Archive | January 23rd, 2016

Austerity, Saudi-style: cheap oil nudges Riyadh toward economic reform

NOVANEWS

In the third in our series, we ask whether Saudi Arabia’s response to changing times will also lead to political transformation.

The Faisaliya mall in Riyadh
The Faisaliya mall in Riyadh: ‘Business seems slow, but the there is little serious sign of a gathering economic crisis.’ Photograph: Hasan Jamali/AP

In the Faisaliyah mall in central Riyadh, the call to midday prayers brings down the shutters on shops selling luxurious global brands and the basement mosque fills up. Customers are routinely searched at the entrance – a woman guard in a niqab, black abaya and white gloves sits by the metal detector. Cafes and restaurants have mixed “family sections” to ensure privacy. Harvey Nichols is having a holiday sale.

Business seems slow, though visitors look in vain for any serious sign of Saudi Arabia’s gathering economic crisis, born of the lowest oil revenues in decades and subsidy cuts to reduce a $98bn budget deficit – 15% of the country’s GDP. The price of petrol has just gone up by 60%, though it is still dirt cheap, and VAT and other taxes are planned – significant novelties in a country where most people have not known such things in their lifetimes.

“There isn’t much economic pressure here because we deal with rich people,” laughs Tamer, an affable Egyptian who lost his clerical job with a Saudi construction company and now sells timeshares in Dubai. Beyond the Faisaliyah’s marbled halls, however, many government projects have stopped, expenditure has been slashed and rents have risen sharply. The housing shortage is a major preoccupation.

Women shop for jewellery in a Riyadh mall
 Women shop for jewellery in a Riyadh mall. Photograph: Fayez Nureldine/AFP/Getty Images

Khaled, a taxi driver touting for custom at Riyadh’s international airport, manages to keep his family comfortable with the help of an army pension, but he worries what will happen when all subsidies end in five years. Mohammed, a fifty-something from Medina who has 10 children, moonlights on top of his undemanding government job, and his wife also works in an effort make ends meet. “Look,” he says. “There’s a war in Yemen. Of course it causes economic problems, but it’s not so bad.”

For some, however, it is. Just a few miles from the city centre, near walled royal estates, mothers and children huddle outside over makeshift fires to save electricity and take the chill off a winter’s evening. Poor Saudis, badly educated and ill-equipped to compete with foreign workers, are not a contradiction in terms. An estimated 2 to 4 million of King Salman’s 21 million subjects live beneath the poverty line – a challenge to every cliché about the oil-rich kingdom, and to prospects for future reform.

Salman’s first year on the throne saw oil prices drop to below $35 a barrel, and even if they recover longterm, demand is shifting. The growing scale of shale oil production in the US is a major factor. Iran’s re-entry into the market after the lifting of sanctions related to its suspected nuclear weapons programme will also boost an existing supply glut. Mohammed is right. The conflict in Yemen is reportedly costing $6bn a month and shows no sign of ending any time soon. By any reasonable assessment, leaner times lie ahead.

“It was OK when you could throw money at a problem,” muses Hisham Alhegelan, the CEO of a solar energy company. “But when you have to start counting the pennies, the pennies matter.” Austerity, Saudi-style, means the wealthy are talking about emptying their swimming pools, swapping gas-guzzling SUVs for something greener and even turning off the air conditioning when they travel abroad.

An estimated 2 to 4 million Saudis live beneath the poverty line.
 An estimated 2 to 4 million Saudis live beneath the poverty line. Photograph: AFP/Getty Images

Change is being driven by the king’s ambitious and powerful son, the deputy crown prince and defence minister, Mohammed bin Salman. The idea is to raise non-oil revenue without hindering competitiveness and causing unrest. “Everyone used to say subsidies were a political taboo and that if you increased the price of water, gasoline and electricity there would be revolution,” says John Sfakianakis, a Greek economist who has advised the Saudi government. “Well, people are not out in the streets, but that doesn’t mean the government will be complacent and forget about the average citizen.”

After years of over-spending, the 2016 budget bears the stamp of Bin Salman’s quest for innovation. There is also rare transparency, including the revelation that military and security expenditure makes up 25% of the total. Talk is rife of improved governance and the use of key performance indicators to monitor a multi-year strategy of the kind employed by Dubai and Abu Dhabi. Ministers have come and gone with unusual speed, generating wry jokes about brisker management style.

News that even the state oil behemoth Saudi Aramco may be sold off has underlined the scale of an effort that will include an increase in the private provision of healthcare and education. The word khaskhasa, Arabic for privatisation, is being bandied around. Vast tracts of land could be up for grabs, along with lucrative untapped mineral resources. Tackling corruption and job creation are also being highlighted.

None of these ideas are new. Subsidy reform has been discussed for years and VAT came up in 2012, but Salman’s predecessor, King Abdullah, then still raking in healthy oil revenues, vetoed it. Now a sales tax is on the way, by agreement with the other five members of the Gulf Cooperation Council. So are “sin” taxes on fizzy drinks, which may help to tackle the country’s obesity problem. Further subsidy cuts seem certain. Key details are expected with the publication of a heavily flagged “national transformation plan”, drawn up with the help of McKinsey and other blue-chip consultants.

“With some tweaking they can do a lot to raise revenue from non-oil sources and use it to invest and pay salaries,” says Sfakianakis. “They can’t let themselves believe that one day oil prices will rise again and the Saudi economy will recuperate. They don’t want to let luck or Allah decide their future.”

Saudis recognise the universal truth that economic reform will have political consequences. “People will expect something in return,” says the historian Mohammed Al Zulfa, a veteran of the appointed Majlis al-Shura or consultative council. “The government takes all the oil revenue, and there is huge government expenditure. But if Aramco does go to the private sector and you introduce taxes, people will ask ‘what’s in it for me?’

Shoppers at the al-Hayatt mall in Riyadh.
 Shoppers at the al-Hayatt mall in Riyadh. Photograph: Fahad Shadeed/Reuters

“If the king says the Majlis al-Shura has the authority to question ministers or check the budget, then maybe things will be different. But unfortunately our society is not ready for that. Saudi education does not promote the right to participate. We need more time.”

The view that change needs to be slow and cautious appears to be widely shared. “No one talks about income tax so the representation-taxation equation is inapplicable in the Saudi case,” argues Saud al-Tamamy, a political scientist at King Saud University. “And the word representation has a different meaning here.”

If there is to be greater public participation in decision-making it is likely to be incremental, agrees Haifa al-Hababi, a Riyadh architect who stood in the recent municipal elections – the first time Saudi women were allowed to vote. Failure to win a seat has not deterred her, and she is already demanding more accountability from her local council.

“In Saudi Arabia and the Gulf we are selfish,” she said. “It’s all about what people get from the government. We treat the government as a father who must look after us. Prince Mohammed is doing what Thatcher did in Britain. That is a part of the solution, though it is not just an economic problem but a political one too.”

Saudi dissidents, some of them Muslim Brotherhood sympathisers who call for constitutional monarchy, are behind bars, intimidated into silence or in exile, so it is hard to gauge the level of support for far-reaching change. Democracy is not discussed on the street, and the elite appear to have no interest in it.

The maximum that seems likely is “the habit-forming effect” of limited political participation rather than any “grand departures”, in the words of one academic expert. “Why would you want representation if you have a good standard of living and the government is responsive?” asks Alhegelan. “If we were a democracy I don’t think I’d live here because it would be dominated by fundamentalists. Look around the countries that were autocracies and tried to be democracies and are now in ruins. That was the Arab spring. And this is Saudi Arabia.”

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Saudi king’s son drives reforms and war in a year of anxiety and change

NOVANEWS

Not everyone is persuaded by the brave new vibe emanating from Riyadh’s palaces since King Salman came to the throne. In the first in a series on Saudi Arabia, we look at the relationship between its rulers and its people

A giant poster in Riyadh depicts King Salman bin Abdulaziz, centre, Crown Prince Mohammed bin Nayef, left, and Deputy Crown Prince Mohammed bin Salman.
A giant poster in Riyadh depicts King Salman bin Abdulaziz, centre, Crown Prince Mohammed bin Nayef, left, and Deputy Crown Prince Mohammed bin Salman. Photograph: Fayez Nureldine/AFP/Getty Images

On the hoardings that line the highways between Riyadh’s glittering towers, an elderly man looks down, half sternly, half benignly. To the right of King Salman bin Abdulaziz is his nephew, Crown Prince Mohammed bin Nayef – middle-aged and bespectacled. To the monarch’s left sits his favourite son, Mohammed bin Salman , the youthful deputy crown prince. “We pledge allegiance to our wise leadership,” declares the Arabic slogan under the portrait. All three men are wearing traditional ghoutra headdresses and flowing robes.

It is a standard declaration of public loyalty to the Saudi royal family as it marks the end of a turbulent year since King Salman came to the throne. Significant change has come to the kingdom, its neighbourhood and the wider Middle East.Collapsing oil prices, war in Yemen, the US tilt towards Iran, sectarian tensions and the rampaging jihadis of Islamic State have all left their mark. “Saudi Arabia is more assertive, less predictable, and probably more nervous than it was,” says a Riyadh-based diplomat. “We are seeing surprising moves.”

The French president, François Hollande, right, welcomes the Saudi defence minister, Prince Mohammed bin Salman, at the Elysée Palace in Paris in June.
 The French president, François Hollande, right, welcomes the Saudi defence minister, Prince Mohammed bin Salman, at the Elysée Palace in Paris in June. Photograph: Alain Jocard/AFP/Getty Images

Salman, now 80, will be the last of the sons of King Abdulaziz Ibn Saud, the founder of the country that bears his family’s name, to use the title Custodian of the Two Holy Mosques – a reference to Mecca and Medina. The choice of Bin Nayef as crown prince last spring means that power will finally pass to the next generation.

But in recent months it is Bin Salman – defence minister as well as economic supremo – who has been making headlines: leading the Yemen campaign and initiating reforms to cope with a ballooning budget deficit and the end of the oil age and, some suggest, the autocratic rentier state it sustained.

The 30-year old is as tall as his revered grandfather, but chubbier; when their images were morphed together they went viral on social media. He is attracting enthusiasm at home and attention abroad. Born in 1985, he is close to the median age in Saudi Arabia. “He actually knows what PlayStation is,” says a middle-aged admirer, with a laugh, and who, like many interviewed, does not wish to be named.

Efficiency, innovation and independence are the watchwords of a carefully managed public relations campaign that slips easily into sycophancy in Saudi media coverage. “People who are normally very critical are all singing the same song,” says a veteran foreign observer. Still, not everyone is convinced. “Yes, he is smart, but he has too much power and not enough experience, and that worries people,” says a female Saudi academic.

A Saudi woman attends the International Book Fair in the Red Sea city of Jeddah.
 A Saudi woman attends a book fair in the Red Sea city of Jeddah. Photograph: AFP/Getty Images

And transparency is still in short supply. Gossip about the monarchy is amplified by Twitter, used by more Saudis per capita than any other people in the world.Rumours and allegations about excesses, corruption and infighting, mostly made anonymously, are impossible to verify, though Riyadh’s chattering classes have heard them all. “There are certainly princes who are afraid of Bin Salman’s power,” says the diplomat. “They are distancing themselves so he will get the blame if things go wrong.”

Resentment at royal wealth and privilege is easy enough to observe even in casual conversation – for example about the high price of land being bought up from princes to build the Riyadh metro, a huge infrastructure project that disrupts traffic and gridlocks the centre of the sprawling capital. “The Al Saud are the best of the worst,” says a middle-aged government employee. “There are 40,000 of them. But without them it would be like Yemen here.” The vicious war next door, launched last March, is widely seen as a matter of self-defence, though there is unease about its enormous cost and duration.

