Seventeen years later — the African Development Bank (AfDB) is estimating that US$1 trillion has been lost from Africa because of corporate tax evasion while the high level panel report on Illicit Financial Flows (IFF) chaired by former South Africa President Mr Thabo Mbeki is estimating that US$50 billion per year is lost from Africa through trade mis-invoicing.
Africa is endowed with a vast array of natural resources that if properly governed, present the continent with a massive potential for harnessing the much-needed financial resources for development and therefore the need to stop corruption, IFFs which have a potential of stopping Africa’s socio-economic development.
In this light, the African Forum and Network on Debt and Development (AFRODAD), a regional platform and organisation that lobbies and advocates for debt cancellation and addressing other debt related issues in Africa held a summer school on “Raising the voice against Illicit Financial Flows, Corruption, Debt and Inequality in Africa: Tackling Existing and New Challenges” in Mangochi, Malawi recently – in an effort to contribute to the development and implementation of transparent, accountable and efficient mechanisms for the mobilisation and utilisation of financial resources in Africa, both domestic and external resources.
The summer school training for parliamentarians, civil society, faith leaders and the media was held as an innovative way of engaging with a core group of influencers and decision-makers to build their understanding and commitment to the key issues of concern, in particular related to IFFs, corruption, inequality, natural resource governance, debt management, the aid system in Africa and PPPs.
AFRODAD director Dr Fanwell Kenala Bokosi said as a Pan-African organisation, AFRODAD supports and promotes initiatives of the African Union, in particular Agenda 2063 and the Africa Mining Vision (AMV).
“Our work is guided by the vision of ‘The Africa We Want’, an integrated, prosperous and peaceful Africa, driven by its own citizens, representing a dynamic force in the international arena,” he said.
Dr Bokosi said the Addis Ababa Action Agenda 1 (AAAA) outcome document identifies domestic public resources as one of the seven action areas under its global framework for financing development post-2015.
Furthermore, Agenda 2063 and Agenda 2030 all recommend countries to strengthen domestic resource mobilisation (DRM) as a means for Africa to become self-reliant and finance its own development.
“DRM is meant to contribute 75 percent to 90 percent to the financing of Agenda 2063 on average per country, including through enhanced fiscal resource mobilisation, maximisation of natural resource rents – OGM and the curbing of illicit financial flows (IFFs).
“While domestic resource mobilisation is admittedly a more sustainable financing mechanism, Agenda 2063 Financing Strategic Plan also recommends the harnessing of external resources for development such as Official Development Assistance (ODA) and Public Private Partnerships (PPPs). These are critical to Africa’s development as they supplement to most government’s public purses”.
“Agenda 2063 is a strategic framework for the socio-economic transformation of the African continent over the next 50 years. It seeks to accelerate the implementation of past and existing continental initiatives for growth and sustainable development”.
“Agenda 2030 also known as the Sustainable Development Agenda was adopted by world leaders at the UN Summit in September 2015. The Agenda 2030 consists of 17 Sustainable Development Goals (SDGs) and 169 targets to be achieved by 2030,” he said.
Legal practitioner and academic at Cardiff University in the United Kingdom, Ms Layla Abdul Latiff said the problem of IFFs is of great concern to Africa as it has negative implications on mobilising resources domestically.
“As noted by the AU, Africa is losing around US$50 billion annually through IFFs. IFFs reduce the size of potential domestic resources that countries can harness to finance their developmental programmes. Poor domestic resource mobilisation leads to poor social service delivery, huge debts, increased poverty and inequality. AfDB estimated that US$1 trillion has been lost from Africa because of corporate tax evasion.
“The International Monetary Fund (IMF) is saying globally US$200 billion is lost through tax losses. If we come close to home, the high level panel report on Illicit Financial Flows (IFF) chaired by former South Africa president Mr Thabo Mbeki estimated that US$50 billion per year is lost from Africa through trade mis-invoicing,” she said.
“This is the amount that is needed to eradicate poverty from Africa, to build hospitals, build infrastructure, provide social welfare, the amount needed to send our children to school, the amount needed to narrow the income inequality gap between the rich and the poor in Africa.”
Ms Latiff said large companies are the biggest culprits of illicit outflows from Africa, followed by organised crime adding that corrupt practices and weak governance capacity have facilitated these illicit outflows.
“Commercial activities including transfer pricing abuses by multinationals, tax evasion, laundered commercial transactions, aggressive tax avoidance, duty waivers and mis-invoicing account for 65 percent of the global total of IFFs. Criminal activities are estimated to account for 30 percent and corruption for around five percent globally,” she said.
Corrupt practices play a key role in facilitating all aspects of illicit financial flows. Literature gives several examples of the role of corruption to fuel IFFs.
These include bribes paid to customs officers; inducements to tax inspectors, including job offers; and payments to security officers, bankers and judges.
Mr Raphael Kamoto – a director of strategic partnerships, planning, monitoring and evaluation at Africa Tax Administration Forum (ATAF) said to counter corruption which stifles economic growth and diverts desperately needed funds from education, healthcare and other public services African countries must share information on multinational companies operating in their jurisdictions.
“There is need for African countries to start exchanging information on taxes with other African countries. That will curb tax evasion, corruption as well as transfer of profit or funds from one country to another – the funds which end up in Europe or America at the expense of the African country where it was made,” he said.
Mr Kamoto encouraged African countries not to seek to outshine each other on tax incentives offered to foreign investors saying they should rather work together for the benefit of their respective countries.
“Several countries including Zimbabwe and Lesotho have signed the ATAF which enables them to share tax information and we are moving in the right direction,” he said.
AFRODAD argues that if illicit outflows are curbed, and the funds used domestically, the scale of the flows involved will have significant positive impact on development, and reduce Africa’s reliance on aid and external borrowing to finance development.
It is in this view that combating IFFs remains a prerequisite for effective and efficient domestic resource mobilisation and financing sustainable development.
Failure to effectively mobilise resources domestically to fund developmental projects and national budgets has resulted in governments borrowing externally.
Loan contraction presents a number of challenges to African countries considering that the absorptive capacities of many African countries are poor.
Countries end up failing to generate resources to repay the loans as the contracted loans are consumed and not invested in productive sectors of the economy.
The result is a burden on the tax payers who are heavily taxed by their governments in a bid to generate resources for loan repayment.
Source: Patrick Chitumba (Mangochi, Malawi)