The Treaty that Crippled Senegal

Senegal, one of the poorest regions in the world, has become a renowned tax haven for the Canadian multinational company SNC-Lavalin to avoid taxes furthermore devastating Senegal’s developing nation. Mauritius offered the engineering company, SNC-Lavalin, a deal that allowed the company to build a processing plant in Senegal which only monetarily benefitted the financial industry in Mauritius and the engineering company by avoiding taxes. The Senegal-Mauritius treaty will significantly hurt Senegal, a country whose poverty is striking. A nation where “half the population lives in poverty, five percent of newborns die and where one in six children are stunted by years of poor nutrition” (Fitzgibbon 2018). While Mauritius’ offshore financial industry and the multinational corporation involved, the engineering company SNC-Lavalin, will become significantly wealthy. Unfortunately, this is just one treaty among many that rid African countries of billions of dollars. In this essay I will explain how the Mauritius-Senegal treaty will significantly hurt Senegal’s developing nation, SNC-Lavalin will benefit financially, and lastly, I will discuss the corruption that Mauritius has induced in Senegal.

Research shows that multinational companies or wealthy individuals use offshore tax havens in developing nations rather than wealthier nations because tax enforcement is not strong in developing nations. This allows multinational corporations or wealthy individuals to avoid taxes furthering the amount of income they can possess. In African countries, tax evasion and avoidance contribute to Africa’s overall tax revenue making Africa more susceptible to wealthy individuals or multinational corporations taking advantage of corporate taxes (Fitzgibbon 2017). The offshore businesses are legal, but the Panama Papers have exposed the behavior of using tax havens to impoverish African governments and widen the inequality within African countries. A chief tax inspector and a tax justice advocate in Senegal, Ousmane Sonko states, “A tax haven might be heaven for multinational companies to avoid taxes, but, for the country it’s hell” (Fitzgibbon 2018).

Mauritius offered the engineering company, SNC-Lavalin, a deal that allowed the engineering company to build a processing plant in Senegal for $50 million. Senegal thought that this agreement would be a great opportunity because SNC-Lavalin was going to build a processing plant for the Grand Cote mineral sands mine extracting mineral-laden sands from 60 miles of beach along the Senegal coast (Fitzgibbon 2018). Unfortunately, the Senegal-Mauritius treaty did not end up becoming a successful opportunity for Senegal. The Senegal-Mauritius treaty made it simple for SNC-Lavalin to avoid $8.9 million in taxes, becoming $8.9 million in lost revenue for Senegal. These deals are marketed by international hubs like Mauritius to developing nations to help them or mutually benefit both sides. Unfortunately, the agreements almost never end up benefiting the developing nation and continually widen the gap between the rich Global North and the poor Global South.

The mine in Senegal turned out to be a faulty decision when at least seven villages were forced to leave in the construction of the processing plant. Many people who were expected to get up and leave complained of foot-dragging resettlement schemes causing the residents and farmers to be displaced from their most fertile lands to the less fertile lands (Fitzgibbon 2018). This not only displaced and put the residents of Senegal at an extreme hardship, but it robbed Senegal of millions in tax revenue that is badly needed for it’s developing nation. When multinational corporations or other wealthy individuals take advantage of poor regions and use them for tax havens it deprives governments of vital resources. The resources affected buy this total in crucial public services, schools, hospitals, and ultimately poverty and inequality (Paradise Papers: the hidden costs of tax dodging: 2017). The lost tax revenue could have covered half the cost of Senegal’s largest public hospital for a whole entire year. This would have been critical to Senegal because its nation is in absolute poverty levels and the majority is caused by “ill-health” (McEvers 1980, 41). A country where “half the population lives in poverty, five percent of newborns die and where one in six children are stunted by years of poor nutrition” (Fitzgibbon 2018). The tax revenue loss is not a simple loss for Senegal as it will significantly increase the poverty of its people.

Senegal’s economy remains one of the least developed countries in the world. The residents of Senegal are known to live off of $1 per day. The unfortunate bit to this research is that Senegal has actually economically grown by five percent since 1995. Although there has been a five percent increase, the living conditions, poverty, and health of the people in Senegal have not improved. Reducing the occurrence of illness through good sanitation, a healthier environment, and policies that ameliorate the quality of health care in terms of treatment efficiency could be very beneficial to the Senegal population (Séne 2014). However, this is simply impossible when a country is being taken advantage of by multinational company’s offshore tax havens.