Conventional wisdom is that the ruling family will never fall on its sword because the history of the Al Saud and their rivals, riven by conflict, has driven home the lesson that internecine strife must be avoided. “It is normal in all families to have disagreements,” argues Talal Rizk, a banker. “It’s the same with the Al Saud but you can see that they respect each other.”

France’s prime minister, Manuel Valls, left, speaks with Crown Prince Mohammed bin Nayef as he arrives in the Saudi capital, Riyadh, in October.
 France’s prime minister, Manuel Valls, left, speaks with Crown Prince Mohammed bin Nayef as he arrives in the Saudi capital, Riyadh, in October. Photograph: Kenzo Tribouillard/AFP/Getty Images

Bin Nayef, 56 – “the man who holds the country together” in the colloquial Arabic expression – remains popular, not least because he defeated al-Qaida when Osama bin Laden’s followers were at their most dangerous a decade ago. Western governments, anxious to maintain counter-terrorist cooperation, like him too.

But his young deputy is stealing his thunder – spectacularly. Saudis speculate quietly that King Salman may eventually abdicate in favour of his son and bypass Bin Nayef, who has no sons of his own. The precedent was established last year when the king removed his half-brother Prince Muqrin and appointed Bin Nayef crown prince. It is a grand title, but clearly no longer a job for life.

Saudis scorn foreigners who are fascinated by the machinations of their secretive rulers. “You love this stuff in the west, it’s like the Thousand and One Nights and Game of Thrones,” says a young intellectual, with a laugh. But most believe that self-interest will keep the family together. And predictions of the kingdom’s demise – through internal strife, crisis or bankruptcy – have been around since its foundation in 1932. So far the doom-mongers, including wishful-thinking opponents of the monarchy, have been proved wrong.

Not everyone is persuaded by the brave new vibe emanating from Riyadh’s palaces. Repression is said to have increased in the last year, though no figures are available. Critics are reluctant to speak out. And the palpable sense of excitement is qualified by awareness of the limits of change. “This country is at a turning point,” says Mohammed al-Zulfa, a historian and former member of the Majlis al-Shura (consultative council). “We have a new generation that expects a lot from the government. The government wants to meet the needs of the people – but there is still resistance from the religious establishment.”

Men sitting outside a coffee shop in the Atturaif district on the outskirts of Riyadh, which is part of a major development project shepherded by King Salman.
 Men sitting outside a coffee shop in the Atturaif district on the outskirts of Riyadh, which is part of a major development project shepherded by King Salman. Photograph: Fayez Nureldine/AFP/Getty Images

Salman’s predecessor Abdullah, promoted the advancement of women and higher education, confronted powerful ulema (religious scholars), and tested the foundational bargain struck with them by his father, Ibn Saud. But the present king, who was governor of Riyadh for decades, has always been close to the clergy. And there is more at stake than the absence of cinemas and other leisure opportunities that drive hordes of Saudis to spent their weekends in Dubai or Bahrain where they can relax, drink alcohol and live less austerely. Bin Salman’s ambitions for developing tourism on the pristine Red Sea coast are unlikely to go down well either.

“Religious opposition to reform helped create Daesh [Islamic State],” Mazen Sudairi, a businessman, says bluntly. Ahmed al-Issa, the education minister – who has written a book criticising school curriculums – is credited with an effort to loosen the grip of ultra-conservative Wahhabis. Still, one of Salman’s first acts was to replace Abdullah’s choice to head the body that runs the religious police – known as the Haya – with a more hardline figure. Displays of “over-zealous conduct” have been dealt with, said Prince Turki al-Faisal, a senior royal and former intelligence chief. “But no Saudi ruler will ever abandon or disband the Haya,” he insisted. “It is an essential part and parcel of sharia law.”

Nor do signs of change extend to capital punishment. Salman’s first year on the throne saw a record number of executions – including recently of 43 convicted al-Qaida terrorists and the dissident Shia cleric Nimr al-Nimr, who was portrayed by the government as a violent and sectarian subversive. These judicial killings were widely supported as necessary to deter Isis and Iran – seen as the kingdom’s most dangerous enemies.

Bahraini protesters hold placards bearing portraits of prominent Shia cleric Nimr al-Nimr during protests against his execution by Saudi authorities.
 Bahraini protesters hold placards bearing portraits of prominent Shia cleric Nimr al-Nimr during protests against his execution by Saudi authorities. Photograph: Mohammed Al-Shaikh/AFP/Getty Images

Saudis often complain that their country is misunderstood and misrepresented by the international media. But there is a realisation in some quarters that improving understanding needs more than slick PR. Its appalling reputation for human rights abuses has been reinforced by the cases of the free-thinking blogger, Raif Badawi, sentenced to be flogged, and the Palestinian poet Ashraf Fayadh, who is facing death for the crime of “apostasy”. Friends believe he is being punished for posting a video online showing the religious police in Abha lashing a man in public.

Liberals are dismayed. “It’s so damaging, and for nothing,” sighs one. Yet few blame King Salman or “the two Mohammeds”, or question their “wise leadership”. Instead, they point the finger at intolerant judges seeking to advertise the rigours of sharia law. “Badawi is a bone thrown by our government to appease the conservatives,” says a Jeddah businessman who insists on anonymity to spell out this sensitive point publicly. “Extremists they kill.”

 

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Saudi Arabia and Isis: Riyadh keen to show it is tackling terror threat

NOVANEWS

In part two of our series, we examine the uneasy relationship between Riyadh’s tough stance on jihadis and its reputation as an incubator of violent extremism.

Saudi crown prince and defence minister Mohammed bin Salman with troops.
 Saudi crown prince and defence minister Mohammed bin Salman last month announced the creation of an anti-terror alliance of Sunni states. Photograph: HO/AFP/Getty Images

 in Riyadh

Ha’ir prison, in the desert south of Riyadh, is not an attractive place. It is surrounded by concrete walls and watchtowers, as befits a facility run by Saudi Arabia’s internal security service. It holds terrorists, dissidents and others deemed a danger to the state, whose green and white crossed swords and palm tree emblem is stamped everywhere around the sprawling compound.

Armed guards check vehicles and ID cards in a chicane of barriers by the main gate. Military police jeeps block access from the nearby highway. Two weeks ago,Islamic State threatened to destroy the prison after the execution of 47 men, mostly convicted al-Qaida members. Seven had been inmates at Ha’ir before they were taken away to be beheaded or shot. Last summer, a young Isis supporter blew himself up outside.

Visiting journalists, however, are welcome, greeted by coffee, cakes and PowerPoint presentations about conditions for the 1,700 prisoners and the programmes to rehabilitate them. It is part of a Saudi government effort to demonstrate its determination to tackle terrorism at a time when Isis, known in Arabic as Daesh, has become a grave threat to the Middle East and far beyond, thousands of miles from its strongholds in Syria and Iraq.

Ha’ir seems well run. The detention blocks are clean and light, the heavy cell doors painted an incongruous lilac. Pot plants line the corridor. Interrogation rooms are equipped with CCTV, a desk and chairs, and a thick steel ring welded to the floor for securing manacled prisoners. Special rooms, equipped with double beds, are available for conjugal visits. There is even a children’s playground.

It is natural to suspect that Ha’ir, one of five prisons run by the Mabahith security service, is designed to impress and mislead. Human rights groups say conditions are worse in general criminal prisons. Allegations of torture are widespread. “Many prisoners do complain about their treatment,” confided a visiting Saudi from another institution. Inmates, in any event, seemed happy to speak.

“My views have changed,” said Saud al-Harbi, a 30-year-old with a wispy beard who is coming to the end of a 12-year sentence for attempting to leave the country to fight in Iraq, and for “contact” with a wanted man. “I saw the pictures of Abu Ghraib [showing the abuse of Iraqi detainees by US soldiers] and that was why I wanted to go,” he said. “I was young then.”

Moaz, who has been held without trial for 11 months, was arrested after returning voluntarily from Syria, where he had gone to fight Bashar al-Assad with the Islamist rebel group Ahrar al-Sham. “It turned out to be Muslims killing Muslims,” he said. “That wasn’t what I wanted.”

Saudi Arabia’s tough stance on terrorism sits uneasily with its reputation. The homeland of Osama bin Laden and 15 of the 19 hijackers on 11 September 2001, struggles to counter the widely-held belief that it is an incubator and exporter of murderous fanaticism. Its intolerant Salafi or Wahhabi ideology is shared by Daesh, though the jihadis’ thinking includes modern Islamist strands alien to the conservative kingdom. Riyadh dismisses Isis as khawarij or deviant, though beheadings and other sharia punishments are common to both. Daesh uses thetakfiri doctrine of excommunication to justify the slaughter of Shias and Yazidis.

Having defeated al-Qaida inside their borders a decade ago, killing and capturing hundreds -including many of those executed on 2 January – the Saudis are fighting Isis, and want to be seen to be doing so. They carried out airstrikes with Barack Obama’s anti-Isis coalition in 2014, but abandoned them at the start of the war in Yemen. Last month, the young deputy crown prince, Mohammed bin Salman, announced the creation of an anti-terror alliance of Sunni states, though that was greeted sceptically as more about PR than substance. “It’s about building a system,” Prince Turki al Faisal, the former Saudi intelligence chief, told the Guardian.

Isis clearly threatens Saudi Arabia. Abu Bakr al-Baghdadi, its self-proclaimed caliph, has singled it out for abuse and designated the Nejd and Hijaz regions as Islamic wilayat or provinces. The ruling Al Saud family is vilified as Al Salul, a reference to a seventh-century figure depicted as outwardly embracing Islam while conspiring against the prophet Muhammad.

In 2015, Isis carried out 15 attacks, which killed 65 people. The worst was a suicide bombing of a Shia mosque in the eastern province village of al-Qudeeh that killed 23. It was presumably mounted to foment sectarian hatred. Most attacks have been by so-called lone wolves. “Isis wanted to create an organisation but failed to do so,” said General Mansour al-Turki, the interior ministry spokesman. “They could not recruit trained people like al-Qaida.”

Members of the public are encouraged to call the confidential 990 phone line, which gets 180 tips a week about suspected terrorists, Turki said. Less transparent methods are also employed. “The Mabahith listen to everyones’ phones and will arrest you if you even mention the word Daesh,” said a middle-aged man in Riyadh. “They really are tough on terrorism,” said a woman academic. “Other laws are barely enforced in this country.” Thousands have been arrested under a vaguely  defined law

An image of King Abdullah in Riyadh

 
Other countries are said to have more Isis fighters in Syria as a proportion of their population than Saudi Arabia. Photograph: Fayez Nureldine/AFP/Getty Images

Saudi Arabia still supports anti-Assad groups in Syria, including the Islamist Jaysh al-Islam. It changed policy, however, over fears of “blowback” from returning fighters – a repeat of what happened when officially sanctioned jihadis came back from Afghanistan in the 1990s. In spring 2014 they proscribed Isis and Jabhat al-Nusra, al-Qaida’s Syrian affiliate, and banned nationals from fighting abroad. Crackdowns on financing and charity collections have been effective, the control of firebrand preachers less so. Western diplomats increasingly complain of an “outdated stereotype” of Saudi tolerance for terrorism.

An estimated 3,000 Saudis have been to Syria since 2011, and about 700 have returned home. Officials like to note that in proportion to the country’s 21m citizens, fewer Saudis fight with Isis than do Tunisians, with their French colonial background, secular republican regime and relatively successful experience of the Arab spring.

“Yes, there are people in Saudi Arabia who sympathise with Daesh, but there are in other Muslim countries too,” said Turki. “Two to three thousand Tunisians didn’t come out of a so-called Wahhabi upbringing. Or Chechens or Dagenstanis.” Others talk about “Belgiqistan”, a scathing reference to the role of Europeans of Arab or Muslim background in Isis atrocities.

