An under-construction luxury hotel property in Colombo has come under the scanner as part of a money laundering probe linked to a Gurugram-based realty company, Indian media reported today.
The Indian Enforcement Directorate, a government agency tasked with investigating offences of money laundering and foreign exchange laws, said that the property is part of a collection of assets worth more than Indian Rupees 200 crore, linked to Krrish Realtech Private Limited, which is promoted by businessman Amit Katyal.
The ED, in a statement had said, that it has issued an order to provisionally attach the under-construction luxury hotel and leasehold rights over 4 acres of land in the “Colombo 1” area of Sri Lanka to the case, apart from land rights for about 2.82 acres of Vicinity Hotels Pvt. Ltd., in the name of Good Earth Business Park Pvt. Ltd. located at Sector-66 in Gurugram, the Press Trust of India reported.
The money laundering case, it was also reported, stemmed from FIRs filed by the Economic Offences Wing (EOW) of Delhi Police and Gurugram police against Katyal and his associates.
It is alleged in the complaints against Krrish Realtech Pvt. Ltd. that it “defrauded” numerous investors and “illicitly” transferred hundreds of crores of rupees abroad “through a coordinated scheme involving cheating, deception and fraud”.
The agency said the company floated a project to provide residential plots in the centre of Gurugram, but after a lapse of more than 13 years no plots were provided to the buyers, despite collecting Indian rupees 503 crore from plot buyers.
“Amit Katyal willingly siphoned off funds collected from various plot buyers and investors to a Sri Lankan company named The One Transworks Square (Pvt) Ltd. (formerly Krrish Transworks Colombo Pvt Ltd) which was developing a luxury real estate project in Sri Lanka,” the ED also stated.
The Energy Ministry stated that the proposed electricity tariff revision would be implemented only upon receiving approval from the Finance Ministry.
Meanwhile, the Public Utilities Commission of Sri Lanka (PUCSL) announced today that electricity tariffs will be reduced by 20%, effective from midnight.
However, the Energy Ministry stated that the proposed tariff revision would only be implemented after obtaining consent from the Finance Ministry.
Sri Lanka might not have the pride it showcased during the Bandaranaike era of politics, but it will stop at nothing to grab all help offered by an Asian nation like China in its attempt to rebuild a weak economy
China’s President Xi Jinping might not be captured smiling on camera, but President Anura Kumara Dissanayake (AKD) has been grinning quite often during the latter’s ongoing official visit to China.
AKD is on a four-day visit to China (the visit ends on January 17) and the two heads of state have discussed on bilateral issues with Chinese President Xi Jinping giving assurances that the island nation will have China’s support to usher in a new era of development.
The issue with Sri Lanka has been that past development projects done in the island taking in foreign loans have failed to raise expected revenue. And for much of these projects, China was the lender. At least this time around, the Sri Lankan Government must think of ways to utilise upcoming development projects, so that loans obtained can be repaid.
The Chinese Government will be all eager to help Sri Lanka only if development projects commenced here support China’s Belt-Road Initiative. Sri Lanka-China relationships stretches back to 1952 when the two nations signed the Rubber-Rice Pact. In earlier times, Sri Lanka didn’t feel settled to help a non-socialist country to import rubber, fearing a backlash from USA. But now the global picture has changed and China is an emerging superpower and a more helpful business partner compared to other ambitious countries, which wish to rope in Sri Lanka and engage in geopolitics.
Sri Lanka might not have the pride it showcased during the Bandaranaike era of politics, but it will stop at nothing to grab all help offered by an Asian nation like China in its attempt to rebuild a weak economy. China’s presence in East Asia can be annoyingly affected if any other powerful nation secures footing on Sri Lanka in the guise of offering aid and help for development. But AKD was wise enough to do a visit to India first before saying yes to an official visit to China; the latter being AKD’s second official visit to a country after assuming the presidency in September last year.
There was a gun salute for AKD in China. The Sri Lankan president was then seen laying a floral tribute at the Mao Zedong Mausoleum later on. AKD probably felt his own pulse beating a bit louder when standing near the stature of the Chinese legendary leader because he can relate well to this socialist icon. Zedong was ruthless against his opponents and whatever that stood in his way. AKD can take a cue from China and be ruthlessly efficient instead. Many who work closely with AKD affirm that the new Sri Lankan President is a task master and workaholic; one Sri Lankan social media website recently reported that the island’s president can run a full day at work with just two breaks and that only for two cups of tea!
Forget China’s helping hand towards Sri Lanka, the Chinese are on a mission to conquer the business world and further their maritime interests on the Indian Ocean. During the Sri Lankan head of state’s visit to China, his Chinese counterpart outlined China’s plan to boost its high-quality belt-road initiative and needed the island’s cooperation for it.
During bilateral discussions between the representatives of the two nations (during this visit) there were the signing of cooperation documents which included an agreement to help Sri Lanka export agriculture products to China.
This is the time for AKD to strike while the iron is hot! China is more eager to continue being the nation that supports and aids Sri Lanka which easily supersedes the eagerness shown by the island nation to rebuild its fallen economy. China is still far away from Sri Lanka compared to India distance wise, but it has the skills to pull at the heart strings of the Sri Lankan president by whispering inspirational tales of socialism.
Sri Lanka and China have agreed to work towards the early conclusion of a comprehensive Free Trade Agreement (FTA) in one package in line with the principles of equality, mutual benefit, and win-win outcomes, a joint statement from the two countries highlighted.
China expressed its readiness to continue supporting Sri Lankan enterprises in the tea, gem, and other industries in establishing ties with relevant Chinese associations of importers. It also said it would facilitate Sri Lanka’s participation in expos such as the China International Import Expo, China Import and Export Fair, China-South Asia Exposition, and e-commerce platforms.
Sri Lanka expressed appreciation to China for its effort to promote imports from Sri Lanka through various means.
The two sides said they are staisfied with the progress of bilateral cooperation in economy and trade.
The dossier was researched and written under the leadership of Professor Grieve Chelwa of The Africa Institute, Global Studies University, through Tricontinental Pan Africa
In Africa, the leading forces of capitalism have ruthlessly wielded a neoliberal conception of corruption to undermine states’ sovereignty and open the continent to plunder at the hands of Western multinational corporations.
26 November 2024
The dossier was researched and written under the leadership of Professor Grieve Chelwa of The Africa Institute, Global Studies University, through Tricontinental Pan Africa.
The artwork in this dossier attempts to illustrate the true face of corruption on the African continent – from the brutal plunder of the colonial era to today’s legalised looting by multinational corporations through tax evasion and other illicit forms of accounting. The satirical images aim to subvert the racialised image of African corruption and highlight the true cost of neo-colonialism and the faces of the true culprits – the Western multinational corporations, banks, and accounting institutions who underdevelop Africa for their own profit.
In the years following the fall of the Soviet Union, the word ‘corruption’ increasingly began to appear in the reports of multilateral agencies and non-governmental organisations. These reports argued that corruption is rooted in the regulatory function of states, which control large-scale development projects and whose officials oversee the delivery of licences and permits; if the regulatory function of states could be minimised, many of these reports argued, corruption would be less pervasive. This kind of anti-corruption discourse fit neatly within the neoliberal drive to shrink states’ regulatory apparatuses, deregulate and privatise economic activity, and promote the idea that the freedom of the market’s invisible hand would create a moral foundation for society.
