Poor pushed aside as corporates pocket pandemic funds in developing countries

Large corporations, rather than ordinary people, have been the main beneficiaries of Covid bailout funds in many lower-income countries. Despite the rhetoric of “building back better” that has surrounded responses to the economic fallout of the pandemic, a new report from the Financial Transparency Coalition shows that the majority of Covid-19 recovery funds in developing countries have gone to big corporations instead of toward social protections, small and medium sized business enterprises, or those working in the informal sector.

Towards a People’s Recovery: Tracking Fiscal and Social Protection Responses to COVID-19 in the Global South is the first major analysis of public bailout funds disbursed in the Global South during the pandemic. It analyses data from a total of nine countries: Kenya, South Africa, Sierra Leone, Bangladesh, India, Nepal, Honduras, Guatemala, and El Salvador.

In terms of the total amount of funds allocated, a staggering 63 percent of pandemic-related funds went on average to big corporates in eight of the nine surveyed countries, while only a quarter of the funds went to social protection. (This excludes India, where support for different sectors was more evenly balanced, but where the government changed the definition of “small businesses” during the pandemic.) However, the total corporate stimulus is likely to be even larger, as these numbers don’t include expected revenue shortfalls from tax cuts, especially in Bangladesh and India, or the cost of tax amnesty programmes, as in Bangladesh and Honduras.

“By the end of 2021, 150 million people are expected to fall into extreme poverty due to the pandemic. But in most countries the main bailout funds are going to big corporations, while those most impacted by this crisis in the Global South – the poor, informal workers, and smaller businesses – are being left out. This threatens to further widen the gap between rich and poor, and increase countries’ mounting debt, all while undermining countries’ healthcare and social protections systems.”

Matti Kohonen, director of the Financial Transparency Coalition

In addition, the report also found:

• In Kenya, 92 percent of Covid-related bailout funds went to big corporations, rather than to those facing poverty. This made Kenya’s corporate tax rate the lowest in East Africa, fuelling tax competition. Sierra Leone fared slightly better, with 74 percent of announced funds going to big trading corporations – but that proportion increased to 92 percent when taking into account funds that have actually been allocated.
• Only one country surveyed, Guatemala, spent more bailout money on social protections than on other categories. The share of Guatemala’s recovery package spent on social protections came in at 54 percent, followed by India (38 percent), South Africa (32 percent), and Honduras (23 percent).
• Only two percent of funds in the countries surveyed went to support workers in the informal sector, even though they often make up most of the workforce. Some countries – like Bangladesh, South Africa, Nepal, and Honduras – did not allocate any funds for these workers. This comes despite the fact that, for instance, Bangladesh sees 87 percent of its workforce in the informal sector.

Additionally, much of the money allocated to small and medium sized business enterprises never reached these companies. In Bangladesh, for instance, only a third of funds allocated for smaller businesses had been disbursed by the time of the Financial Transparency Coalition’s survey. Similarly, in Guatemala much of the money allocated to small and medium sized business enterprises was diverted to other projects.

The new report also warns about a lack of transparency of the recovery funds, including emergency funds provided by organizations like the World Bank and the International Monetary Fund (IMF). In Kenya, for instance, the World Bank provided $50 million in immediate funding to support the country’s emergency response – funds that are now unaccounted for. This is partly due to most international monitoring systems looking at initial funding announcements, rather than tracking the actual disbursement of funds.

To address the dangerous imbalance in existing Covid bailout funds, the Financial Transparency Coalition recommends the following:

• Implement a minimum corporate tax rate of at least 25 percent, in line with the proposal from the United Nations Financial Accountability, Transparency and Integrity (FACTI) Panel.
• Adopt or raise taxes on the wealthy, corporations, and high-income earners to ensure those who can afford to pay shoulder the lion’s share of the cost.
• Implement public beneficial ownership registries, to know who benefits from recovery spending, and profits made during the pandemic.
• Introduce greater accountability to provide transparency on the conditions attached and disbursements made of Covid-19 recovery funds, including World Bank funds.

See a collection of the Tax Justice Network’s work on Coronavirus and tax justice here.

About the Financial Transparency Coalition

The Financial Transparency Coalition is a global civil society network, operating as a collaborative coalition of eleven civil society organisations based in every region of the world. It works to curtail illicit financial flows through the promotion of a transparent, accountable and sustainable financial system that works for everyone. The members of the Financial Transparency Coalition are the Asian Peoples Movement on Debt and Development, Centre for Budget and Governance Accountability, Christian Aid, the European Network on Debt and Development, Fundación-SES, Global Financial Integrity, the Latin American Network on Debt, Development and Rights, the Pan-African Lawyers Union, Tax Justice Network, Tax Justice Network Africa, and Transparency International.