About 5% of the population, or some 500,000 people, support Isis, according to independent polling. An element of this support is admiration for a Sunni group that is uncompromisingly in its fight against Iran and Shias.

Non-official Saudis acknowledge the scale of the problem and blame the influence of extremist clerics in mosques and schools. “I used to oppose capital punishment,” said Mazen Sudairi, an economist. “But then I saw what Daesh does and I changed my mind.” Liberals fret about the effect of uncritical Qur’anic teaching. One young mother was horrified when her English-speaking child was denounced as a kafir or non-believer by a classmate, and came home from school asking why his Christian nanny had no religion. “We are a Muslim country but we need to moderate Islam,” says Fawziya al-Bakr, an education specialist. “The government realises that this violent takfiri ideology is a danger to our own society.”

There is also criticism of the celebrated munasahat or counselling programme, in which teams of social workers, psychologists and imams rehabilitate former militants. It claims a success rate of 85%, including with prisoners who have done time at al-Ha’ir. “With Isis, we need to be more open-minded,” says Saud al-Sarhan, a researcher at the capital’s King Faisal Centre. It is a common complaint. “People who went through the munasahat went on to fight again,” said Haifa al-Hababi, a Riyadh architect. “You can’t trust people who have been brainwashed.”

Whether by “brainwashing” or conviction, the jihadis who fight the Saudi state are sticking to their guns. Evidence for that comes from a story about Fares Al Shuwail al-Zahrani, an al-Qaida spiritual leader who was among those most recently executed. Zahrani reportedly rejected attempts by government-approved Islamic scholars to persuade him to renounce his views. But he also refused “to board the sinking ship of Al Saud, for their ship carries nothing but airplanes for America”.

It does not look like a problem that is going to be solved any time soon. “Saudi Arabia is still fertile ground for radicalisation and there is a sizeable minority that is sympathetic to what Daesh says,” a Riyadh-based diplomat says. “Only a very small minority would be prepared to act, but the number of terrorist acts is almost as bad as it was in the al-Qaida years. Now they attack Saudi security personnel and Shias, just like in Iraq. Cells are very small, of two, three, four people, and though they are not easy to detect, it is hard for them to act. In the mid-2000s, the authorities were caught off guard. Now they are better prepared. They have arrested a lot of people, though it’s a fragile situation. For the time being, they are managing.”

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ZIO-WAHHABI CHIEF CLERIC PROHIBITS CHESS PLAYING

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ZIO-WAHHABI CHIEF CLERIC PROHIBITS CHESS PLAYING; QUACK EXTOLS IGNORANCE

image:http://en.abna24.com/upload/image/2015/06/20/alalam_635457669854647139_25f_4x3_55853946d3288.jpg

Zio-Wahhabi Grand Mufti of Al-Shaykh ‘Abdul-‘Azeez bin ‘Abdullah Al-Shaykh, pronounced the playing of chess to be “haraam” or prohibited in Islam.  The cleric issued a fatwaa which formalized Wahhaabism’s rejection of the game of chess which Arabs proudly consider to be a part of their culture, after all, the word “checkmate” in English is from the Arabic “Shaykh Maat” (the shaykh is dead).  And, in that regard, we, too,  wish this so-called Mufti, this shaykh, a quick and painful death.  According to this quack, it is a waste of time to play chess.  It is tantamount to gambling and inevitably causes the competitors to develop hostility to one another.  Can anyone believe this?

He has allowed the marriage of girls under 15 years of age.  He has issued fatwas calling on all good Wahhabis to destroy churches.  A true pillar of tolerance and love, he has suggested the extermination of Shi’is and their progeny, the Alawis, Druze, Zaydis and Ismailis.

His religious disinterest in dental hygiene is best depicted by a full photo of his upper front teeth.  With gums so infected with fly and rat droppings, it is almost miraculous that he even can show his ivories.  We have heard it said that the Mufti demanded that his dentures be made to look as though his teeth were rotting so his followers wouldn’t think he was an hypocrite.  Only the finest dental technicians in Germany were able to recreate that unique appearance of teeth so fouled by decades of sucking on used sandals, sniffing around ladies’ tents………..chewing on his own elbow or biting into used toilet brushes, that it’s a wonder how his formidable immunity to filth kept him alive.

The institution of the mufti in Islam is a venerable one.  Most muftis actually come across as intelligent and well versed in all matters literary, jurisprudential and exegetical.   The word mufti is a noun derived from the root, fa-ta-wa, specifically from the 4th Form Verb, aftaa/yuftee – to issue a religious decree or opinion.  To reach this level of authority, you have to have credentials which are acquired over a span of a lifetime during which you gain the respect of your peers and garner the interest of the ruling classes of the land.  Like the Shi’ite “Marji’”, the mufti is looked to for guidance when a religious question arises.  During Ottoman times,  the sultans looked to their “shaykhulislam” for religious opinions.  Catholics, like Muslims,  often seek the good counsel of their priest who may contact the Vatican to see how to approach a particular religious inquiry.

The office of the mufti in Arabia, however, is something completely different.  It is essentially a mating of vultures who have educations which would qualify them as “illiterate”, “crude”, “educable” and “mildly retarded”.  If a Saudi mufti were applying for Social Security Disability Benefits, he would find the evidentiary threshold quite easy since it would be improbable for any Administrative Law Judge not to recognize the active disease which prevents Wahhabis from muttering anything comprehensible or uttering one grammatical sentence.  Once you have accepted Wahhabism, it is almost the same as becoming a “devout” Evangelical or Pentecostal – which begs the question as to whether Ted Cruz isn’t on Social Security.  It is a wasting disease.  It has no cure but the Grim Reaper.

There is talk about a revolt in Saudi Arabia against the ruling Wahhabist savages.  If the insurgents are looking for a good reason to put that stinking House of Saud to death, let them look to the chess board.  Let them look at the opprobrium and shame they have brought to the great religion of Islam.  Good grief! Isn’t there one Muslim out there who is willing to denounce this cult of ignorance?  ZAF

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Kenyan activists want regional parliament to act on Burundi

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Burundi Solidarity Group Memorandum to East Africa Legislative Assembly

The activists say the current political crisis has caused immense suffering to the citizens and urgent intervention is needed. They accuse the government of gravely breaching the Constitution of Burundi and the Arusha Accords.

Burundi Solidarity Group Memorandum to East Africa Legislative Assembly
Kenyan activists want regional parliament to act on Burundi

From: Burundi Solidarity Group
To: The East African Legislative Assembly
Subject: Concerns about gross human rights violations in Burundi

BACKGROUND INFORMATION

Burundi has experienced violations in the period after the incumbent decided to run for office on a contentious third term. Some of the citizens were outright opposed to the process, citing the Burundi Constitution and the Arusha Peace and Reconciliation Agreement. The protests both in the streets and also through judicial process, media and intellectual debates experienced violent crackdown from the state.

Following the disputed elections held on 21 July 2015, media houses, journalists and activists reported threats, violations and displacement of persons. Exiled civil society actors and friends of Burundi in the East Africa formed a solidarity group to investigate allegations of crimes against humanity, document and report. In the process of documentation, there are real concerns of gross human rights abuses and violations that the solidarity group would like to present some of the findings and concerns to EALA.

SITUATION ANALYSIS

Concerns on increasing political prisoners in Burundi

Forced disappearances of persons by the state

Violent attacks on peaceful protestors and specific attacks on women

The Imbonerakure (ruling party militias) arrest and kill people who are said to be supporting the opposition

Reprisals on journalists, media houses and human rights defenders

The Burundi Solidarity Group composed of the Coalition for Constitution Implementation Kenya (CCI Kenya), Coalition for Grassroots Human Rights Defenders (CGHRD), Bunge la Mwananchi (BLM), Rights Promotion and Centre (RPP), Kenyan Peasants League (KPL), Wamama Sasa na Uongozi, World March of Women (WMW), Pan- African Grassroots Women Liberation, Dandora Must Change, Unga Revolution and the People of Kenya hereby present this memorandum to East African Legislative Assembly (EALA) regarding the ongoing Burundi Crisis.

The Burundi Solidarity Group ask EALA to perform its role under Article 8(5) of the Treaty which stipulates that the laws of the Community take precedence over national laws on matters of the Community and pass legislations compelling the Burundi Government to respect the Arusha Peace Agreement.

BURUNDI CONSTITUTION

By targeting the HRDs, activists and opposition supporters with killings, executions, rape, arbitrary arrests, segregations and injuries and by rigging elections, the Burundi Government has contravened:

• Article 13 of the Burundi Constitution that states that all Burundians are equal in [their] merits and dignity. All citizens enjoy the same rights and have right to the same protection of the law. No Burundian may be excluded from the social, economic or political life of the nation because of their race, of their language, of their religion, of their sex or of their ethnic origin.

• Article 14 of the Burundi Constitution that states that all Burundians have the right to live in Burundi within peace and within security and that they must live together in harmony, while respecting the human dignity and tolerating their differences.

• Article 15 of the Burundi Constitution that states that the Burundi Government is constructed on the willingness of the Burundian People and that the Burundi Government is responsible before them and respects [their] fundamental freedoms and rights.

• Article 19 of the Burundi Constitution that states that the rights and the duties proclaimed and guaranteed, among others, by the Universal Declaration of the Rights of Man, the International Pacts relative to the rights of man, the African Charter of the Rights of Man and of Peoples, the Convention on the Elimination of all Forms of Discrimination concerning Women and the Convention relative to the rights of the child are an integral part of the Constitution of the Republic of Burundi and that these fundamental rights are not subject to any restriction or derogation, except in certain circumstances justifiable by the general interest or the protection of a fundamental right.

• Article 24 of the Burundi Constitution stating that every woman, every man has the right to life

• Article 25 of the Burundi Constitution stating that every woman, every man has the right to the freedom of their person, notably to the physical and psychical integrity and to the freedom of movement and that no one shall be submitted to torture, or to cruel, inhuman or degrading penalties or treatments.

• Article 31 of the Burundi Constitution stating that the freedom of expression is guaranteed and that the State respects the freedom of religion, of thought, of conscience and of opinion

• Article 32 of the Burundi Constitution stating that the freedom of assembly and of association is guaranteed, as well as the right to found associations or organizations in accordance with the law

• Article 49 of the Burundi Constitution stating that no citizen may be forced into exile.

• Article 75 of the Burundi Constitution stating that multipartism is recognized in the Republic of Burundi.

• Article 96 of the Burundi Constitution stating that the President of the Republic is elected by universal direct suffrage for a mandate of five years renewable one time.

ARUSHA PEACE AND RECONCILIATION AGREEMENT

By targeting the HRDs, activists and opposition supporters with killings, executions, rape, arbitrary arrests, segregations and injuries and by rigging elections, the Burundi Government has contravened:

• Article 1 (1) of Protocol II of the Arusha Peace and Reconciliation Agreement for Burundi that states that all Burundians are equal in value, dignity, are entitled to equal rights, equal protection of the law and that no Burundian shall be excluded from the social, economic or political life of the nation on account of her/his race, language, religion, gender, or ethnic origin.

• Article 1 (2) of Protocol II of the Arusha Peace and Reconciliation Agreement for Burundi that states that all Burundians are entitled to live in Burundi in security and peace, and must live in harmony with one another while respecting one another’s dignity and tolerating one another’s differences.

• Article 1 (3) of Protocol II of the Arusha Peace and Reconciliation Agreement for Burundi that states that Burundi Government shall be based on the will of the Burundian people, shall be accountable to them, and shall respect their fundamental rights and freedoms.

• Article 2 (1) of Protocol II of the Arusha Peace and Reconciliation Agreement for Burundi that states that Burundi shall be a sovereign independent nation, united but respecting its ethnic and religious diversity and recognizing the Bahutu, the Batutsi and the Batwa, who make up the one nation of Burundi.