Yet, none of these reports – including those from the World Bank and Transparency International – offered a clear definition of corruption. In The Anti-Corruption Plain Language Guide (2009), Transparency International defined corruption as ‘the abuse of entrusted power for private gain’.1
Three years later, the World Bank described corruption as ‘the abuse of public office for private gain’.2
These definitions are similar, and they continue to be reproduced in reports from multilateral organisations and in academic scholarship. The key word here is ‘abuse’, and the main implication is that someone in the public sector entrusted with power or public office abuses their role for private gain, such as through bribery, nepotism, extortion, and embezzlement. This orientation argues that if the state were smaller or more disciplined, there would be little to no corruption in society. Even though the non-governmental organisation Transparency International added a concern about private sector corruption in 2010, this addition has been marginal to the overall focus on public sector corruption.3
The epicentre of this argument has been the African continent, where the idea of ‘corruption’ – meaning corruption of the state – has effectively been used to diminish the state’s regulatory functions and reduce the number of state employees. It is important to note that while 21% of the European workforce, on average, is employed in the public sector, that number is a mere 2.38% in Mali, 3.6% in Nigeria, and 6.7% in Zambia, which in turn limits these states’ capacity to manage and regulate large multinational corporations on the African continent.4
Furthermore, over the course of the 1990s and the 2000s, the International Monetary Fund (IMF) fought to reduce public-sector employees’ salaries, which certainly increases the likelihood of bribery. The IMF outlined this approach in its 1991 Public Expenditure Handbook, whichmakes reducing the wage bill for public-sector workers a central part of its agenda.5
In neoliberal literature, corruption primarily takes the form of bribery, extortion, and embezzlement – all of which refer principally to public sector corruption – while omitting concepts such as transfer mispricing, trade mis-invoicing, accounting irregularities, financial mismanagement, and tax avoidance – all of which are essential elements of multinational corporations’ accounting practices.6
There are a range of socio-psychological reasons for corruption, the most referenced one being greed. But greed is not a transhistorical concept or emotion; rather, it is shaped by the social formation in which it is allowed to grow. Capitalism has a special relationship to greed, since it fosters the ‘animal spirits’ (as the economist John Maynard Keynes put it) to reduce all human life to commodities and to centralise the profit motive as the economic motor.7
Yet, older forms of morality that are eager to set aside hypocrisy and overcome the dominion of money prevail in social consciousness across the world. This dossier is anchored in the popular sentiment against corruption in society, driven largely not by petty bribery but by industrial-scale corruption by private capital. The Malaysian sociologist Syed Hussein Alatas called this ‘tidal corruption’: the corruption that ‘floods the entire state apparatus involving those at the centre of power. Like the tide, it rises to cover wider areas and immerse the surrounding vegetation’.8
This dossier is not a defence of corruption; on the contrary, it argues for an understanding of corruption that is not rooted solely in the public sector but that appreciates the tidal corruption set in motion by the leading forces of capitalism. It focuses on the African continent because that is where agencies such as the IMF and the World Bank have most effectively wielded the idea of ‘corruption’ to undermine states’ sovereignty and subjugate the countries of the Global South to the extraordinary power of multinational corporations, particularly in the mining sector.9
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Part 1: The Neoliberal Corruption Industry
In 1993, Peter Eigen, a German lawyer who worked at the World Bank in the legal department, registered an association in Germany called Transparency International. Eigen worked with Michael Wiehen (formerly of the World Bank) and Hansjörg Elshorst (formerly of the German Agency for Technical Cooperation) to establish Transparency International in German business and government circles as a legitimate organisation. Before going forward to discipline countries of the Global South, the association had to ensure that European states had built their own legitimacy regarding corruption. That is why they lobbied the governments of France and Germany to stop the policy of what, in Germany, is called Schmiergeld (bribe money); these countries not only allowed bribes to be paid in foreign jurisdictions, but then permitted companies to deduct these payments from tax obligations.10
This lobbying resulted in the passage of the 1999 Organisation for Economic Cooperation and Development (OECD) Convention on Combating the Bribery of Foreign Public Officials in International Business Transactions. By passing this convention, European officials and their counterparts in North America created a framework about corruption through which to adopt a morally superior position over governments in the Global South.11
In 1997, Matthew Parris, a conservative South African-born member of the British Parliament, said, ‘Corruption has become an African epidemic. It is impossible to overstate the poisoning of human relations and the paralysing of initiative that corruption on the African scale brings’.12
This phrase – on the African scale – defines an attitude toward corruption that embodies both the long colonial history of theft and the neocolonial present of corporate malfeasance on the continent.
Yet those who moralise about African corruption have little to say when it comes to the criminality of corporate corruption. Take, for example, the German-South African retail giant Steinhoff International (1964–2023). In 2015, German officials raided the offices of Steinhoff Europe Group Services as part of an investigation into accounting fraud. As the scandal became too big to contain, with new investigations by contracted firms such as PricewaterhouseCoopers, and with Steinhoff’s senior management forced to resign, the South African parliament opened its own investigation of the firm, which found that businesses such as Steinhoff rely upon public funds for their investments, including – in the case of South Africa – the Public Investment Corporation.13
These public funds lost billions in Steinhoff’s eventual collapse. In 2019, South Africa’s Financial Sector Conduct Authority imposed an administrative fine of ZAR 1.5 billion (US $95 million) on the company for false, misleading, or deceptive statements to the market. This fine was later reduced to ZAR 53 million (US $3.4 million), a minuscule amount compared to the approximately ZAR 124.9 billion (US $6.9 billion) involved in fictitious or irregular transactions that substantially inflated Steinhoff’s profits and assets between 2009 and 2017.14
In the service of ‘investor-friendly policies’, these scandals are either underreported or treated as the exception rather than the rule. Yet this is a familiar story, from the accounting debacles at Enron Corporation (2001) and Arthur Andersen (2002) – which led to the largest known case of corporate fraud in history – to the faked emissions scandal at Volkswagen (2015).Top
Before Transparency
In the period of decolonisation and then of the formation of post-colonial states, Western-driven modernisation theory argued that corruption was not a ‘poison’ but an asset that helped shape the relationship between the ruling class and the state apparatus. Drawing from the experience of the United States, Robert K. Merton’s Social Theory and Social Structure (1949) provided the basis for this line of argument: that corruption made the relationship between state officials and the ruling class more intimate.15
In the 1960s, a range of influential scholars published important articles based on fieldwork in Africa and Asia to substantiate the claim that corruption ‘humanises government’, as Edward Shils wrote in 1960.16
Indeed, in his classic work Political Order in Changing Societies (1968), Samuel Huntington argued that corruption (or what he defined as ‘patronage from above’) in Africa, Asia, and Latin America had contributed to the creation of ‘the most effective political parties and most stable political systems’.17
In this Western modernisation literature, which dominated the worldview of multilateral institutions, corruption was treated as an utterly normal – even beneficial – form of economic interaction.
Modernisation theory played a considerable role in the new post-colonial states, but it was not the only approach to economic development. In 1955, the Bandung Final Communiqué made it clear that the most predatory aspect of the world economy’s neocolonial structure was the role of transnational corporations (TNCs), as they were known then (later called multinational corporations, or MNCs). Many of these TNCs, which emerged during the colonial era, had built up their capital stock through colonial theft and structured world economic relations to gain privileged access to raw materials in the former colonies as well as captive markets to which to export their expensive finished products. That is why the new post-colonial states centred the role of TNCs as they developed the platform of the New International Economic Order (NIEO): if these states were to establish sovereignty over their own territories, they had to reduce the power of TNCs either by regulation or restriction.18
Since many of these states lacked the capacity to develop an in-depth analysis of how these firms were organised or how they managed their financial transactions, they urged the UN Conference on Trade and Development (UNCTAD) and other United Nations bodies to do so. In 1974, the UN Centre for Transnational Corporations (UNCTC) was created for this purpose and began to build a database on the major TNCs’ operations in order to understand what was seen as the institutionalisation of corruption through novel manoeuvres of accounting.
At the same time, the post-colonial states understood the grave limitations they had inherited from their old colonial masters all too well, such as a hierarchical state apparatus designed to terrorise the colonised population and a bureaucracy that had been trained to serve the ends of colonialism, not the people. With the departure of the colonial bureaucrats, the now independent states had to train almost an entirely new administration, many of whose cadre came from impoverished or near-impoverished backgrounds (material conditions that increased the temptation to accept bribes). These states opened public administration institutes to develop the capacity of their new employees and to encourage them to work with the spirit of the national liberation struggles that had won them independence. Each state’s attitude towards public administration varied based on its class politics: in states with a more landlord-bourgeois character, the public administration institutes inherited the old colonial forms of bureaucracy without much revision, whereas states with a higher socialist character (such as China and Vietnam) emphasised combatting the forms of hierarchy amongst state officials. In Vietnam, for instance, Ho Chi Minh called upon the new workers to lead by example rather than corrupt society with bribery and extortion (Thi đua là yêu nước, yêu nướcthì phải thiđua, Ho Chi Minh said: ‘emulation is patriotism; patriots must emulate’).19
Since the material conditions to build a new kind of state simply did not exist, modern training and social pressure became the primary avenues through which to inculcate new values against a backdrop of low salaries and great temptations (the ‘creation of a new man’, as Ernesto ‘Che’ Guevara wrote).20
Yet, in the era ‘before transparency’, under pressure from TNCs and from Western modernisation theory which justified bribery, post-colonial governments struggled to produce new state values.
In the 1990s, a new argument emerged from the Western academy and multilateral organisations controlled by Western governments. This new theory, which moved from modernisation to neoliberal theory, suggested that the states in the Global South were the locus of corruption, that a smaller state would largely solve the problem, and that more pressure must be placed on these states in order to ‘discipline’ them. The idea that TNCs – now MNCs (multinational corporations) – could be corrupt completely vanished in this theory.
