Rational Asymmetric Development

Abstract

A recent publication by the World Bank on Millennium Development Goals (MDGs) has established that extreme poverty has been decreasing in all regions of the world with the exception of sub-Saharan Africa (SSA), in spite of over two decades of growth resurgence. This chapter explores the role of transfer mispricing in SSA's extreme poverty tragedy. The analytical structure entails: (1) emphasis of rational asymmetric development as the dark side of transfer pricing; (2) linkages between financial reporting, international financial reporting standards (IFRS), transfer pricing and poverty; (3) evidence that the recent growth resurgence in African countries has been driven substantially by resource-rich countries which are experiencing high levels of exclusive growth and extreme poverty; (4) the practice of transfer mispricing by multinationals operating in resource-rich countries of SSA and (5) a Zambian case study of extreme poverty and transfer mispricing schemes by Glencore in the copper industry. While transfer mispricing is contributing to diminishing African growth, available evidence shows that the component of growth that is not captured by transfer mispricing does not trickle down to the poor because the African elite is also animated by practices of rational asymmetric development. Policy implications for the fight against extreme poverty are discussed.