• Article 3 (1) of Protocol II of the Arusha Peace and Reconciliation Agreement for Burundi that states that the rights and duties proclaimed and guaranteed inter alia by the Universal Declaration of Human Rights (UDHR), the International Covenants on Human Rights, the African Charter on Human and Peoples’ Rights, the Convention on the Elimination of All Forms of Discrimination against Women and the Convention on the Rights of the Child shall form an integral part of the Constitution of the Republic of Burundi and that these fundamental rights shall not be limited or derogated from, except in justifiable circumstances acceptable in international law and set forth in the Constitution.

• Article 3 (6) of Protocol II of the Arusha Peace and Reconciliation Agreement for Burundi that states that all women and men shall have the right to life.

• Article 3 (7) of Protocol II of the Arusha Peace and Reconciliation Agreement for Burundi that states that all women and men shall have the right to personal freedom, including to physical and mental integrity, and to freedom of movement, to be free from torture and any other kind of cruel, inhuman, degrading treatment or punishment and that all Burundi Citizens shall have the right to be free from violence from either public or private sources.

• Article 3 (10) of Protocol II of the Arusha Peace and Reconciliation Agreement for Burundi that state that all Burundi women and men shall have the right to respect for their private and family life, residence and personal communications.

• Article 8 (a) of Protocol III of the Arusha Peace and Reconciliation Agreement for Burundi that states that it is the responsibility of the Burundi Government to protect the inalienable rights of the human person, starting with the right to life and including the rights to freedom, security, work, education and freedom of expression, and all other rights embodied inter alia in the Universal Declaration of Human Rights and in the international conventions to which Burundi is a party.

• Article 23 (1) of Protocol III of the Arusha Peace and Reconciliation Agreement for Burundi that states that peace in Burundi requires a favourable national, regional and international environment.

• Article 23 (2) of Protocol III of the Arusha Peace and Reconciliation Agreement for Burundi that states that all Burundian politicians including Nkurunziza shall undertake to respect the political neutrality of the defence and security forces.

• Article 25 (1) of Protocol III of the Arusha Peace and Reconciliation Agreement for Burundi that called for ceasefire which is defined as the cessation of all attacks by air, land and lake, as well as all acts of sabotage; all acts of violence against the civilian population – summary executions, torture, harassment, detention and persecution of civilians on the basis of ethnic origin, religious, beliefs and political affiliations, incitement of ethnic hatred, arming of civilians, use of child soldiers, sexual violence, training of terrorists, genocide and bombing of the civilian population.

• Article 10 of Protocol IV of the Arusha Peace and Reconciliation Agreement for Burundi that states that the Government shall ensure, through special assistance, the protection, rehabilitation and advancement of vulnerable groups, namely child heads of families, orphans, street children, unaccompanied minors, traumatized children, widows, women heads of families, juvenile delinquents, the physically and mentally disabled, etc.

• Article 13 of Protocol III of the Arusha Peace and Reconciliation Agreement for Burundi that states that political reconstruction of Burundi is aimed at making national reconciliation and peaceful coexistence possible, and must be directed towards the establishment of the rule of law which include promotion of the rights and freedoms of the human person, initiation of tangible actions for the advancement of women, reform of the judicial system, support of democratization, including strengthening of the parliamentary system and support for the political party system, support for the development and strengthening of civil society and provision of support for independent media.

• Article 15 of Protocol III of the Arusha Peace and Reconciliation Agreement for Burundi that obligated the Burundi Government to correct the imbalances in distribution of the country’s limited resources and to embark on the path of sustainable growth with equity by increasing rural and urban household income, providing all children with primary and secondary education at least to the age of 16, reducing the infant mortality rate by at least half, giving the entire population access to health care and improving the well-being of the population in all areas.

In light of the above, We call upon the EALA:

• To push for stepping down of Nkurunziza and his government setting pace for free and fair general elections.

• To enforce Article 10 of the PROTOCOL V of the Arusha Burundi Agreement that requires the Heads of State of the countries of the region to provide their support for the peace process in Burundi as they are guarantors of the Agreement.

• To push for setting up of an independent electoral body to conduct fresh elections in Burundi.

• To push for setting up of a special tribunal to try war crimes in Burundi.

• To send all EALA MPs to go to Burundi to pile pressure on Burundi Government to step down and push for respect Human Rights and Social Justice.

• To push for establishment of a mechanism to protect HRDs in Burundi through EAHRDP, Frontline Defenders and Urgent Action Fund.

• To push for immediate release of all political prisoners in Burundi.

• To push for upholding of freedom of expression in Burundi and reopening of all banned media houses.

• To push for setting up of an inclusive dialogue structure spearheaded by EAC and including all sectors of Burundi society.

• To push Burundi government to invest more on public service delivery, social justice, human rights, peace processes and provision of basic needs like food, shelter, water, healthcare and social security so as prevent disillusionment that makes youths susceptible to violence.

• To push Burundi Government to disband vigilantes and militias like the Imbonerakure, Mayi Mayi and Interahamwe and setting up of independent Police and security apparatus in Burundi.

• To push Burundi to set up strong Justice Systems in Burundi that all Burundi people can believe in and trust.

• To push for immediate deployment of the African Union Prevention and Protection Mission in Burundi (MAPROBU) to prevent further killings.

Should EALA fail to implement the above then the Burundi Solidarity Group will have no option but to organize the East African Citizens to organize sit-ins at EALA.

Supported by:

David Otieno
Kepta Ombati
Gitahi Githuku
Tom Oketch
Musa Chekai
Sophie Dowllar
Rachael Mwikali
Merita Ombuor
Rachael Irungu
Tom Oketch
Jackline Karambu
Wilfred Olal
Mungai Mbuthi

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Kagame, his lobbyists and history

NOVANEWS

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Yves Engler

Paul Kagame has long been the darling of prominent liberals such as Bill Clinton, Samantha Power and Tony Blair. But it’s becoming ever more difficult to publicly back the bloodstained Rwandan dictator.

After two decades in power Kagame recently had the constitution changed so (only) he can keep running for office. Alongside Kagame’s move to stay as president for life, the regime has employed increasingly brazen tactics to deter dissent. Extending their assassination program beyond East Africa, in recent years Rwanda has assassinated (or attempted to) a number of former top officials in South Africa.

In Canada Gerald Caplan is Kagame’s leading liberal backer. Last week the former NDP strategist published an op-ed on the political conflict in Burundi, which invoked Kigali’s rhetoric of “genocide” all the while ignoring Rwanda’s role in organizing armed opposition to the Burundian government. For more than a decade and half Caplan has legitimated Kagame’s authoritarianism, his atrocities during the 1990–94 invasion of Rwanda and repeated invasions of the Congo, which have left millions dead.

Caplan was converted to Kagame’s cause when he was commissioned to write a report for the Organization of African Unity in the late 1990s. At the behest of a Canadian panelist, Caplan largely wrote The Preventable Genocide for the Organization of African Unity Panel of Eminent Personalities to Investigate the 1994 Genocide in Rwanda & the Surrounding Events. The initiative was reportedly instigated by US Secretary of State Madeleine Albright and it was partly funded by Canada.

While paying lip service to the complex interplay of ethnic, class and regional politics, as well as international pressures, that spurred the Rwandan Genocide, the 300-page report is premised on the unsubstantiated claim that there was a high level plan by the Hutu government to kill all Tutsi. It ignores the overwhelming evidence (and logic) pointing to Kagame’s Rwandan Patriotic Front as the most likely culprit in shooting down the plane carrying Rwandan Hutu President Juvénal Habyarimana and much of the Army high command. This event sparked the genocidal killings of Spring 1994. The report also rationalizes Rwanda’s repeated invasions of the Congo, including a 1,500 km march to topple Joseph Mobutu’s regime in Kinshasa and subsequent re-invasion after the government it installed expelled Rwandan troops, which led to an eight-country war between 1998 and 2003.

A decade after the mass killing of Rwandan Tutsi (and Hutu) in 1994 Caplan was still repeating Kagame’s rationale for unleashing mayhem in the Congo. In 2004 the self-described “Africa scholar” wrote, From Zaire they [Genocidaires] began an insurgency back into Rwanda with the purpose of ‘finishing the job’. Eventually this led to Rwandan’s invading Zaire/Congo to suppress the insurgency.”

As part of his staunch support for the regime in Kigali, Caplan has sought to muzzle media that question the official version of the “Rwanda Genocide”. In 2014 he signed an open letter condemning the BBC 2 documentary ‘Rwanda’s Untold Story’. The 1,266 word public letter refers to the BBC’s “genocide denial”, “genocide deniers” or “deniers” at least 13 times. Notwithstanding Caplan and his co-signers’ smears, which gave Kagame cover to ban BBC’s Kinyarwanda service, ‘Rwanda the Untold Story’ interviews a former chief prosecutor at the International Criminal Tribunal for Rwanda (ICTR), a former high-ranking member of the United Nations Assistance Mission in Rwanda and a number of former Rwandan Patriotic Front (RPF) associates of Kagame.

In The Kagame-Power Lobby’s Dishonest Attack on the BBC 2’s Documentary on Rwanda, Edward S. Hermann and David Peterson write: “[Caplan et al.’s] cry of the immorality of ‘genocide denial’ provides a dishonest cover for Paul Kagame’s crimes in 1994 and for his even larger crimes in Zaire-DRC [Congo]. … [The letter signees are] apologists for Kagame Power, who now and in years past have served as intellectual enforcers of an RPF and U.S.-U.K.-Canadian party line.”

In a more aggressive effort to suppress discussion of Rwanda, Caplan reported in 2013 that he lobbied the head of the University of Toronto to remove the Taylor Report, a program on the University’s radio station, from the station. “I asked the then-president of the University of Toronto whether even within the framework of free speech, it was appropriate for the university’s radio station to so blatantly promote genocide denial. He explained that the station had editorial independence but agreed to seek information from CIUT’s then-station manager. He reported back to me that the latter disagreed with my assessment of CIUT’s coverage of Rwanda and would keep The Taylor Report running as it was.”

In criticizing the Taylor Report Caplan complained that host Phil Taylor gave a platform to Robin Philpott who he dubbed “perhaps Canada’s most prominent [genocide] denier.” Caplan claimed Philpot was part of “a tiny number of long-time American and Canadian genocide deniers, who gleefully drink each other’s putrid bath water.”

But Philpot, who’s written a number of books on Rwanda, countered with an impressive list of individuals who disagree with Caplan’s pro-RPF version of Rwandan history. This includes the former Secretary General of the United Nations Boutros Boutros-Ghali, head of the UN mission in Rwanda Jacques-Roger Booh-Booh, head of Belgian troops in Kigali Colonel Luc Marchal, intelligence officer for the UN mission in Rwanda Amadou Deme, Hotel Rwanda’s Paul Rusesabagina, Belgian historian Filip Reyntjens, etc. Philpot writes, “he obviously cannot mention their names because their testimony flies in the face of Caplan’s simplistic, Hollywood, good-guys-versus-bad-guys version of events.”

Caplan’s “Hollywood” version of the Rwandan tragedy has led him to back the liberal imperialist Responsibility to Protect doctrine and call for more US interventions. In 2013 he co-authored an article titled, ‘Genocide: America says ‘Never Again,’ but keeps turning a blind eye’, and in an earlier interview Caplan complained that “every U.S. President from Reagan to Obama has made grand speeches that declare the words ‘never again,’ and yet each one has allowed some terrible disaster to go unnoticed. Inaction has been the reoccurring theme in all of these administrations.”