In 1992, under pressure from the US government, the UNCTC was integrated into UNCTAD, where its mandate was radically transformed. Instead of being a watchdog of these large corporations, the UNCTC put its resources toward helping MNCs enter southern markets. There was no more interest in producing a TNC Code of Conduct, the skeleton of which was relegated to a languishing draft from 1983 that is raised every few years and thereafter ignored in special sessions.21
In other words, the UNCTC became largely moot. What is truly remarkable is that the UNCTC and its code of conduct were sidelined by the West just when UNCTAD showed that 80% of global trade (in terms of gross exports) was linked to the international production networks of these mega corporations that operated across national boundaries, and that the market was becoming increasingly concentrated around these firms.22
That is largely why multilateral agencies make no mention of the private sector in their definition of corruption, which they describe as merely the ‘abuse of public office for private gain’.
In 1995, in place of the UNCTC’s TNC Code of Conduct, Transparency International released its annual Corruption Perceptions Index (CPI).23
The CPI was measured by a group of ‘experts’ (often private businessmen) who offered their subjective assessment of public sector corruption in various countries. Even when the CPI redefined corruption in 2010 as ‘the abuse of entrusted power for private gain, encompassing practices in both the public and private sectors’, it still ranked countries based on the perception of corruption in the public sector.24
The underlying neoliberal theory here is that corruption in the public sector corrodes the quality of investments in public goods, as corrupt officials seek to increase the volume of investments in order to increase bribes without considering how those investments align with broader national development goals. According to this theory, the correct course is more privatisation and less government oversight; its proposal for ‘transparency’ is merely to eviscerate regulatory state apparatuses and exaggerate the private sector’s ability to profit from public goods.
Under pressure from Transparency International and allied Western governments, the United Nations General Assembly adopted the UN Convention Against Corruption in 2003, which was replicated in the 2003 African Union Convention on Preventing and Combating Corruption. The UN and African Union (AU) treaties do not explicitly define corruption; rather, they make a list of offences that they suggest should be criminalised, which overwhelmingly focuses on the public sector (such as bribery of public officials).25
The UN convention, AU convention, and Transparency International’s CPI treat various types of theft as perfectly legal, including the legal theft of surplus value from workers, the illegal deductions of fines and fees used to penalise workers, and corruption legalised by accountants. By turning a blind eye to corporate corruption and focusing, instead, on bribes of public officials, these entities normalise the structured criminality of capitalism. Furthermore, the Western-driven UN Convention and the Western-based NGO (Transparency International) that have taken charge of this discourse of corruption have made it appear as though the West has transcended corruption and that corruption is primarily a problem in the Global South. This narrative exculpates the Western-based MNCs from blame and erases the long anti-corruption struggles in the Global South, a rich ethical tradition that is rooted both in religion and in common sense.
Meanwhile, the world of accounting has developed a new form of theft called ‘sustainability reporting’, which is emblematic of a broader trend that seeks ways to hide money from tax authorities and legalise corruption. This form of greenwashing allows accounting firms to disclose what they are doing to incorporate environmental, social, and governance (ESG) factors in order to discount their taxable income, and in so doing often providing false or misleading claims about the environmental benefits of a product, service, or investment.26
Furthermore, these accounting practices are not obligated to produce or follow a proper environmental assessment, nor are they concerned about the displacement of residents from an area of operation, degradation of ecosystems, misuse of agricultural land, consumption of fossil fuel energy, or harsh exploitation of labour. Despite rampant abuse by MNCs – the plastic pollution generated by Coca-Cola’s Africa branch; logging in Norwegian-owned Green Resources Mozambique, Tanzania, and Uganda; and wildly unethical harvesting of ‘ethical diamonds’ by De Beers, to name a few – accounting firms are allowed to investigate themselves and are absolved from accusations of corruption for this type of behaviour, which falls far outside the neoliberal understanding of corruption.27
Part 2:
How Neoliberalism Has Wielded ‘Corruption’ to Privatise Life in Africa
The Big Heist
Glencore and Zambia
From 2003 to 2023, Zambia’s exports to Switzerland (almost entirely consisting of semi-processed copper) totalled $61 billion – nearly half of the country’s total exports during this period ($145 billion).28
In other words, Switzerland, a tiny landlocked country thousands of kilometres away, has accounted for half of Zambia’s total export market for the last two decades. But it was not always like this.
From 1995 to 1999, for instance, Zambia’s exports to Switzerland, totalling $159 million, made up just 3% of the country’s total exports. This began to change in 2000, when a controlling stake of Mopani Copper Mines (MCM), which up to that point had been owned by the Zambian state, was purchased by Carlisa Investments, a company owned by the giant Swiss commodities trader Glencore AG and domiciled in the British Virgin Islands (itself a tax haven). Therefore, from a legal standpoint, MCM was not owned by Glencore, which allowed Glencore to comply with legal requirements to engage in ‘arm’s length transactions’ with MCM on paper (meaning that they are parties acting independently without influencing each other) while doing the opposite in practice. It is illegal for a company to purchase from and sell to itself (one of the few regulations in place to prevent MNCs from committing tax evasion). However, a company – such as Glencore – can create a subsidiary company – such as Carlisa – with whom it can carry out transactions as if it were a separate company ‘at arm’s length’ while still exercising full influence over the terms and prices in practice. Since it is the subsidiary – Carlisa, in this case – that owns a third company – MCM – Glencore’s transactions with MCM are technically between two independent entities. Efforts are made to ensure that there is no paper trail suggesting otherwise.
* We chose to refer to Glencore as the owner of the mine because in practice, and in common knowledge, Glencore is the owner of the mine. Since Glencore uses Carlisa to obscure its theft of wealth from Zambia, often by shifting its profits around to evade taxes through transfer pricing, we have chosen not to mirror their language of obscurity in this dossier.
As figure 1 shows, Zambia’s annual exports to Switzerland skyrocketed from virtually zero prior to Carlisa’s (i.e., Glencore’s) purchase of MCM in 2000 to nearly $4 billion in 2020. This pattern led many to suspect that Glencore was engaging in transfer pricing – shifting its profits from a high-tax jurisdiction (Zambia) to a low-tax jurisdiction (Switzerland) in order to pay the least possible amount of taxes and maximise its net profits. In other words, instead of having to pay 30% in corporate taxes on the sale of copper in Zambia based on the commodity’s true value, Glencore is able to price the value of copper sales near zero through its relationship with Carlisa and pay taxes on that artificially low amount. Then it pays corporate income taxes in Switzerland at a rate of 14.6% – nearly half the rate it would have had to pay in Zambia.29
In 2010, the Zambia Revenue Authority took Glencore to court for engaging in transfer pricing. Despite arguing that its transactions with MCM were ‘arm’s length’ transactions between two unrelated entities – MCM and Glencore – (after all, MCM was owned by Carlisa, not Glencore), Glencore lost and was instructed to pay a penalty in addition to lost taxes due to transfer pricing.30
After a costly, ten-year legal battle, the decision was upheld by Zambia’s Supreme Court – a landmark ruling that had wider implications for the future taxation of multinational corporations in Zambia and the region. Yet, even so, the penalty levied was a paltry $13 million – a far cry from the hundreds of millions, perhaps billions, of dollars that Glencore has spirited away from Zambia since 2000.31
Thabo Mbeki’s High-Level Panel on Illicit Financial Flows
In 2011, the United Nations Economic Commission for Africa (UNECA) established the High-Level Panel on Illicit Financial Flows, an outcome of a joint conference hosted by the AU and UNECA. In the words of the panel’s chairperson Thabo Mbeki, this was done in the interest of ensuring ‘Africa’s accelerated and sustained development, relying as much as possible on its own resources’ and ensuring ‘respect for the development priorities it had set itself’. After all, Mbeki said, ‘progress on this agenda could not be guaranteed if Africa remained overdependent on resources supplied by development partners’.32
The panel conducted in-depth analytical studies, interviews, and site visits over the course of several years before delivering a 120-page report to the AU in 2015. The report suggested that, even by conservative estimates, Africa was in fact a net lender of capital to the world – not a net borrower, as is the common perception. In other words, if not for theft on this grand scale, Africa would have all the necessary capital within its borders to meet its developmental aspirations.
The very same multinational corporations that had been billed as partners in Africa’s quest for development were making off with most of the continent’s wealth.