The multinational engineering company, SNC-Lavalin, scored a deal of $50 billion on its deal with Mauritius to build a processing plant in Senegal’s coast to avoid tax payments. The company was not actually a contractor it was considered a channel. According to the Paradise Papers, SNC-Lavalin’s involvement with the mine had officially come to a close when the processing plant was built. SNC-Lavalin was not involved for the most part. It was considered a shell, only created to help the engineering company avoid taxes. SNC-Lavalin was operating from an office in Mauritius at the offshore law firm Appleby. According to the SNC-Lavalin Mauritius company’s financial states and 24 invoices in 2012, when most of the work was completed on the processing plant, Grand Cote paid $44.7 million in fees to SNC-Lavalin Mauritius. SNC-Lavalin claims that it did not use the Mauritius company with the intention to skip out on reducing its taxes. Instead, the company claims that it chose the Mauritius company because of the slim political risk, the bilingual workforce, efficient banks, and “facility for doing business in Africa” (Fitzgibbon 2018). Ezenagu, a Nigerian claims it is simply a remake of neocolonialism, “In the 1800s, in the 1900s, they came with violence. Now, they come with sophisticated accounting systems and the lure of investment. But no country needs investment if it’s not going to be rewarded.”

Mauritius, a multiethnic island of 1.3 million people occupying it, is the center for much secret offshore financial networks that legally allow businesses or individuals to protect their assets and profits from taxation. In 1989 the Mauritius government embarked on a new journey to transform the island into an international hub for investments and became the “gateway to Africa” for multinational corporations or wealthy individuals to use Africa as “an unfathomed mine of opportunities next door” (Fitzgibbon 2018). This is exactly how Mauritius takes advantage of poor African countries like Senegal. Its hub has become a significantly corrupt system.

In conclusion, the Senegal-Mauritius treaty significantly hurt Senegal’s developing nation, SNC-Lavalin benefitted financially, and lastly, Mauritius’ corrupt financial industry has succeeded with its amoral deals. Senegal is very different from Mauritius because half of its population lives in extreme poverty. While wealthy Mauritius is Africa’s second most developed country. Senegal thought that joining an agreement with Mauritius would provide a reciprocal development in both countries by persuading investment in Senegal by Mauritius. However, Mauritius has lead to an increase in allowing foreign companies to detour Senegal’s tax laws with shell companies in Mauritius. The engineering company SNC-Lavalin created in Mauritius was provided massive tax savings and stripped Senegal of badly needed tax revenue. 

Bibliography

• Fitzgibbon, Will. “One Company’s Tax “Heave” Is Senegal’s Tax ‘Hell’.” International Consortium of Investigative Journalists, (May 2018). Accessed May 10, 2019. https://www.icij.org/investigations/west-africa-leaks/one-companys-tax-heaven-senegals-tax-hell/.
• Fitzgibbon, Will. “How Officials, Businesses And Traffickers Hide Billions From Cash-Starved Governments Offshore.” International Consortium of Investigative Journalists, (May 2018). Accessed May 10, 2019. https://www.icij.org/investigations/west-africa-leaks/officials-businesses-traffickers-hide-billions-cash-starved-governments-offshore/.
• Fitzgibbon, Will. “Tax Haven Mauritius’ Rise Comes At The Rest Of Africa’s Expense.” .” International Consortium of Investigative Journalists, (May 2018). Accessed May 10, 2019. https://www.icij.org/investigations/paradise-papers/tax-haven-mauritius-africa/.
• McEvers, Norman C. “Health and the Assault on Poverty in Low Income Countries.” Social Science and Medicine. Part C Medical Economics 14, no. 1 (1980): 41-57.
• Séne, Ligane Massamba and Momath Cissé. “Catastrophic Out-of-Pocket Payments for Health and Poverty Nexus: Evidence from Senegal.” International Journal of Health Economics and Management 15, no. 3 (09, 2015): 307-328.