While Caplan’s assessment of the Rwandan tragedy has led him to a decidedly non-progressive worldview, complaining about US “inaction” has been good for his career. Caplan has parlayed his writing and activism on Rwanda into gigs with the UN as well as the Globe and Mail and CBC. Caplan also charges a massive speaker fee. According to a Speakerpedia representative, it would cost “$7500-10k USD plus travel from Toronto” to have him present in Montréal. Caplan’s Speakerpedia profile is largely devoted to Rwanda, noting he’s “visited Rwanda more than a dozen times and has written and spoken widely about the Rwandan genocide.”

While Caplan presents himself as defending Africa against the West’s “betrayal”, history will judge his Rwanda work harshly. When Kagame falls it will become clear Caplan has provided important ideological cover to the individual responsible for the largest number of African deaths over the past quarter-century.

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The irony of violence in Uganda`s politics

NOVANEWS

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Dastan Kweka

In the ruling party manifesto, peace and stability are presented as President Museveni’s legacy. However, it is ironic that a re-election campaign built on these claims is now widely associated with so much state-sponsored violence and intimidation.

The Republic of Uganda is scheduled to hold its fifth general election on February 18, 2016. A close examination of, at least, three previous elections reveals two main characteristics – Yoweri Kaguta Museveni as a perennial candidate, on the one hand, and (election) violence, on the other hand.[1] Campaigns for this round of elections began in November 2015. President Museveni has until now managed to scoop two regional, high level endorsements: from Deputy President of Kenya William Ruto and Paul Kagame, President of Rwanda.

In his endorsement remarks, Kagame said, “I know Ugandans will choose a person who will ensure stability and continue with development projects“.[2] As the remarks go, Museveni is campaigning on a platform of peace and stability as his most significant achievements since he came to power almost three decades ago. This short article intends to highlight the irony that the said platform embodies.

GIVING THE `DEVIL` HIS DUE

Museveni is widely credited for restoring peace and stability in Uganda.[3] His achievements range from diverting LRA`s rebellion in the northern part of the country, reforming – precisely disciplining – the armed forces, to reviving the economy. Even the leading opposition party, Forum for Democratic Change (FDC), recognizes this contribution in its Policy Agenda for Uganda`s Leap Forward (2015). The document notes, “over the last 3 decades, the leadership contributed to establishing relative security across most parts of the country and enhanced state security although human security and sustainable peace remain elusive.“[4]

Restoring regular elections can equally be added to his list of achievements. NRM`s ascendancy to power, violent itself, disrupted a previous trend of coups and counter-coups that had become the norm in Uganda. But this success story has not been without its limitations.

Having studied at the Dar es Salaam University College, 1967 – 1970, Yoweri Museveni later reflected in a radical student magazine, Cheche, in which he wrote, “[B]efore I came to Tanzania, I expected a lot, probably too much, of the Tanzanian revolution.”[4] Unfortunately, this statement may, perfectly, describe the feelings of those that were highly optimistic when the National Resistance Movement (NRM) came to power in 1986 and who have now reaped a great deal of disappointment. One obvious failure that can be attributed to the highly romanticized NRM `revolution`, which came as a result of a protracted `bush war`, is the failure to abolish violence in Uganda`s politics especially during elections. This is the case both with intra-party (intra-NRM) as well as inter-party elections.[6] The process of transfer of power remains a highly contentious exercise, characterized by use of rebel-like language and dominated by big ex-military men.

CONTENTIOUS ELECTIONS

The Institute of Security Studies, based in South Africa, classifies Uganda as a potential 2016 conflict hotspot, among other countries such as the Central African Republic (CAR), based on its analysis of the upcoming election.[8] Real time conflict data from Armed Conflict Location and Event Data (ACLED) project notes “a steady increase in violence and protest throughout 2015, peaking in October.” The report adds, “The recent spike in protests and violence is associated with the start of campaigns and primaries for presidential elections to be held in early 2016.” [9] 78% of the recorded violence stemmed from either riots and protests against police brutality or happened as part of police action in suppressing opposition rallies. It is indisputable that the role of state organs is central in instigating violence or provoking violent reactions from opposition political actors.

The opposition is also, partly, to blame. Years of violent, tactical repression from the state organs seem to have hardened them. As a result, `defiance` appears to have remained the only way of expressing disapproval or attempting to delegitimize the incumbent. There are a few times when such defiance has been applied unreasonably, causing far-reaching damage.

NRM MANIFESTO

The Manifesto is quite interesting to read, full of praises for `the old man with a hat`. It describes Museveni as the “first directly elected President in the history of Uganda“, and also describes NRM achievements in the areas of security, peace and stability, economic growth, good governance and democracy as `monumental`. Peace and stability are presented as a foundation stone, on top of which all other policy proposals are anchored. However, it is ironic that a re-election campaign built on claims of achievement of `monumental` peace and stability is associated with so much state-brokered violence and intimidation.

The NRM acquired power through the use of violence and has failed to break away from the use of violence to retain it. This fact stands as a landmark limitation of what is often referred to as the NRM revolution.

PROSPECTS FOR CHANGE

There is a broad consensus from analysts in the region that the NRM will sail through the 2016 elections especially at the presidential level. The establishment is finally succeeding in forcing the opposition through another general election without carrying out necessary electoral reforms for the purpose of leveling the political field. Nevertheless, succession struggle within the ruling party is expected to intensify even after this scheduled election. Succession within the NRM, especially from the bush-war generation to the relatively young, regional-power enthusiasts and those within the Uganda People`s Defence Forces (UPDF), will open an important window of opportunity for the opposition.

* Dastan Kweka is a researcher based in Dar es Salaam, Tanzania.

REFERENCES

[1] For clarity on what constitutes election violence see – Ssempebwa E.F (2015)Avoiding Election Violence: What are the Prospects for Uganda?
[2] Mukasa H (2015) `Kagame Backs Museveni Fifth Term`, Daily Monitor, 22 December http://www.monitor.co.ug/News/World/Kagame-backs-Museveni-fifth-term/-/688340/3006964/-/jirfwcz/-/index.html
[3] Mwakikagile G (2014) Statecraft and Nation Building in Africa: A Post-colonial Study, New Africa Press, Dar es Salaam
[4] Forum for Democratic Change (2015) Policy Agenda for Uganda`s Lead Forward, March.
[5] Hirji K.F (2010) Cheche: Reminisces of a Radical Magazine, Mkuki na Nyota, Dar es Salaam https://books.google.co.tz/books?id=EuCWWOapCKsC&pg=PA11&source=gbs_toc_r&cad=4#v=onepage&q&f=false
[6] Kweka D (2015) `Does Museveni need militias to retain power in 2016? `http://www.pambazuka.net/en/category.php/features/96022
[7] Musisi F (2015) `Why are campaigns taking a violent turn`, Daily Monitor, 27 December http://www.monitor.co.ug/Magazines/PeoplePower/Why-are-campaigns-taking-a-violent-turn/-/689844/3010552/-/bxbh9f/-/index.html
[8] Institute of Security Studies (2015) Peace and Security Council Report.
[9] ACLED (2015) Uganda: November update, available online athttp://www.crisis.acleddata.com/uganda-november-2015-update/
[10] URN (2015) `I will run a campaign of defiance, says Besigye`, The Observer, 4 November http://www.observer.ug/news-headlines/40832-i-will-run-campaign-of-defiance-says-besigye
[11] NRM (2015) NRM Manifesto 2016 – 2021
[12] Clottey P (2015) `Uganda Opposition Wants Electoral Reforms, Vote Postponed`, VOA, 31 May, http://www.voanews.com/content/uganda-opposition-wants-electoral-reforms-vote-postponed/2801906.html

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62 billionaires now control half of world’s wealth

NOVANEWS

Farooque Chowdhury

The richest 62 persons now control more than half of the world’s money, according to a new Oxfam report. Total wealth of these individuals is the same as that of the world’s poorest 3.6 billion people. The rich-poor gap is growing wider. The ultra-wealthy group of persons is getting wealthier.

The 44-page report, ‘An Economy for the 1%’, published by Oxfam GB for Oxfam International (ISBN 978-1-78077-993-5, January 2016, Oxford, UK) says:

“The gap between rich and poor is reaching new extremes. Credit Suisse recently revealed that the richest 1% have now accumulated more wealth than the rest of the world put together. …Meanwhile, the wealth owned by the bottom half of humanity has fallen by a trillion dollars in the past five years. This is just the latest evidence that today we live in a world with levels of inequality we may not have seen for over a century.”

The poorest 50% of the world’s population is worth an estimated $1.76 trillion, which is also the estimated net worth of the richest 62 persons. In 2010, it required the richest 388 persons to make up the wealth of the bottom 50%. Since then, the world’s richest 62 persons have added 44% to their cash and assets while the wealth of the bottom half has dropped by 41% despite an increase in the global population by 400 million.

In the same period, the wealth of the richest 62 persons increased by $500 billion to $1.76 trillion. Within five years, the majority of the world’s wealth has been consolidated into the hands of less than one-sixth of the number of persons who used to control it. Nine out of 10 World Economic Forum corporate partners had a presence in at least one tax haven and it was estimated that tax dodging by multinational corporations costs developing countries at least $100 billion every year. Corporate investment in tax havens almost quadrupled between 2000 and 2014.

The report cited estimates that billionaires have kept $7.6 trillion in offshore accounts. The amount is more than the combined GDP of the UK and Germany. It said if tax were paid on the income that this wealth generates, an extra $190 billion would be available to governments every year.

There are figures in the report that include a few estimates. A number of free marketers have questioned the credibility of the figures. To a few, the statistics were “bogus” and the data was “misleading”.

However, a lot of facts are from credible sources: Citing G. Zucman’s “Taxing across borders: Tracking personal wealth and corporate profits” (Journal of Economic Perspectives, 2014) the report said: “[A]s much as 30% of all African financial wealth was thought to be held offshore.” The estimated loss of $14 billion in tax revenues would be enough to pay for healthcare for mothers and children that could save 4 million children’s lives a year and employ enough teachers to get every African child into school. Tax revenue lost in Africa, Asia and Latin America combined due to the amount of wealth sitting in tax havens amounts to an estimated $70 billion each year. Citing E. Seery and A. Caistor Arendar’s “Even it up: Time to end extreme inequality” (2014) the Oxfam report calculates: Last year, the average rate of return for billionaires was 5.3 percent, meaning that the richest people made more than $5 million every day from interest payments alone. In the UK, pay packages for FTSE 350 directors increased by more than 250 percent between 2000 and 2013, roughly five times as rapidly as returns to shareholders.

Citing “Do seed companies control GM crop research?” (Scientific American, 2009) the report said: “Some 80 percent of the corn harvested in the US is genetically engineered by Monsanto, a company that also dominates the global research agenda for genetically modified (GM) crops and their safety standards.” It added: “These corporate behemoths not only have the power to set prices to maximize their profits, with little threat of competition, but they also influence the politics of these markets, which has a much further-reaching impact on societies.”

The world’s largest brewing company selling more than 200 brands of beer in Europe, Asia and America, found the report, “has a powerful political voice … It spent $3.7 million lobbying the US government in 2014, and 56 of the 141 lobbying reports it filed were on issues relating to taxation.”

Citing J.E. Stiglitz’s “Market failures in the financial system” (New Vision, 2012) the report said: “Recent scandals across the world involving bankers engaged in predatory and discriminatory lending, abusive credit card practices, market manipulation (e.g. of the Libor rate) and a host of other misdeeds have led to the widespread view that there is also a moral deficiency, a culture of corruption, in the sector.”

“The development of sophisticated tools and instruments to manage financial flows globally”, the report said, “has also allowed companies and individuals to withdraw their money from jurisdictions all over the world illicitly and without being traced. In particular, the banking sector has established a strong presence in tax havens, providing a safe haven for tax dodgers. The majority of offshore wealth is managed by just 50 banks, and the 10 busiest banks manage 40 percent of these offshore assets. Banks have lobbied hard to preserve havens for international corporations looking to avoid taxes.”