The report focused on illicit financial flows out of Africa, which it defined as ‘money illegally earned, transferred, or used’. ‘In other words’, the report continued, ‘these flows of money are in violation of laws in their [country of] origin, or during their movement or use, and are therefore considered illicit’. Some activities, though ‘not strictly illegal in all cases’, the report explained, could be categorised as ‘illicit’ since they ‘go against established rules and norms, including avoiding legal obligations to pay tax’.33
The report estimated that from 2000 to 2010, illicit financial flows out of Africa ranged between $30 billion and $60 billion per year, or a total of between $300 billion and $600 billion over the entire 10-year period. Yet, it was careful to state that the true magnitude of illicit financial flows were likely many orders of magnitude higher than the estimates provided, since, as Chairperson Mbeki wrote, ‘those responsible [for illicit financial flows] take deliberate and systematic steps to hide them’.34
For instance, another report on illicit financial flows, produced by Global Financial Integrity in 2015, found that Africa lost $675 billion in illicit financial flows from 2004 to 2013 while the developing world as a whole lost $7.8 trillion during this period, with these flows increasing twice as fast year-on-year as global Gross Domestic Product.35
Importantly, and perhaps without precedent for an inter-governmental analysis, the Thabo Mbeki Report, as it came to be known, revealed that the majority of illicit financial flows out of Africa (about 65%) were due to legally sanctioned commercial activities whose purpose was ‘hiding wealth, evading or aggressively avoiding tax, [and] dodging customs duties and domestic levies’.36
Multinational corporations’ standard way of limiting tax liabilities, the report explained, was to make false declarations, whether about undervaluing export receipts, overvaluing the costs of business with the ultimate purpose of limiting profits, or, in the extreme case, falsely declaring losses. One intriguing example in the report was that of an unnamed telecommunications giant which was causing the host government to lose an estimated $90 million annually through methods such as ‘diverting international calls and transforming them into local calls, with operators then making fake declarations of incoming international call minutes to reduce the tax payable to the [host] government’.37
Though many governments and multilateral agencies committed to implementing the reports’ recommendations when it was published in 2015, there is little to show for these promises as capital continues its unimpeded flight from Africa.
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Part 3: Five Ways to Make Money from Africa
In his 1963 book Africa Must Unite, Ghana’s first President Kwame Nkrumah wrote, ‘We have here, in Africa, everything necessary to become a powerful, modern, industrialised continent. United Nations investigators have recently shown that Africa, far from having inadequate resources, is probably better equipped for industrialisation than almost any other region in the world’. Nkrumah was referring to the United Nations’ Special Study on Economic Conditions and Development, Non-Self-Governing Territories (1958), which detailed the continent’s immense natural resources. ‘The true explanation for the slowness of industrial development in Africa’, Nkrumah wrote, ‘lies in the policies of the colonial period. Practically all our natural resources, not to mention trade, shipping, banking, building, and so on, fell into, and have remained in, the hands of foreigners seeking to enrich alien investors and to hold back local economic initiative’.38
How exactly do alien investors go about making money from ‘everything necessary’ for Africa’s sovereign development? We decided to put together a five-point guide that begins to answer that question.
Working with the IMF, World Bank, and World Trade Organisation to encourage (i.e., coerce) African governments to implement ‘investor-friendly’ policies. By ‘investor-friendly policies’, we mean the kinds of policies that make it easy to bring capital into Africa and use that capital to extract as much wealth as possible from the continent. Examples of such policies include privatising vital social services (health and education are key); enacting tax incentives that make it possible for investors to pay zero taxes; eliminating labour rights so that workers can be exploited as much as possible; and liberalising the host country’s capital account, which makes it easy to extract all the profits made in Africa.
Investing in the extractives sector, but not in manufacturing. The trick is to invest in those sectors that make it easy to make a quick buck while hiding behind a veil of opacity. There is no better sector to do this than extractives in Africa, whether drilling oil in Angola, collecting coltan in the Congo, or capturing natural gas in Mozambique. The sites of extraction in this sector are often in enclaves far away from capital cities and, therefore, away from the prying eyes of regulators and the citizenry, thus providing the necessary cover to extract as many resources as possible. Furthermore, investing in extractives rather than manufacturing promises the perpetual underdevelopment of Africa and, therefore, guarantees that the continent will forever be vulnerable to extractive capital – an investment that just keeps giving.
Engaging in transfer pricing. Transfer pricing is a time-tested technique developed by MNCs to expatriate as much profit as possible from the Global South. The subsidiary company in Africa ‘sells’ its products to the so-called parent company in the West, which subsequently sells the product to the ultimate beneficiary and, therefore, pockets the profits in the West. For example, a Swiss-owned mining operation in the Congo sells its cobalt to its parent company in Switzerland for a price that is nearly zero; the Swiss company then sells the cobalt to the ultimate buyer located at an electric car company in the US at the true value of the cobalt. The general idea with transfer pricing is to pay as little taxes as possible in Africa while booking the profits in the West and paying moderate taxes there.
Exaggerating production costs. Remember that since corporate taxes are levied on profits, anything that fictitiously reduces profits reported in Africa also limits the taxes that the corporation is obliged to pay. The example of transfer pricing is one way to reduce the profits reported in Africa. Another trick is to exaggerate costs incurred on the continent in ways that the authorities cannot verify. For example, a consulting company, located in the West, can provide expensive ‘consulting services’ to an African operation in a way that limits the profits in Africa and shifts them to the West. Another cost exaggeration gimmick is to grant a non-existent loan to an African subsidiary: interest payments on this fake loan serve to exaggerate production costs in Africa and, therefore, limit profits that must be reported there, instead shifting them to the West.
Hiring one of the Big Four accounting firms. The Big Four accounting firms – all British – are Deloitte, PricewaterhouseCoopers, Ernst & Young, and Klynveld Peat Marwick Goerdeler. Their stamp of approval is golden, and their audited reports are treated as legal documents. Instead of using information barriers (so called ‘ethical walls’) as they were intended – to ensure the independence and objectivity of the tax advice, consulting services, and auditing – these firms obscure the fact that, often, the same firm provides consulting services while also auditing the hiring company’s books – including auditing these consulting services. For instance, a firm proposes an operational optimisation plan or aggressive tax planning, and that same firm is the ‘independent auditor’ that oversees this plan and then issues an allegedly unbiased opinion that the financial statements are fair. Due to the reduction of state capacity, many African governments now rely upon the reports of accounting firms as uncontested statements of the truth about the operations of MNCs. The hefty fees demanded by the Big Four are very much worth the investment for MNCs, given the hundreds of billions of dollars that they save in taxes.
These five points allow MNCs to make off with Africa’s wealth while ensuring that the continent remains underdeveloped, and yet they are conceptualised as smart business strategies rather than a form of corruption or theft. These actions are legitimised by the hegemonic discourse of corruption, which has taken a decisively neoliberal direction that seeks to dismantle state regulation and protect MNCs. Actual corruption – which manifests both in the corruption of MNCs and the petty corruption of public officials – must be tackled head on, indeed with a clarity that does not exist at present.
Will there ever be an AU Convention on Corporate Corruption?
2 Daniel W. Barnes et al., Public Office, Private Interests: Accountability Through Income and Asset Disclosure (Washington, DC: World Bank Group, 16 March 2012), ix.
5 Mr Ke-young Chu and Mr Richard Hemming, Public Expenditure Handbook: A Guide to Public Policy Issues in Developing Countries (Washington, DC: International Monetary Fund, 1991).
6 Manenga Ndulo and Edna Kambala, ‘Transfer Mispricing in Africa: Contextual Issues’, Southern African Journal of Policy and Development 4, no. 1 (1 May 2018).
8 Syed Hussein Alatas, The Problem of Corruption (Kuala Lumpur: The Other Press, 2015), 64. This edition is built on the original 1968 text by Alatas called The Sociology of Corruption.
10 Ellen Gutterman, ‘The Legitimacy of Transnational NGOs: Lessons from the Experience of Transparency International in Germany and France’, Review of International Studies 40, no. 2 (April 2014): 391–418.
11 Barbara Crutchfield George, Kathleen Lacey, and Jutta Birmele, ‘The 1998 OECD Convention: An Impetus for Worldwide Change in Attitudes Toward Corruption in Business Transactions’, American Business Law Journal 37, no. 3 (2000).
12 Morris Szeftel, ‘Misunderstanding African Politics: Corruption and the Governance Agenda’, Review of African Political Economy 25, no. 76 (June 1998): 221.
15 Robert K. Merton, Social Theory and Social Structure. Toward the Codification of Theory and Research (Glencoe, Illinois: The Free Press, 1949).
