havens

What if there would be more endogenous funds for scientific collaborations in African countries? More national funding is one key demand among scientists and policy-makers not only in African countries. There are many calls to invest more in science and the need to prioritize research, development and innovation in developing countries.

The call for substantial investment in R%D

Dr. Jennifer Makuba is one recent voice, who calls for “heavy financial instruments” to prepare countries in Africa to handle large scale biomedical dangers. The recent outbreak of Ebola across national borders urgently shows that you need a well-functioning medical service with capacities ranging from research to healing and eventually to prevention. This example from the health sector holds true for other crucial fields such as agriculture, climate, and energy. In the case of emergencies in particular, you need endogenous scientific structures and expertise that can adequately respond to crises.

Policy-makers and scientists have pointed to the fact that, for instance, African governments are investing less than one percent of their GDP in research and development (R&D). While there is reason to take into account other priorities such as infrastructure, free primary and secondary education, and health systems, it is African governments who have since the Lagos Plan of Action in 1980 pledged more investment in R&D. In a recent interview on this blog, Dr. Elizabeth Rasekoala from African Gong  pointed to this fact. The African Union has set the goal to invest at least 1% of GDP in R&D to incite a dynamic research landscape that can respond to the local and regional needs. Despite an increase in absolute numbers, most countries lag behind this target, with a few exceptions, as the 2015 UNESCO Global Science Report shows.



Structural instability of government budgets

Over the last decades, many scientific activities and capacity building programmes in African countries have been heavily supported by international funders (see for example Mosambique, Burkina Faso, and Kenya in the right column of the chart above). Some countries have most of their research funded by external sources, be they public or private by origin. This has led to an integration into global scientific networks and collaborations, albeit with fewer negotiation leverage for the African counterparts. Also, to a worrisome extent, this has left the African science landscape vulnerable to external funding developments. And this clearly touches on the sustainability of scientific infrastructures and research opportunities.

New signs show that funders are phasing out after a decade long scientific research support, such as the Swedish development agency announcing their retreat from the scientific sector in Uganda after 20 years of bilateral relationships. Moreover, the recent shutdown of US government agencies has also led to warnings issued by African research collaborators, who depend on the continuous support from agencies such as USAID and the exchange with public research institutes in the US. (I am yet waiting for a thorough analysis of what any form of Brexit will bring for the international scientific sector, since many British universities have ties to African counterparts.)

This vulnerability is a structural symptom of public finances in African and other countries. And it is – even if not exclusively – closely tied to the political economy of international financial regimes. Hence, I argue to take the lack of funding for science and technology as a symptom of a larger lack of funding for state services.

Potential sources of income: Taxes from big corporations

Two general issues need to be separated when talking about sources for lacks of funds: The continuous serving of old and new debts that binds large chunks of governments’ budget. The other issue is with generating income from taxation, that could then be used for S&T. (Let us leave out the issue of embezzlement of state funds for a moment.)

Recent studies about capital movements (here and here) show how the licit and illicit capital flows from African countries and the use of tax havens prevent African governments from levying their fair share of taxes from goods and services that are produced within their countries. While some like the former South African president Thabo Mbeki admit that African elites are part of the shifting of money, the studies show how mainly big corporations are using the institutional disadvantages of developing states and lax WTO regulations to shift profits into tax havens and into countries with fewer corporate taxes. WTO regulations have led to fewer opportunities for controlling capital flows. Cynically, most of the tax havens lie within the Western world and within the reach of their government regulation.

Taking into account the loss through the effects of debt-servicing since the early 1980s and the  lack of sufficient taxation of big corporations, development aid budgets (including the most needed research capacity funding) need to be seen in a new light. For instance, of 1 US$ that is channelled to developing countries through official development aid, 24 US$ are seen as sent back to the donor’s countries. Therefore, developing countries are actually benefiting developed countries.

This corporate behavior relentlessly prevents African governments to build up the resources needed to invest in their countries. This also affects the scientific and higher education sector. The underfunding of R&D should hence not only be analyzed in the light of  government commitments but also in the light of the prevailing international political economy. Licit and Illicit capital flows and tax evasion are detrimental to an endogenous research capacity development in the health, science and higher education sectors, among others.

What would be the state of science in African countries if they had all of these resources to invest in R&D?