The sources of these facts are: Global Witness, “Banks and dirty money: How the financial system enables state looting at a devastating human cost” (2015), J.S. Henry, “Tax offshore wealth sitting in first world banks”, (Forbes, 2010), and OpenSecrets.org, “Issue lookup”, Center for Responsive Politics.

The report cites other interesting facts that include, in essence, bribery. Citing a number of sources the report said: “With economic success come power and influence, particularly over the policies and institutions that are designed to control and regulate the sector’s activities. Companies use their financial resources to pay thousands of lobbyists to directly influence policy makers. In 2014, finance and insurance companies spent just under $500m on lobbying activities in Washington alone. Investments by financial companies in research agendas and think tanks also have a big influence: for example, in 2014 the financial sector gave at least £1.3 million to fund the UK’s 18 most powerful think tanks – raising questions about their independence. Stretched government regulators face ‘lawyers, lobbyists, and under-written think tanks – all of whom have the time and money to present extensive, if wildly biased, legal and economic arguments’, according to one analysis.” The sources of these facts are: OpenSecrets.org, “Ranked sectors” (2014), The Bureau of Investigative Journalism “Finance lobby: Big banks and thinktanks” (2012) and Transparify “Corporate interests and think tanks – An overview of current debates” (2014).

Where do the poor stand in this global mechanism that keeps one in nine persons hungry every night? The Oxfam report cites a few facts:

• “The wealth of the bottom half fell by just over a trillion dollars in the same period – a drop of 41%.”
• “Since the turn of the century, the poorest half of the world’s population has received just 1% of the total increase in global wealth, while half of that increase has gone to the top 1%.”

• “The average annual income of the poorest 10% of people in the world has risen by less than $3 each year in almost a quarter of a century. Their daily income has risen by less than a single cent every year.”

• “Workers are capturing less and less of the gains from growth”. And, “the owners of capital have seen their capital consistently grow (through interest payments, dividends, or retained profits) faster than the rate the economy has been growing.”

• “Between 2001 and 2011, wages for garment workers in most of the world’s 15 leading apparel-exporting countries fell in real terms.”

• “While the poorest people live in areas most vulnerable to climate change, the poorest half of the global population is responsible for only around 10% of total global emissions. The average footprint of the richest 1% globally could be as much as 175 times that of the poorest 10%.”

Do the facts/figures startle anybody? They should not. It’s, quoting the report, “an economy for the 1%”, and exploiters’ power at global level is a fact of daily life. The economy for the 1% behaves in this irrational way. This irrational pattern is its rationality. And, it’s the order of the day. Political power, connections/networks, influence trading, lobby-business, dodging laws, regulations and oversight, secrecy/non-transparency, non-accountability, violence/forceful imposition of corrupt rule help increase wealth of the few rich while the poor’s income decline in real terms.

The poor find a non-responsive system. They are always facing it. Citing IMF’s “Catalyst for change: Empowering women and tackling income Inequality” (C. Gonzales, S. Jain-Chandra, K. Kochhar, M. Newiak and T. Zeinullayev, 2015) the Oxfam report says: “Countries with higher income inequality also tend to have larger gaps between women and men in terms of health, education, labor market participation, and representation in institutions like parliaments.”

But, from where does the wealth come? Is it an affair-eternity? A lot of good fellows are concerned with the ultra-concentration of wealth but are unwilling to look at the source of wealth. A lot of good fellows are willing to dole out a part of wealth to the have-nots but are unwilling to change the system that concentrates wealth in the hands of a few. The basic questions related to immense wealth under control of a few go unanswered. Hence, the appendix – corruption – goes unattended in a real way. Petty-anomalies attract all attention; but the fountainhead of corruption remains unhindered. It’s a part of the system that concentrates so much wealth in the hands of so few. It’s a part of the “game” that keeps the system of non-representation intact.

Another part of the game is at the level of intellect: not to give any serious thought, not to dissect the issue scientifically; but to provide lip service, copy words without comprehending real and full meanings and implications. It’s intellectual corruption. The practice sounds good, appears dignified, but doesn’t expose the system of biased division of wealth. It’s politically safe also. But, along with these facts, the poor need more facts: identify the source of wealth, identify the source of power that strengthens and safeguards the system of skewed division of wealth. These help fully grasp the reality of inequality.

One of the issues not discussed is the scope to engage with corruption in all forms by class: which class – rich and poor – resorts to corrupt practice to which extent? The scope originates from power – economic power taking form of political power. Impacts of those corrupt practices should also be searched. The poor classes have no power to engage with corruption. Their relation with corruption is only as a victim of corrupt practices by the rich. Even, impact of corrupt practice by a number of poor persons, if it’s hypothetically assumed that a number of poor persons got engaged with corruption, is negligible compared to big money corruption. Exposure of corruption in areas of politics, environment and ecology, diplomacy, inter-state deals including trade pacts/agreements, armaments and infrastructure will starkly show its class biasness – a capacity solely owned by the rich class. A detail search of the issue – corruption – will show much cruel face of rich-poor gap, the inequality.

Posted in WorldComments Off on 62 billionaires now control half of world’s wealth

Trade secrets: Coca-Cola’s hidden formula for avoiding taxes

NOVANEWS

Image result for Coca-Cola’ LOGO

Khadija Sharife

That the value of a brand so ubiquitous that it straddles both the in and outside of society is kept off its books is one of the wonders of the accounting world. Yet when Coke and other large multinationals are allowed to withhold, or hold in secrecy, the value of core business intangibles while charging confidential expenses against these assets, it not only distorts the market but also facilitates gross transfer pricing manipulation and drastically undermines taxes owed to governments.

The hotel door was the dividing line: inside, a first world fantasy of starched uniforms, low voices, and crisp cool air; outside, color and heat, vendors selling knickers, groundnuts and sunglasses along cracked sidewalks. I sat atop my father’s shoulders, holding his ears, taking in this snapshot of Lusaka in the late 1980s. Zambia was a country in the throes of hunger riots caused by massive reduction in the public budget, a chain reaction that engulfed most of Africa during a period known as the “lost decade.” One country toppled after another like a game of dominos playing to the rules of the Washington Consensus. My father was on the board of a Gulf development bank, assisting–or so they were under the impression–efforts to alleviate poverty in various African countries. The doors between the inside and outside of the Lusaka hotel where we stayed were as much symbolic as they were tangible; made of money, race and social class. But the inside and outside had something in common: Coca-Cola, whether dragged by vendors on small carts or poured with a flourish in swanky restaurants.

Back in South Africa, my home country, Coke was a household name since the 1940s. South Africa’s insider and outsider divide, apartheid, seemed an even more impenetrable barrier. Companies like Coke financed the makings of the regime, investing in its earlier legitimacy by sponsoring landmarks like the Voortrekker Monument, commemorating European pioneers. Historically, the country was a key supplier of cheap labor, critical resources like gold and platinum, and a bastion in the rhetorical anti-communist foreign policy of countries like the US and UK. For companies like Coke, South Africa was a market others were less willing to enter. Prime Minister John Vorster singled out these multinationals as “bricks in the walls of the regime’s continued existence.” But a vocal portion of American and European citizens took the struggle inside to the doorsteps of power abroad. By 1978, the pressure was enough for the US Senate’s Foreign Relations Subcommittee, assessing 250 companies active in South Africa, to specifically rebuke Coca-Cola for perpetuating the apartheid system. The company refused to disclose, on several occasions, key information about hiring, pay scales and other critical issues, citing confidentiality. At the time, Coke controlled more than 75 percent of the South African market and 10 cents of every 80-cent bottle sold was claimed by the regime as tax.

By the mid-1980s global pressure grew in some of Coke’s biggest markets. In fact, like SABMiller and other companies using a host of tax havens, trusts and neighboring countries to circumvent South Africa as provenance, Coke had reorganized business affairs from the late 1970s to ensure that a management presence external to the country could still hold the market through selective divestment. In other words, Coke wanted in–just not from the inside. The company circumvented the problem of selling its Durban-based concentrate plant–its syrup manufacturer–by developing another in neighbouring Swaziland. The company’s primary business, after all, is selling concentrate to bottlers.

Jay Naidoo, then general secretary of the Congress of South African Trade Unions (Cosatu), described these reorganizations as “not divestment,” but “warehousing,” adding that, “Foreign companies have maintained their operations on a franchise basis.”

Swaziland, ruled as Africa’s last absolute monarchy since independence in 1968, was already suffering from a voided Constitution, imprisoned opponents and the banning of all political parties. Coke stepped into Swaziland, incorporating Coca-Cola Conco (1986), almost in tandem with the entrance of a new King, Mswati. A year later, the company had a concentrate plant up and running, exporting to its biggest regional buyer – South Africa. Mswati would gift Coke with the desired proximity, total legal and financial secrecy and a 6 percent corporate tax rate – essentially providing tax haven-like services to the company. (Swaziland’s revenue agency and Coca-Cola declined to comment).

These days, Coca-Cola is the single most powerful private entity in Swaziland; at last count, the source behind over 22 percent of GDP and 38 percent of the country’s foreign exchange earnings, closely following sugar exports. It is also the most powerful brand in the world, boasting a market capitalization of $177 billion and sold in over 200 countries. Which is, to say, more countries than the UN has members.

Coca-Cola claims the world’s largest beverage distribution system through Coke-owned or controlled bottlers and distribution systems and an impressive network of independent bottlers and other partners.

Coke informed us that the company uses no sugar produced in Swaziland (the actual list of countries supplying sugar to Coca-Cola is confidential), but the company is part of the system generating unaccountable billions for the monarchy through intertwined interests, such as a minority shareholding in the State-owned sugar exporter, the Royal Swaziland Sugar Corporation (RSSC); Coke’s Swaziland-based CEO Manqoba “MK” Khumalo is a member of the board.

The actual value of Coca-Cola’s business in Swaziland – its operating costs, profits and losses, intra-company loans and interest rates, etc., is just one of Coke’s many trade secrets.

HIDDEN VALUES

But there is another Conco, this one disclosed by Coke based in the Cayman Islands, a notoriously secretive tax haven. It forms part of the machinery behind Coca-Cola’s lucrative nectar: the actual value of the brand. The US Securities and Exchange Commission (SEC) requires multinationals to identify – at the risk of a small penalty for non-disclosure – subsidiaries that are financial or tax related entities. (Often, when comparing company disclosures from one year to the next, subsidiaries that remain active, disappear.)

The Cayman-based Conco is one of more than 25 entities located in tax havens – just over 30 percent of the company’s total “financial” subsidiary disclosures, exposing a strategy explained by the company in the annual report as “tax planning.” (“Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate.”) Of those based in tax havens, almost half use Delaware, including the parent Coca-Cola company, incorporated there since 1919. (The re-incorporation shift to Delaware was a legal, though not physical move, from Atlanta where the company wasincorporated in 1892 and where it continues be physically headquartered.)

Delaware’s secret formula is the total tax exemption for all income related to intangible capital. In fact, the Delaware Code specifically highlights the advantages of holding companies for intangible capital that “charge” their own global subsidiaries a “fee” for use of the trademarks and other intangible capital. This occurs through a technique known as “arms length pricing” or intra-company trading, based on the transactions that might have occurred between two different companies. But the process is self-regulated by companies and transaction details are confidential even to national revenue agencies. We just have to take their word for it. Global Financial Integrity (GFI), a Washington-based nonprofit, estimates that an average 77 percent of the $528 billion (2002-2012) in illicit flows from sub-Saharan Africa takes place through transfer mispricing.

Traditional studies tend to focus on the undervaluation of minerals like diamonds or gold. Yet, in the case of intangible-heavy companies Coca-Cola, there exists no market equivalent against which to compare assigned value.