16 Edward Shils, ‘Political Development in the New States’, Comparative Studies in Society and History 2, no. 3 (April 1960): 385. Based on fieldwork in a number of African states, a number of scholars developed the argument of Merton and Shils, see M. McMullan, ‘A Theory of Corruption’, The Sociological Review 9, no. 2 (July 1961) and Colin Leys, ‘What Is the Problem with Corruption?’, The Journal of Modern African Studies 3, no. 2 (August 1965): 215–230.
17 Samuel Huntington, Political Order in Changing Societies (New Haven and London: Yale University Press, 1968), 70.
19 See Vijay Prashad, ed., Selected Ho Chi Minh (New Delhi: LeftWord Books, 2022).
20 For more, see Ernesto ‘Che’ Guevara,‘Socialism and Man in Cuba’, in Ernesto ‘Che’ Guevara: On Socialism and Internationalism (New Delhi: LeftWord Books, 2020), 83, https://thetricontinental.org/text-che/.
24 Bill De Maria, ‘Neo-Colonialism Through Measurement: A Critique of the Corruption Perception Index’, Critical Perspectives on International Business 4, no. 2/3 (2 May 2008): 184–202; Faiz-ur-Rahim and Asad Zaman, ‘Corruption: Measuring the Unmeasurable’, Humanomics 25, no. 2 (June 2009): 117–126.
31 A 2021 Oxfam study estimated that Glencore was underpaying its taxes in Zambia by about $100 million per annum between 2011–2018. See Daniel Mulé and Mukupa Nsenduluka, ‘Potential Corporate Tax Avoidance in Zambia’s Mining Sector? Estimating Tax Revenue Gains from Addressing Profit Shifting or Revising Profit Allocation Rules. A Case Study of Glencore Mopani Copper Mines’, Oxfam Research Backgrounder series, 9 December 2021, https://www.oxfamamerica.org/explore/research-publications/potential-corporate-tax-avoidance-in-zambias-m
Chinese President Xi Jinping and Sri Lankan President Anura Kumara Dissanayake shake hands during a signing ceremony at the Great Hall of the People in Beijing, China on Wednesday, Jan 15, 2025. Aaron Favila/Pool via REUTERS
BEIJING – China and Sri Lanka agreed on more investment and economic cooperation on Wednesday as China’s President Xi Jinping met recently-elected Sri Lankan President Anura Kumara Dissanayake in Beijing.
The countries signed 15 cooperation documents, including agreements on economic and technological development and aligning China’s ‘Belt and Road Initiative’ with Sri Lanka’s 2030 digital economy blueprint.
Specifics of the deals were not disclosed at the signing ceremony.
Dissanayake’s visit to his country’s largest bilateral lender comes after first travelling to regional rival India.
Dissanayake won a big majority in September’s election, pledging to tweak the terms of an International Monetary Fund rescue package, and on his leftist coalition’s plans to fight poverty and graft.
Sri Lanka had been moving closer to China under the previous Rajapaksa government, leaning heavily on Chinese lending to build highways, a port, an airport and a coal power plant as part of Xi’s flagship cross-continent Belt and Road infrastructure initiative.
Colombo secured a preliminary $10 billion bilateral debt deal rework with key lenders including China, Japan and India last June and a $12.5 billion bondholder deal in December.
However, it needs direct agreements with China EXIM Bank and China Development Bank to lock in the deal to continue demonstrating progress to the IMF in restructuring its foreign debt to secure further disbursements from a $2.9 billion IMF bailout programme.
“I am willing to work with you, Mr President, to chart a new vision for the development of bilateral relations and promote new and greater achievements in China-Sri Lanka’s friendship and cooperation,” Xi told Dissanayake on Wednesday, speaking at the Great Hall of the People.
Welcoming more Chinese investment, Dissanayake told his host: “China has supported important and valuable infrastructure development in Sri Lanka via the Belt and Road Initiative and China has been and remains a key development partner.”
But during his visit to Delhi in December, Dissanayake struck a wide range of energy and security cooperation agreements with the other regional superpower, signalling his new government wants to become less reliant on Beijing.
Sri Lanka’s economy has begun a tentative recovery, but the high cost of living is still a critical issue for many, especially the poor.
China, the world’s second-largest economy, could give an economic helping hand by buying more Sri Lankan goods, of which it mostly buys tea, clothing, chemicals and other commodities, according to U.N. COMTRADE data, and through encouraging more Chinese tourists to consider holidaying there.
“It is necessary to strengthen people-to-people exchanges between the two sides and enhance new ties between the two peoples,” Xi told Dissanayake, according to the Chinese state broadcaster. REUTERS
The People’s Republic of China has played a vital role in the social and economic development of Sri Lanka for decades, President Anura Kumara Dissanayake said after meeting Chinese President Xi Jinping today.
Dissanayake said his visit will strengthen bilateral collaborations for the benefit of both countries and their people.
President Dissanayake, who is currently on a four-day state visit to China, held an official meeting with Chinese President Xi Jinping this afternoon (15) at the Great Hall of the People.
Upon President Dissanayake’s arrival at the Great Hall, he was warmly received by President Xi Jinping. The welcoming ceremony was conducted with great honour, including a ceremonial gun salute, according to the President’s Media Division (PMD).
Following the initial cordial discussions between the two leaders, bilateral talks commenced. During the discussions, President Xi Jinping emphasized China’s readiness to work closely with Sri Lanka in ushering in a new era of development.
He also recalled the longstanding relationship between the two countries, highlighting the close friendship that has existed for decades. President Xi reiterated China’s commitment to continuing its cooperation with Sri Lanka in the future, the PMD said.
Upon concluding the official meeting, both sides proceeded to sign several key Memoranda of Understanding (MoUs) aimed at strengthening collaboration in areas such as economy, social development, and industry.
Minister of Foreign Affairs, Foreign Employment, and Tourism Vijitha Herath, Minister of Transport, Highways, Ports, and Civil Aviation Bimal Rathnayake, and Director General of the Government Information Department H.S.K.J. Bandara were also part of the delegation accompanying President Disanayake.
The international lifestyle magazine ‘Vogue’ has given Sri Lanka a glowing endorsement by claiming the Island as this winter’s hottest travel destination. This recognition from the prestigious magazine will certainly help Sri Lanka in more than one way.
Revenues earned from tourism and foreign remittances are the two main single factors that are contributing to strengthening our economy. Therefore, high recommendations from highly influential sources as Vogue not only boost tourist arrivals. It will greatly support a deeply troubled economy.
How is the Sri Lankan tourism faring?
Sri Lanka’s tourism industry has many reasons to feel optimistic. Year 2024 recorded over two million (2,053,465 tourist to be exact) tourist arrivals. This is a 28 percent increase compared to 2023. In the month of December alone 248,592 visitors came to Sri Lanka. According to the Central Bank of Sri Lanka, we earned USD 3,168.6 million. This is a significant 53.2% increase from our earnings in 2023.
Though 2025 is still young, tourist arrivals continue to show an upward trend. In the first nine days of this month, 70,944 visitors have been recorded.
While these figures are encouraging, we still have not reached the numbers we had before the Easter Sunday attacks in April 2019. Just the year before, Sri Lanka recorded 2.3 million tourists.
Our tourism industry has been through a lot. Terrorism that gripped this Island nation for nearly 30 years took a toll on tourism. However, its rise since the annihilation of terrorism in 2009 was mercuric. This growing industry took a devastating blow with the Easter Sunday attack. The global pandemic thereafter kept the sector down on its knees. The anti-government protests hit tourism hard and refused to let the industry help the collapsing economy.
Yet throughout all these misadventures, Sri Lanka’s tourism remained resilient. Especially during the pandemic, we saw the industry coming up with very innovative solutions.
However, while our industry has shown immense courage and resilience, we have fallen short on imagination. Our tourism is being sustained by mostly the natural beauty, wild life and archaeological sites. In every other aspect pertaining to adventure that travellers seek, we still have only a skeleton of it. When we think of enhancing the industry, we look at increasing our accommodation capacities.
If we are to compare ourselves with other popular tourist destinations as Singapore or the Maldives, we can see that we are falling short in a very bad way. Even a frequent visitor to Singapore will see that the city nation’s landscape is constantly changing. It’s a country with very little landmass. Yet, every inch is devoted to its economy.
Everything in Singapore has been made into an adventure. For instance, compare our Dehiwela zoo against the Singapore zoo, the night life safari, the underwater world and the bird park where one can breakfast” with colourful parakeets. Compare our museums with archaeological artifacts with Singapore’s museums for history and science for children.
We are looking at the numbers of tourist arrivals and feel satisfied to see it edging beyond two million. Today we have a three million USD industry whereas Singapore is enjoying approximately an USD 21 billion industry.
The sad truth is that our tourism is simply acting as a buoyant to our sinking economy. If it is to actually strengthen our economy, then we need to look beyond just the arriving numbers. We have to attract tourist with high spending capacities and give them plenty of reasons to spend. This is the strategy of Singapore.
Remittances saving the day
Foreign remittances from migrant workers that come to Sri Lanka as cross -border payments to friends and family have also been a lifesaver to our economy. In 2023, remittances to Sri Lanka through formal banking channels increased by 57 percent. By June 2024, workers’ remittances increased by 11.4 percent from the same period in 2023. Last December, a significant increase of USD 613.8 million was recorded, which was USD 44.1 more than what was received during December 2023 and a jump from the remittances received in November 2024, which was USD 530.1 million.
Our main sources of remittances are from countries as Saudi Arabia, Qatar, India, Italy, China, Japan, Australia, and Canada. Most of our migrant workers in these countries are employed as skilled or semi-skilled workers. Therefore, most of our migrant workers do not earn high wages and forced into compromises just so that they can save enough to send money home.
Foreign remittances was a revenue that saved the Indian economy. The Indian migrant worker was also either skilled or semi-skilled. However, most of those who secured overseas jobs, especially in the computer field, never stayed in that job for long. Citing experience from their current job, they would apply for the next level in the corporate ladder. While on the job, they would be single-mindedly focussed on learning everything they could learn about it. Today, Indians fill a significant portion of top level executive positions in the corporate world.
Sri Lanka too must learn this lesson from India. If we are to depend from foreign remittances, then we need to improve our education programmes so that our workers can move from skilled to highly skilled categories.
Can our earnings support our imports?
The USD 613.8 million we received as foreign remittances in December 2024 may seem like a lot of money. However, we must not forget that we are an import dependent country. Even the flimsiest polytene bag is made from imported materials.
Our biggest bane is our dependency on oil imports. This literally runs our entire economy. In an average month, we spend around USD 200 million on fuel. For instance, in the first four months of 2024, we spent USD 648.7 million on oil imports.
We do have renewable energy sources in the form of hydro electricity power plants as well as solar and wind. However, this has not made much of a dent in our dependency for fuels and this will deepen as the restrictions on vehicle ban is lifted. The excise duties ranging from 200 percent to 300 percent have been imposed on the imported vehicles. While this will improve the State revenue, the fuel bill will continue to rise.
Instead of addressing this glaring issue, the Government has embarked on the ambiguous programme, The Clean Sri Lanka project. According to PM Harini Amarasuriya, the objective of this programme is to, integrate and facilitate all efforts made in the country with social, moral and environmental principles to restore Sri Lanka as a developed nation. Our ultimate goal is to establish good governance concepts and establish values and ethics for interactions and human relations at all levels of our society, thereby creating a beautiful nation of smiling people.”
So far this programme has not tackled vehicles that emit toxic fumes, which is a clear sign of fuel wastage and a major contributor to environmental pollution as well as a health hazard. Instead, the police are pouncing on public buses and three wheelers for their vehicle modifications items. How removal of these would contribute to a clean Sri Lanka is unclear.
However, it has already forced a factory in Bandaragama that produce these modifications under a government-approved license to close down. Consequently, 80 lost their livelihoods overnight. What this will do for the spirit of individuality, entrepreneurship and economy is already written on the wall.
By Shiran Illanperuma Courtesy Tricontinental: Institute for Social Research
Positioned at the geographic and political heart of the Indian Ocean, Sri Lanka is the epicentre of the 21st century struggle for regional influence.
U.S. Department of State, Integrated Country Strategy – Sri Lanka, 2022
On 23 September 2024, Anura Kumara Dissanayake (referred to locally as AKD) was sworn in as the 9th executive President of the Democratic Socialist Republic of Sri Lanka. AKD is the first President of Sri Lanka to not belong to the political duopoly of the nationalist Sri Lanka Freedom Party (SLFP) and comprador United National Party (UNP), and their offshoots which have ruled the country in turns since the 1950s.
In the first elections held since the collapse of the Sri Lankan economy in 2022 and its default on external debt, AKD secured 42.31% of the popular vote, while his right-wing rivals Sajith Premadasa and Ranil Wickremesinghe secured 32.76% and 17.27% respectively. A month later, on 15 October 2024, AKD’s party the Jathika Jana Balawegaya (National People’s Power – NPP) won a thumping 61.56% of the popular vote in the general elections.
In contrast to his fiery pre-election speeches, which lashed out at the corruption of establishment politicians, AKD struck a measured tone in his first speech as President. Acknowledging the significant challenges that his government inherits, AKD said that the ‘profound crisis’ facing the country could not be resolved by a single government, political party, or individual. ‘I am not a magician. I am simply an ordinary citizen of this country, with both strengths and limitations, knowledge and gaps,’ AKD said. Now in power, AKD must temper messianic expectations and govern under conditions given to him. All this while commanding a party with little experience in holding the reins of government, let alone withstanding the daily harangues that can be expected from the local and foreign agents of imperialism.
Following these elections, mainstream media outlets moved rather recklessly to label AKD and the NPP government as, ‘Marxist’, ‘Marxist-leaning’ or ‘Neo-Marxist’. It is true that the core constituent party of the NPP is the Marxist-Leninist Janatha Vimukthi Peramuna (People’s Liberation Front – JVP), of which AKD is also the leader. However, the main representatives of this force have been far more cautious in how they label themselves. In 2023, AKD compared the NPP to a national liberation movement. On the eve of elections this was moderated to the more neutral sounding ‘national renaissance’. Some intellectuals close to the party have described the NPP as ‘Left-populist’. More recently, JVP General Secretary Tilvin Silva has said that, ‘Ours is not a leftist government, but one of leftists, democratic, and progressive forces’.
The NPP’s caution to label itself gives an indication of the delicate balance of political forces, both within the party and in the country at large. The fledgling government has already shown its inclinations and limitations. On foreign policy, the government has formally applied for membership in BRICS, although neither the President, Prime Minister nor Foreign Minister attended the summit in Kazan. In his first speech to the diplomatic community, the NPP foreign minister Vijitha Herath reiterated Sri Lanka’s call for an immediate ceasefire in Gaza, alongside support for the establishment of an independent State of Palestine. On the domestic front, one of AKD’s first acts was to instruct the Treasury to provide subsidies for farmers and fisherfolk. The government has also scrapped plans to privatise national carrier Sri Lankan Airlines and public electricity provider Ceylon Electricity Board.
However, the risk of lapsing into neoliberal immobility remains ever present. While there may be a new President and a slew of new faces in Parliament, the officials in charge of the Treasury and Central Bank of Sri Lanka remain the same. The government has chosen to continue with an ongoing IMF program and its path of fiscal consolidation. It has also continued with a disastrous debt restructuring agreement negotiated by the preceding government. According to IMF Director Kristalina Georgieva, ‘The Sri Lankan authorities have reaffirmed their determination to persevere with their reform agenda and put the economy on a path of sustained and high growth’.
To understand Sri Lanka’s present conjuncture, and the dilemma’s facing the new government, a concrete analysis of the preceding years is required. The main factors for analysis are the interplay between Sri Lanka’s geopolitical significance in the US Indo-Pacific Strategy, as well the country’s legacy of colonial underdevelopment and indebtedness.
Sri Lanka as epicentre of Indo-Pacific Strategy
Shortly after the conclusion of Sri Lanka’s Civil War in 2009, the US Senate Committee on Foreign Relations, then led by senator John Kerry, published a report titled Sri Lanka: Recharting U.S. Strategy After the War. The report argued that policymakers in Washington tended to ‘underestimate Sri Lanka’s geostrategic importance’, insisting that, ‘the United States cannot afford to lose Sri Lanka’.14 These statements were partly in reference to the Western criticism of Colombo’s handling of the war against the separatist group Liberation Tigers of Tamil Eelam (LTTE). Amid Western pressure to pursue peace talks, including a US arms embargo, Colombo forged closer ties with China, Russia, Iran, and Libya, who provided the arms and financing needed to clinch victory against the LTTE. During the final years of the war, the JVP played a pivotal role in mobilising public support, insisting that peaceful negotiations were impossible with the LTTE. Given a history of repeated failed peace talks and ceasefires, this was a persuasive argument to many war-fatigued Sri Lankans. Thus, Washington’s fear of ‘losing Sri Lanka’ needs to be understood in the context of Sri Lanka’s domestic nationalist upsurge against separatism, as well as the country’s foreign policy swing towards forces in the Global South.