Costs related to use of the company intangible capital are logged in financial statements as expenses as “selling, general and administration” or SG&A – the latest, for 2014, at $17.2 billion. But here’s the catch: internally imputed intangible capital (all of Coca-Cola’s own brands, like Coke, Coke Zero, Sprite, Diet Coke, etc.) cannot be financially valued or included on the balance sheet – at all. According to the International Accounting Standards Board (IASB) which sets global financial reporting standards, the only brands that can be listed are those that have been acquired. Simply put, if Coke bought Pepsi, only Pepsi would be listed on Coke’s own financial statements. In Coca-Cola’s case, intangible capital with indefinite lives (such as brands) is valued $6.5 billion or 7 percent of assets. The company statements paint an interesting picture: $92 billion book value, about $61 billion in liabilities, and assets of just $30.5 billion. Half, or $14.6 billion, are tangible assets, like plants and property. Coke’s net tangible assets–the company’s total assets less intangibles, preferred equity and liabilities–or its book value, is less than $4 billion (2014). More than 96 percent of the company’s value derived from intangibles, if the metric of market capitalization (less net assets) is used.

Coke is not alone. “Over the past thirty years,” said Professor Roger Sinclair, a marketing specialist based at Wits University, “the value of the intangible portion of world stock markets has increased. In the early 1970s the balance between tangible and intangible was 80:20 in favour of tangibles. Today that is reversed–80 percent of the value of most stock markets is intangible.” Sinclair explained that Coke’s hidden value was $152 billion, after deducting net value from market capitalization data. “That is how, and where, investors incorporate the brand,” he told us. “But that value is not admitted on the balance sheet.”

The value, however, holds sway.

INTANGIBLE GOLDMINE

Interbrand, a leading brand consultancy, usually ranks Coca-Cola in the top three brands, alongside Google, and Microsoft – companies that make their business from intangible capital. These same companies are renowned for very low tax rates and very high undistributed income–example, Microsoft’s $108 billion ‘offshore’ cash stash or Google’s 17 percent tax rate. Ironically, this hidden value is an open secret. Brand Finance acknowledges that “most high value, internally generated, intangible assets never appear in conventional balance sheets.” By 2009, this meant that only 7 percent, or $3.8 trillion of an estimated $27.3 trillion, in corporate intangible capital (excluding goodwill) value was disclosed to investors and governments. Over 60 percent of global trade is conducted within multinational companies, rather than between them. The latitude for intra-company transfer pricing manipulation is vast.

Despite this growth, the IASB’s Wayne Upton maintained there is no real demand for information on the value set for intangible assets. “In financial reporting, we identify our customers as investors and creditors,“ Upton said.

“I am not persuaded that intangible assets were unimportant in 1900 or 1950,” Upton added. “Our understanding and, with it, utilization has changed.” While “hardly a new phenomenon,” Upton described transfer pricing as “a taxation or policy issue, rather than a financial reporting issue.”

Once a brand is acquired by another company, it is automatically listed on the financial sheets at the price acquired–for example, Gillette bought at $24 billion by Proctor and Gamble. The book value of the brand will never increase even if, in real life, it does. In fact, Gillette’s value–whatever the reality–can only decrease as another odd aspect of financial reporting allows only for impairment. Accretion or added value has yet to be allowed. The IASB itself has “paused” any research on intangible capital inclusion in financial reporting until…no date given. (Major accounting firms declined to respond after requesting that we send questions).

The reason for excluding intangible assets that are self-valued by companies is pretty simple: companies can, if they choose, set to their own advantage the value of their own products, particularly where there is no market equivalent.

The bigger question being that a considerable part of the value actually inheres in the company’s overall functions–where does a company draw the line, for instance, between real labour and sales networks producing intangible capital?

In other words, how much is it really worth?

The dangers of exclusion, however, are more lethal for governments, small shareholders and ultimately, the taxpayer: quite simply, self-regulated space leaves room to fudge the numbers. From 2010- 2014, Coca-Cola has logged over $82 billionin expenses under Selling, General and Administrative costs, deducted from pre-tax profits. These expenses include advertising ($16 billion), bottlers and distribution ($38 billion) and other expenses ($27 billion). How much of this in (dollar value and percentage) were payments to their own subsidiaries for use of their own brands, and, in the absence of any disclosed valuations, how were these payments determined? Coca-Cola declined to comment.

What has not been said – and arguably the reason behind the closely guarded secret of Coca-Cola’s own concentrate, known mysteriously as Merchandise 7x, is simply that so much of it is air and sweet nothings: the cost of Coke’s formula for instance, is sugar, water and bits of cinnamon, neroli and coriander. Not too expensive.

While not disclosing the actual details, the company concedes, “We derive a significant portion of our net operating revenues from sales of concentrates and syrups to independent bottling partners” – estimated at 38 percent from 2012-2014. The company also concedes, without disclosing details, that the profits from concentrate revenue is high.

Alongside Pepsi, but far in advance, Coca-Cola’s concentrate has created a collusive and oligopolistic market structure, with bottlers globally dependent on concentrate produced only by Coke (and Pepsi). The company not only sets the prices of concentrate (varying according to market) but controls or determines the entire process, including how much the end products may sell for and whether rival products in any category–such as still, sparking, juice, coffee, iced tea, etc.–can be sold. Coca Cola’s gross profit margins usually rank above 60 percent. Though the economics with bottlers are interdependent, the power rests with Coca-Cola – the owner of the brand. Bottlers are capable of generating profit and adding value largely through this relationship. An assessment of earnings before tax (EBT) margins between Coca-Cola and the US’s leading independent bottler, the US’s Coca Cola Bottling Company Consolidated, over the past decade reveals Coca-Cola averaging 25 percent, reaching highs of 40 percent. The bottler, on the other hand, hit 3 percent highs, averaged 2.5 percent and reached lows of 0.5 percent. Revenue growth sometimes evidenced bottlers overtaking the company (example 2004, 2005 and 2006 – Coca Cola grew at 2.1 percent, 2.5 percent, 2.7 percent; bottlers’ revenue increased at 5.3 percent, 6.8 percent, 7 percent). The company concedes, “most of our branded beverage products outside of North America are manufactured, sold and distributed by independent bottling partners,” with the company actually owning about 79 bottling and canning plants worldwide.

The total absence of defined and disclosed costs for a company’s internally developed intangibles could not be more significant: it also allows multinationals to reduce, with little or no external scrutiny, pre-tax profits with the accompanying effect of setting their own tax rates. The New York Times assessed the varying tax rates between industries, finding that pharmaceuticals and other industries dependent on intangibles, and therefore able to shift to low-tax jurisdictions, pay much less. Coke’s effective tax rate, globally, was listed at just 15 percent (2007-2012) or $9.4 billion, far below the nominal top tax rate of 35 percent.

The company declined to answer most of our questions, requesting a teleconference, in which Coke’s media and public affairs director instead asked reporters to explain the interest in Coke’s financial and tax structures.

Coca-Cola further declined to detail the substance of $26.9 billion it claimed in “other operating expenses” and how this line item, in addition to bottling and distribution expenses, concerns transfer pricing of intangible capital. No doubt, some of these expenses are legitimate. The question is, how much and how is it verified? The lack of market equivalent, documented value of intangible capital and total secrecy allows the company tremendous latitude with virtually no outside oversight. It is an issue that spans Coke’s corporate character from Africa to the Atlantic, and that of any number of companies that claim tax breaks on intangible capital, potentially using one location or system to undercut the other.

This brings to mind the $33 billion question.

FROM AFRICA TO THE ATLANTIC

Coca-Cola justifies its relatively low tax rate in the US by reporting that 80 percent or so of the company’s business takes place outside the US, based on volumes sold. But there exists another yardstick: revenue. Almost 50 percent of the company’s total revenue is generated in the North America. In contrast, Europe, Asia Pacific, Eurasia and Africa, each generated an average of 10 percent of total revenues from 2012 to 2014. Logically, it makes sense that North America would be the highest: Coca-Cola’s main business is concentrates and the value of intangibles – not necessarily the same jurisdiction where value is allocated – primarily operates through the US.

And that suggests something, somewhere, is wrong.

Recently, Coca-Cola disclosed a $3.3 billion tax-related dispute concerning transfer pricing with the US’s Internal Revenue Service (IRS). The IRS alleged that Coca-Cola underreported income related to intangibles. The company maintains it does what it always does, pursuant to “the same transfer pricing methodology for these licenses since the methodology was agreed with the IRS.”

Responding to our questions on Coke’s financial structure and tax rate in totality, Coke stated, “In 2014 the Company paid approximately $2 billion (USD) in corporate income tax globally – as stated in our annual filing with the US Securities and Exchange Commission (SEC) the effective global tax rate for the Company was 23.6% in 2014.”

It is clear from the way Coca-Cola does business that a hefty portion of the $33 billion in Coca-Cola’s offshore cash comes from selling the rights of intangible capital use to its subsidiaries in tax havens. (The company declined to comment on the source of income.) The barrier to formal repatriation of the funds is the US tax code triggering tax in the US. Companies can choose when to repatriate. But whatever the linguistic framing, the cash is already deposited in US banks and being used by the companies – onshore in the most real sense of the word.

“This is the general practice,” said Rudolf Elmer, a whistleblower and former Cayman Islands-based CEO of Swiss mega-bank Julius Baer. “Companies hold their bank accounts in critical financial centers such as London, New York, Zurich to continue operations. The use of tax havens, he explained, is simple: “Tax-free income is generated in tax havens to ensure that taxable profits are minimised in countries where the tax rates are high.” Previously an auditor with KPMG and Credit Suisse, Elmer emailed us various tax structures outlining the practices of major multinationals, particularly where it related to intangible capital.

In 2004, in a bid to capture the offshore pile, and taking the multinationals and Republican Party at their word — with promises of creating 660,000 jobs, increased intangible capital development and much else, the US Congress passed the Job Creation Act, allowing for an 85 percent deduction of taxes from repatriated assets. The new tax rate? 5.25 percent.

The 15 companies that accounted for half the total sum repatriated, – $155 billion — ended up slashing over 20,000 jobs. Nor was there much evident difference between repatriating and non-repatriating firms on later spending on research and development, according to reports cited in Senator Carl Levin’s 2004 [url=file://localhost/C:/Users/knuti/Downloads/RepatriatingOffshoreFundsReportOct202011wExhibitsFINAL.pdf]Senate investigation[/url] on offshore funds. Many were kings of intellectual property: Coca-Cola, Pepsi, Pfizer, Proctor & Gamble, Merck, IBM, Intel, Eli Lilly, Bristol-Myers Squibb, with pharmaceutical and tech companies accounting for over 40 percent. The majority of the top 15 derived their income almost wholly from tax havens: Pepsi (91.1 percent), Eli Lilly (92.6 percent), Bristol-Myers (94.2 percent), Merck (96 percent), Microsoft (97 percent) etc. Coca-Cola listed a maximum of $6.1 billion available for repatriation and has, since then, continued to amass offshore. The primary sources, according to the IRS, included the Netherlands, Bermuda, Ireland, Luxembourg, and the Cayman Islands – an economy that hosts 547 percent US company profits relative to its GDP. The tax-free Caymans was the source of almost all of Coke’s repatriated cash – three times the Cayman Islands’ own GDP in 2004, via en entity – allegedly Atlantic Industries — whose role the company described as “legal insulation.”

Coca-Cola did not respond to questions related to Atlantic Industries, or to the source, entities and jurisdiction involved in the prior and current undistributed income. The company also declined to discuss potential tax liability related to the $33 billion in undistributed income, which could reach as high as $11.5 billion, calculated against the US’s 35 percent corporate tax rate that could be triggered on repatriation. Nevertheless, an assessment of Coca-Cola’s capital expenditures from 2012, for instance, shows the company investing over 50 percent in the US, where the company generates a similar revenue, both of which are four or five times higher than any other region.