Sri Lanka’s economic and foreign policy shifted to the right after the 2015 elections, as the nationalist SLFP split and one faction formed a coalition with the UNP, whose leader Ranil Wickremesinghe became Prime Minister. Despite criticising Sri Lanka’s human rights record in diplomatic forums, the US began a concerted effort to improve military engagement with Sri Lanka’s armed forces, specifically with the Navy. This entailed training and joint military exercises, and the donation of navy vessels. The US also sought to pressure the government in Colombo into signing a trifecta of agreements, which Sri Lankan diplomat Tamara Kunanayakam warned were ‘part and parcel’ of the US Indo-Pacific strategy, and, if signed, would violate Sri Lanka’s sovereignty and drag the country into ‘a war not of its own making’. These agreements were:
The Millennium Challenge Corporation (MCC). Political economist W.D. Lakshman (who served as governor of the Central Bank of Sri Lanka from 2019 to 2021) warned that the MCC’s provisions for the privatisation of publicly owned land would pave the way for a land grab by multinational companies. A government committee appointed to review the MCC agreement recommended rejecting it unconditionally, noting that certain stipulations would be in violation of the constitution.
The Acquisition and Cross Servicing Agreement (ACSA). ACSA, which provides the US military with logistical support and refuelling services in Sri Lanka was first signed in 2007. The agreement was never tabled in Parliament despite pressure from the Left. ACSA was renewed under hasty and similarly opaque circumstances in 2017. The new agreement was said to be open-ended and over ten times as long as the previous one.
The Status of Forces Agreement (SOFA). SOFA was first signed by the Sri Lankan government in 1995, and a new draft was sent to the government in 2018. A leaked version of the draft revealed that US security forces and contractors, as well as personnel of Department of Defence, would enjoy legal immunities equivalent to diplomatic staff.
The JVP constituted part of the popular opposition to these agreements. For example, in an interview in 2020, AKD said that his position on the MCC was ‘a big no’, citing concerns over land privatisation. However, the political formation that most effectively drove and capitalised upon popular opposition to these neocolonial proposals was the Sri Lanka Podujana Peramuna (Sri Lanka People’s Front – SLPP), a big-tent party founded by former President Mahinda Rajapaksa, which included Sinhala nationalists and elements of the Old Left (namely the Lanka Sama Samaja Party founded in 1935 and the Communist Party of Sri Lanka founded in 1943). In the 2019 presidential elections, the SLPP candidate Gotabaya Rajapaksa (Mahinda Rajapaksa’s brother) scored a comfortable victory in a campaign that was inflected with a combination of economic grievances and concerns over the erosion of the country’s sovereignty.
Following the 2019 elections, US pressure on Sri Lanka intensified. A government-appointed commission recommended that the country refrain from signing the proposed MCC agreement with the US. In 2022, the US sanctioned Sri Lanka’s Chief of Army Staff Lt. Gen Shavendra Silva. The same year, US Secretary of State Mike Pompeo visited Sri Lanka for a 12-hour trip, during which he told the media that the ‘Chinese Community Party is a predator’. This blunt and aggressive posturing by Pompeo made perfectly clear that the US viewed Sri Lanka as key part of its Indo-Pacific Strategy and New Cold War against China. Indeed, the US State Department notes ‘more than 60,000 ships – including two- thirds of the world’s seaborne crude oil, half of its container ships, and all U.S. Navy vessels passing between the 5th and 7th Fleets – annually transit Sri Lankan waters’.
In March 2022, on the eve of the protests that would go on to oust President Rajapaksa, US Under Secretary of State for Political Affairs Victoria Nuland visited the country to meet with civil society. Rajapaksa’s ouster bore some similarities to the protests that overthrew Sheikh Hasina in Bangladesh, constituting a combination of internal factors and genuine grievances over governance failures and economic conditions, as well as hybrid war tactics by the US and its network of soft power agencies to gain advantage through the crisis. As is the case in many of these situations, external interests capitalised on internal contradictions. Following Rajapaksa’s ouster, right-wing leader Ranil Wickremesinghe was appointed interim President. Under his leadership, the US had donated more navy cutters to the Sri Lankan military. Months later, Sri Lanka appeared further subordinated to US imperialism after it sent one of its own navy vessels to the Red Sea in order to help the US fight the Ansarullah government in Yemen.
Sri Lanka in the International Sovereign Bond Debt-Trap
Sri Lanka was the original poster child for the myth of the Chinese debt-trap, which has now been thoroughly debunked by both local and foreign experts. The truth is that the cause for Sri Lanka’s indebtedness can be traced back to the colonial structure of its plantation economy, which has only been augmented through additional dependencies on tourism, remittances, and low-value added manufacturing. Despite attempts by nationalist and left-leaning governments, Sri Lanka has failed to achieve food and energy self-sufficiency, or to set in motion a self-expanding process of industrialisation.
The end of Sri Lanka’s Civil war in 2009 coincided with the Global Financial Crisis (GFC) and the Great Recession. Sri Lanka was relatively insulated from economic downturn as the end of the war brought about a honeymoon period as tourism and property speculation boomed. The Obama administration’s bailing out of the banks through Quantitative Easing unleashed a wave of speculative investments to the Global South, including countries like Sri Lanka. Meanwhile, China’s going out in the wake of the GFC allowed the Sri Lankan government to engage in further fiscal expansion through an ambitious program of infrastructure development, focusing on roads, ports, energy, and not just a few white elephants. However, these shortcomings in the mobilisation of Chinese development finance are more attributable to Colombo’s lack of vision and coherent industrial policy, than any malice on the part of China. As Chinese envoys have often emphasised, all projects were undertaken at the request of the Sri Lankan government, and shortcomings have usually been due to the lack of domestic capacity to manage projects efficiently.
As a lower-middle income country, Sri Lanka found itself increasingly locked out of concessionary finance from multilateral organisations, and so began turning towards private lenders. The country launched its first International Sovereign Bond (ISB) in 2007. However, it is the rightward shift in policy following the change of government in 2015 that completely transformed Sri Lanka’s debt profile, as the government binged on over USD 10 billion worth of ISBs. Therefore, on the eve of Sri Lanka’s default in 2022, only 13.67% of external debt was owed to China. By contrast, 42.43% of external debt was to private bondholders, like Blackrock and Ashmore. To make matters worse, this private debt was of much higher interest rates than bilateral debt from China, accounting for over 70% of interest payments in 2021.
When the COVID-19 pandemic hit, the vulnerabilities of Sri Lanka’s economic structure became painfully apparent. The lack of foreign exchange inflows due to the collapse of tourism and remittances, combined with inflation caused by global supply chain crunches and commodity price booms, brought the economy to its knees. Following the ouster of President Gotabaya Rajapaksa in 2022, the governor of the Central Bank of Sri Lanka announced a ‘pre-emptive default’ on external debt. In the months that followed, the interim President Ranil Wickremesinghe used the chaos to enforce a dizzying array of shock therapy style reforms, unthinkable under conditions of normality. These included:
Austerity. Withdrawals of fuel subsidies and cost reflective pricing of energy. This contributed to plunging thousands into poverty and off the electricity grid.
Domestic debt restructuring. A restructuring of domestic debt that singled out the pension funds of the working class while allowing domestic capitalists, bankers, and bondholders to walk away scot-free.
Central Bank independence. Legislating Central Bank independence, which would prevent the Central Bank of Sri Lanka from purchasing government debt. Concretely, this means that the government is significantly restrained from countercyclical spending in the event of an external shock. Additionally, it could weaken the government’s ability to control interest rates. The act severs monetary sovereignty as it forces the country to rely exclusively on private lenders for financing.
External debt restructuring. An external debt restructuring agreement negotiated with the mediation of the IMF has been described by local critics as a sell-out. The agreement includes swapping existing bonds for newer bonds, some of them being novel financial instruments.
Macro-linked bonds – These are bonds, whose interest rates will be linked to Sri Lanka’s economic performance. As GDP growth rates increase, so too do the interest payments. In effect, Sri Lanka must pay its creditors more for growing faster.
Governance-linked bonds – These bonds tie the interest rate to the government’s implementation of anti-corruption legislation. There is a reasonable concern that this amounts to a kind of blackmail on a sovereign government to adjust its administrative structure according to the whims of international finance capital.