“These arrangements are not legitimate. But they are also not illegal and very common,” said Elmer, the former auditor. “It is uncommon for companies like Coca-Cola to repatriate offshore income – part of which will likely be invested as high interest loans to subsidiaries.”

But, aren’t shareholders negatively impacted if the process also withholds dividends?

According to experts in corporate finance consulted for this article, withholding dividends may affect the average trader, but major shareholders comprising part of the ‘insider club’ could, if they opted, use the information to their advantage, by learning when and how to exit the market.

“Keeping liquidity levels high is a smart technique and provides bigger compensation to management,” said Elmer. “Joe in the street who has a few shares will be affected but the big shareholders, who influence the company’s decisions, are mainly concerned with how large their payouts will be in the long-term.”

(Meanwhile, Coke’s management benefits generously from the cash-flush status via shares, bonuses, salaries and other perks. Coca-Cola led the pack in management bonuses, awarding $83 million (1991) to Roberto Goizueta, who died in 1997. His shares were worth over $1 billion.)

PROFITING FROM PATRIOTISM

In his book The Making of Black Revolutionaries, civil rights leader James Forman draws on his early childhood memory of being told by a “sympathetic” but annoyed shopkeeper that “niggers” couldn’t drink Coca-Cola on the stools. “I could not understand why I was crying,” he wrote, “…what right he had to tell me where I had to drink my Coke.” It could have been any other product – and probably was, over and over again, in young Forman’s life. But the chapter, Childhood and Coca-Cola, spoke to the impression made on Forman’s mind – of a citizen removed from his birthright; symbolic of what it meant to be excluded, or included, in America. The Coca-Cola brand, in the breadth and depth of what it has signified to people over time, is unique.

That the value of a brand so ubiquitous that it straddles both the in and outside of society is kept off its books is one of the wonders of the accounting world. Yet when Coke and other large multinationals involved in pharmaceutical, consumer and technology services are allowed to withhold, or hold in secrecy, the value of core business intangibles while charging confidential expenses against these assets, it not only distorts the market. It facilitates gross transfer pricing manipulation, and drastically undermines taxes owed, and paid, to governments. Ultimately, it is the citizen taxpayer, the Coca-Cola consumer, who suffers the outcome. The secrecy of intra-company trading between subsidiaries of the same parent company facilitates this particularly where it relates to intangibles, developed by companies, and kept off their books.

To claim rightful revenues, governments must make country-by-country reporting mandatory, disclosing the substance of corporate form and function involving both subsidiaries and transactions. Internally developed intangible capital must be located on financial statements not simply as expenses but also, as assets, where the value really inheres – such as sales lists; and geographically, where the patents, trademarks, formulas, and the like, were really developed – both financially articulated at fair value rate. Finally, the use of legal and financial secrecy jurisdictions where economic activity does not occur must be disallowed. Failure to do this, under the guise of trade secrets, violates the goodwill that gives Coca-Cola’s the billions behind its brand.

Posted in USAComments Off on Trade secrets: Coca-Cola’s hidden formula for avoiding taxes

‘Deadliest terror in the world’: The West’s latest gift to Africa

NOVANEWS

Image result for Boko Haram FLAG

Dan Glazebrook

By engineering chaos in Libya with the violent of Gaddafi in 2011, NATO effectively turned over the entire armoury of an advanced industrial state to the region’s most sectarian militias, including Boko Haram. Moreover, the success of Boko Haram is strategically beneficial to the US in its attempts to sabotage the country’s development and in particular its burgeoning relationship with the People’s Republic of China.

Nigeria’s Boko Haram are now officially the deadliest terror group in the world. That they have reached this position is a direct consequence of British Prime Minister David Cameron and co’s war on Libya – and one that was perhaps not entirely unintended. According to a report just released by Global Terrorism Index, Boko Haram were responsible for 6,644 deaths in 2014, compared to 6,073 attributed to ISIS, representing a quadrupling of their total killings in 2013. In the past week alone, bombings conducted by the group have killed eight people on a bus in Maiduguri; a family of five in Fotokol, Cameroon; fifteen people in a crowded marketplace in Kano; and thirty-two people outside a mosque in Yola.

In 2009, the year they took up arms, Boko Haram had nothing like the capacity to mount such operations, and their equipment remained primitive; but by 2011, that had begun to change. As Peter Weber noted in The Week, their weapons “shifted from relatively cheap AK-47s in the early days of its post-2009 embrace of violence to desert-ready combat vehicles and anti-aircraft/ anti-tank guns”. This dramatic turnaround in the group’s access to materiel was the direct result of NATO’s war on Libya.

A UN report published in early 2012 warned that “large quantities of weapons and ammunition from Libyan stockpiles were smuggled into the Sahel region”, including “rocket-propelled grenades, machine guns with anti-aircraft visors, automatic rifles, ammunition, grenades, explosives (Semtex), and light anti-aircraft artillery (light caliber bi-tubes) mounted on vehicles”, and probably also more advanced weapons such as surface-to-air missiles and MANPADS (man-portable air-defence systems). NATO had effectively turned over the entire armoury of an advanced industrial state to the region’s most sectarian militias: groups such as the Libyan Islamic Fighting Group, Al Qaeda in the Islamic Maghreb and Boko Haram.

The earliest casualty of NATO’s war outside Libya was Mali. Taureg fighters who had worked in Gaddafi’s security forces fled Libya soon after Gaddafi’s government was overthrown, and mounted an insurgency in Northern Mali. They in turn were overthrown, however, by Al Qaeda’s regional affiliates – flush with Libyan weaponry – who then turned Northern Mali into another base from which to train and launch attacks. Boko Haram was a key beneficiary. AS Brendan O’ Neill wrote in an excellent 2014 article worth quoting at length: “Boko Haram benefited enormously from the vacuum created in once-peaceful northern Mali following the West’s ousting of Gaddafi. In two ways: first, it honed its guerrilla skills by fighting alongside more practised Islamists in Mali, such as AQIM; and second, it accumulated some of the estimated 15,000 pieces of Libyan military hardware and weaponry that leaked across the country’s borders following the sweeping aside of Gaddafi. In April 2012, Agence France-Presse reported that ‘dozens of Boko Haram fighters’ were assisting AQIM and others in northern Mali. This had a devastating knock-on effect in Nigeria. As the Washington Post reported in early 2013, ‘The Islamist insurgency in northern Nigeria has entered a more violent phase as militants return to the fight with sophisticated weaponry and tactics learned on the battlefields of nearby Mali’. A Nigerian analyst said ‘Boko Haram’s level of audacity was high [in late 2012]’, immediately following the movement of some of its militants to the Mali region.”

That NATO’s Libya war would have such consequences was both thoroughly predictable, and widely predicted. As early as June 2011, African Union Chairman Jean Ping warned NATO that “Africa’s concern is that weapons that are delivered to one side or another…are already in the desert and will arm terrorists and fuel trafficking”. And both Mali and Algeria strongly opposed NATO’s destruction of Libya precisely because of the massive destabilisation it would bring to the region. They argued, wrote O’Neill, “that such a violent upheaval in a region like north Africa could have potentially catastrophic consequences. The fallout from the bombing is ‘a real source of concern’, said the rulers of Mali in October 2011. In fact, as the BBC reported, they had been arguing since ‘the start of the conflict in Libya’ – that is, since the civil conflict between Benghazi-based militants and Gaddafi began – that ‘the fall of Gaddafi would have a destabilising effect in the region’.” In an op-ed following the collapse of Northern Mali, a former Chief of Staff of UK land forces, Major-General Jonathan Shaw, wrote that Colonel Gaddafi was a “lynchpin” of the “informal Sahel security plan”, whose removal therefore led to a foreseeable collapse of security across the entire region. The rise of Boko Haram has been but one result – and not without strategic benefits for the West.

Nigeria was once seen by the US as one of its most dependable allies on the African continent. Yet, following a pattern that is repeated across the entire global South, in recent years the country has been moving ever closer to China. The headline grabbing deal was the $23 billion contract signed in 2010 with the Chinese to construct three fuel refineries, adding an extra 750,000 barrels per day to Nigeria’s oil producing capacity. This was followed up in 2013 with an agreement to increase Nigerian oil exports to China tenfold by 2015 (from 20,000 to 200,000 barrels per day). But China’s economic interests go far beyond that. A Nigerian diplomat interviewed by China-Africa specialist Deborah Brautigam told her that “The Chinese are trying to get involved in every sector of our economy. If you look at the West, it’s oil, oil, oil and nothing else.” In 2006, China issued an $8.3 billion low-interest loan to Nigeria to fund the building of a major new railway, and the following year China built a telecommunications satellite for Nigeria. Indeed, of last year’s $18 billion worth of bilateral trade between the two countries, over 88%was in the non-petroleum sector, and by 2012 Nigerian imports from China (it’s biggest import partner) totalled more than that of its second and third biggest import partners, the US and India, combined. This kind of trade and investment is of the type that is seriously aiding Africa’s ability to add value to its products – and is thereby undermining the Western global economic order, which relies on Africa remaining an under-developed exporter of cheap raw materials.

Nor has China’s co-operation been limited to economics. In 2004, China supported Nigeria’s bid for a seat on the UN Security Council, and in 2006, Nigeria signed a Memorandum of Understanding on the Establishment of a Strategic Partnership with China – the first African country to do so. It is a partnership with a solid base of support – according to a BBC poll conducted in 2011, 85% of Nigerians have a positive view of China; perhaps not surprising when even pro-US security think tanks like the Jamestown Foundation admit that “China’s links with Nigeria are qualitatively different from the West’s, and as a result, may potentially produce benefits for the ordinary people of Nigeria”. Symbolising the importance of the relationship, current Chinese Premier Li Keqiang made Nigeria his first foreign destination after taking up the role in 2013.

This growing South-South co-operation is not viewed positively by the US, which is witnessing what it once saw as a dependable client state edge increasingly out of its orbit. The African Oil Policy Initiative Group – a consortium of US Congressmen, military officials and energy lobbyists – had already concluded in a 2002 report that China was a rival of the US for influence in West Africa that would need to be deterred by military means, and China has been increasingly viewed by US policymakers as a strategic threat to be contained militarily ever since. A report by US Chief of Staff Martin Dempsey just this July highlighted China as one of the major ‘security threats’ to US domination, for example – although Obama’s ‘Pivot to Asia’ policy had already made this clear back in 2013.

Is it such a stretch, then, to think that the US might actually want to cripple its strategic rival, China, by destabilising her allies, such as Nigeria? After all, despite continued US links to Nigeria, it is China, more than any other foreign partner, who has the most to lose from the Boko Haram insurgency, as the Jamestown Foundation makes clear: “Unlike most other foreign actors in the country, [the Chinese] are investing in fixed assets, such as refineries and factories, with the intention of developing a long-term economic relationship. Consequently, stability and good governance in Nigeria is advantageous for Beijing because it is the only way to guarantee that Chinese interests are protected”.

If the US increasingly sees its own strategy in terms of undermining Chinese interests – and there is every sign that it does – the corollary of this statement is surely that instability in Nigeria is the only way to guarantee that Chinese interests are threatened – and, therefore, that US strategic goals are served. The US’s lacklustre efforts in backing Nigerian efforts against Boko Haram – from blocking arms deliveries last year, to funding the fight in all of Nigeria’s neighbours, but not Nigeria itself – as well as its suspension of Nigerian crude oil imports from July 2014 (“a decision that helped plunge Nigeria into one of its most severe financial crises”, according to one national daily) would certainly indicate that.

Posted in Africa, LibyaComments Off on ‘Deadliest terror in the world’: The West’s latest gift to Africa

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