The Rise of the NPP
The NPP coalition includes 21 civil society organisations including trade unions. However, the prime mover within the party is undoubtedly the JVP. The JVP was established by Rohana Wijeweera in 1965, largely through the youth wing of the Ceylon Communist Party (Maoist), which in turn was the result of a 1964 split in the undivided Communist Party of Ceylon that mirrored the tragic Sino-Soviet split.
Till date, the JVP was targeted, and their ranks were decimated twice. First, following an attempted youth insurrection in 1971, and again during another insurrection from 1987-1989. The latter resulted in the assassination of Wijeweera along with the entirety of the party’s politburo, except for Somawansa Amarasinghe. Building the party from scratch, Amarasinghe went on to lead the party on the path of reform and was instrumental in taking JVP into electoral politics. During Amarasinghe’s leadership, the JVP dabbled in electoral coalitions, first supporting the SLFP’s Chandrika Bandaranaike Kumaratunga in 1994, then SLFP’s Mahinda Rajapaksa in 2005, and finally joining the UNP in supporting Army Commander Sarath Fonseka’s bid for Presidency in 2010.
It was in 2014 that the next big shift came, as AKD was made the new leader of the JVP. He has attempted to chart a more independent and centrist path for the party, rejecting coalitions with established political parties and personalities. Following the JVP’s 7th National Congress, the party released a document which proposed a national policy framework for a ‘modernised and industrialised Sri Lanka’. In 2019, the National People’s Power was launched, with the JVP at its core. The broader coalition of NPP helped open JVP’s doors to the middle-class that traditionally was wary of the Party’s radical history. This included professionals, academics, artists, public intellectuals, and even traders and business owners.
The NPP’s success lays in this ability to overcome the JVP’s previous sectarianism and incorporate a broader coalitions of class forces, while at the same time remaining independent of established political parties. For the most part, NPP’s recent electoral campaign avoided a frontal assault that identified the enemy as capitalism, imperialism, or even neoliberalism. Rather, the NPP chose to focus on the vaguer category of corruption, which struck a chord among large portions of the middle-class who felt that the immediate cause of their plight was bad governance. The NPP was able to locate elements of the petty bourgeois that did not have direct access to state power through the established patronage networks of the main parties. This combined with a generational shift in politics helped the JVP construct the NPP as its own ‘civil society’ front. The hunger of this young petty bourgeois to reproduce itself as a class constitutes the strength and weakness of the NPP.
On the election campaign trail, the NPP faced much scrutiny from both the rightist and leftist elements which honed on its lack of an articulate economic plan or strategy. While the NPP platform is explicit about its intention to retain and strengthen public ownership of energy, finance, healthcare and education, questions regarding policy specifics were often dodged with the promise that life would improve with the eradication of corruption. That said, the NPP’s main economic promise was to establish a ‘production-based economy’ that prioritises farmers, fishers and Small and Medium Enterprises (SMEs). Furthermore, the NPP pledged to renegotiate the debt restructuring agreement with the IMF and bondholders in order to ease the tax burden on the people, to establish a development bank, and initiate an expansive science and technology policy to modernise the economy. Concretising these disparate promises into a viable developmental program continues to be the main challenged for the NPP.
One of the most remarkable features of the NPP’s political campaign was its mobilisation of women. This was conducted not in any paternalistic manner but by women party cadres themselves. Rural party meetings often featured women speaking to women, about the specific ways in which economic hardships affected women. This, combined with the party’s sympathies towards people’s economic plights and their sharp vitriol against the perceived corruption of establishment politicians, helped drive an emotive bottom-up campaign. Women in these meetings took the message home, influencing their children, who would go on to popularise the party’s platform on social media platforms, including Tik Tok. In Sri Lanka, where labour force participation for women (FLFPR) is extremely low, 29.6%, they are particularly sensitive to price swings in essential commodities. Meanwhile, the women who work do so predominantly in the public sector, or in export-oriented sectors such as plantations and export processing. This makes political conscious women extremely sensitive to economic shocks, and a powerful political resource once organised.
Struggle for the 21st Century
Sri Lanka’s dilemma is a striking example of the close link between neoliberal debt bondage and subordination to the interests of US-led militarism. In other words, the struggle for sovereignty and development requires a political, economic and even military strategy. In the past, various administrations in Sri Lanka have attempted compromise, thinking that concessions in one area would enable advances in others. The reality is that there is little possibility for negotiation with an increasingly irrational imperialism bent on maintaining US preponderance of power.
The fact is that the NPP governs under conditions favourable to the right. This is to say that the NPP inherits a state that is deeply in debt to Western finance capital, with a military that has been gradually encroached by the US through use of carrot and stick. Moreover, the networks of knowledge production and distribution in Sri Lanka remain downstream of monopoly capital. The JVP itself has only been able to climb into power by moderating rather than dialling up its past socialist and anti-imperialist rhetoric, meaning it does not necessarily have a popular mandate to carry out a revolutionary break from the status quo. Yet even the moderate mandate of the NPP, to improve social welfare and establish a production-based economy, cannot but bring them into confrontation with an imperialism which seeks to stymie the development of the productive forces.
To borrow from the US State Department’s own choice of words, Sri Lanka today stands at the ‘epicenter’ of the struggle for the 21st century. It is a struggle between peaceful development and militarised underdevelopment. Between productive investment for the benefit of the working majority, or debt bondage for the benefit of a ruling minority. While the country appears hemmed in on all sides, entangled in US imperialism both militarily and financially, it would be too simplistic and nihilistic to suggest that there are no alternatives. This struggle for sovereignty and development is today being waged across the darker nations, from the Bolivarian countries in Latin America, to the Sahel region in Africa, and by the Palestinians in West Asia. The struggle of the Sri Lankan people too, will play its role in defining the trajectory of this century.
Prior to 1977 the country had an Island wide system of paddy stores for the storage of paddy purchased by the Paddy Marketing Board under the Guaranteed Price Scheme (GPS). This well run complex was disused by the UNP government in their frenzy for privatization. The stores network was given away to loyalists for other purposes or simply abandoned. The GPS too did not function allowing the private sector to dominate the purchase and milling of paddy leading to the development of an oligopoly (mafia) of paddy and rice marketing. The present government is resolved to operate the GPS effectively. For this the government has decided to restore the Paddy Stores network.
A valid criticism of the operation of the former Paddy Stores was that the store keepers managing the sores were corrupt.They had the discretion to manipulate the system to their benefit. They could delay the purchase and payments. In the determination of the moisture content they colluded with the farmers to buy low quality paddy. Another criticism was that the GPS and sale to the government stores did not give the farmer the best price. In most situations the best price is obtained by holding on to the paddy for some time. But the problem is that the farmers do not have the storage capacity to hold the produce until prices improve. Especially at the time of harvest, the prices are pushed down by buyers. The GPS and the government Paddy Stores can cater to only a limited percentage of the market and operates mainly as a check price mechanism.
In Africa, this problem has been addressed with a system that may be adapted by Sri Lanka. For example, in Kenya the system is established under the Warehouse Receipt System Act, 2019. The primary objective of the WRS Act is to promote the development of a county network of privately or publicly managed warehouses that have the capacity to issue warehouse receipts. http://kenyalaw.org:8181/exist/rest//db/kenyalex/Kenya/Legislation/English/Acts%20and%20Regulations/W/Warehouse%20Receipt%20System%20Act%20-%20No.%208%20of%202019/docs/WarehouseReceiptSystemAct8of2019.pdf
Under the WRS, warehouse receipts are issued by warehouse operators as evidence that specified commodities of stated quantity and quality have been deposited at particular locations by named depositors. The depositors are entitled to sell the produce at any time of their choice. The warehouse operator holds the stored commodity by way of safe custody. The receipts may be transferable, allowing transfer to a new holder, a lender (where the stored commodity is pledged as security for a loan) or a trade counterparty which entitles the holder to take delivery of the commodity upon presentation of the WR at the warehouse. The depositor may be a producer, farmers group, trader, exporter, processor, or any individual or corporate entity. WRS system operates in many other countries in East and Sub-Saharan Africa.
In Sri Lanka it may be possible to lease out the abandoned paddy stores to the private sector or cooperatives to operate a WRS scheme. The private sector may also be encouraged and given incentives to open more WRS stores.
The African WRS system serves to provide for the establishment and registration of warehouses associated with the issuing of warehouse receipts and the licensing of warehouse persons; to provide for the storage of agricultural commodities in registered warehouses; to provide for the setting up of a system of inspection, grading and weighing of such agricultural commodities; to provide for a negotiable warehouse collateral receipt system.
