The participation of parliament, civil society organisations and the academia in decision making is a fundamental prerequisite for good governance in the natural resources sector. In democratic states where civil society organisations (CSOs) and parliamentarians are allowed to influence decisions, they often lack the capacity to meaningfully engage. The extractive sector is a highly complex and technical sector. The limited extractive industry knowledge of various African actors compromises efforts towards effectively harnessing the natural resource wealth of Africa for positive development outcomes.
In light of this, the African Forum and Network on Debt and Development (AFRODAD) is hosting the inaugural Extractive Industries Summer School in Harare, Zimbabwe. The summer school will run from 6 to 12 September 2015. The one-week training programme will draw participants from parliaments, CSOs, faith based organisations (FBOs) media and academic institutions in Africa among others.
The specific objectives of the training are:
To improve participants’ knowledge of the extractives value chain (development of resources, capturing of value and transforming value into long term development) and related governance issues
To share and exchange experiences among participants on effective monitoring of the extractive sector and the various actors concerned
To critique and challenge the traditional model of resource based development
To establish linkages between civil society organisations, parliamentarians, labour movements and women as well as the youth in mining
To ensure that CSOs, parliamentarians, labour movements and women as well as the youth in mining play an influential role in monitoring and influencing the governance process, particularly on natural resource
Renowned experts who include professors, captains of industry, government officials as well as grass root people will present and share experiences on the following thematic areas: Political Economy of Natural Resources, Impacts of Mining, Tax, Royalty and Contract Terms, Legislation and Policy, Revenue Management, Disclosure, Small Scale and Artisanal Mining, Employment Creation and Skills Development, Infrastructure and Local Content development//END
ZAMBIA has continued to record massive losses in revenue due to the dubious manner in which mining and other sources of national revenue are being managed, AFRODAD has observed.
In an interview in Gaborone, Botswana, during a seminar on Illicit Financial Flows in Africa and their negative impact on development, African Forum and Network on Debt and Development (AFRODAD) economic governance policy officer, Tafadzwa Chikumbu, said due to the secrecy that surrounds agreements with multinational companies on mineral extraction, Zambia was losing huge sums of money through illicit financial flows.
“Mineral extraction has placed Zambia at a very precarious situation because the bulk of illicit financial flows come from commercial activities which are either transfer mispricing or trade misinvoicing by multinational corporations. The secrecy around the contracts awarded to mining companies expose Zambia in such a way that it loses more money in the region just like South Africa, Congo DR and Angola,” he said.
Chikumbu said the danger of losing more money through such flows had persisted in Zambia and the country would continue grappling with challenges of getting meaningful revenue from such operations if nothing was done to abate the situation.
He said if Zambia was able to collect enough resources, the country could have been in a position to finance education, health, infrastructure development and reduce the gap between the rich and the poor by simply giving social protection to the majority of the poor people.
“Discussions of illicit financial flows should not remain a technical issue because they affect the lives of ordinary people, the poor. We should always relate the implications of such illegal acts on the lives of the majority poor. Efforts, however, have been made by Zambia to try and mitigate the problem by implementing Extractive Industry Transparency Initiative. Although it’s yet to be implemented in a robust way, the country has taken a very positive development to move towards transparency and accountability in the mining sector,” Chikumbu said.
He said illicit financial flows were a problem for Zambia and considering the fact that the money that moves out of the country ends up in another jurisdiction, probably in the global north, there was need for cooperation between the government and countries where the money was going.
Chikumbu said the disclosure of beneficial owners who have corporate offshore accounts was critical in abating the problem.
ENDEMIC poverty and high levels of unemployment are the greatest challenges facing Africa due to widespread corruption and illicit financial flows, says Southern Africa Trade Union Co-ordination Council executive secretary Austin Muneku.
Speaking in Gaborone yesterday when he officially opened a regional seminar on illicit financial flows from Africa and their negative impact on development, Muneku said massive corruption in many African states had led to the collapse of effective institutions of governance, thereby exacerbating illicit financial flows.
“According to the High Level Panel on Illicit Financial Flows from Africa by the Thabo Mbeki-led Panel, Africa is estimated to be losing US$50 billion yearly. In fact, the same report views this as an underestimate because of lack of accurate data from all African countries. At the same time, Africa, particularly the Southern African Development Community (SADC), is in dire need of resources for development as reflected in the dependency on Official Development Assistance (ODA) as resources from national budgets remain inadequate,” Muneku said.
He said illicit financial flows had devastating ramifications for the economies of Africa and the welfare of the masses through the erosion of the public sector, starving African states of the funds needed for development and driving up deficits for the states’ budgets.
Muneku said there was overwhelming evidence that multinational companies operating in Africa shuttle money and subsidiaries between countries to minimise taxes and at the same time, hiding stolen money in untraceable off-shore accounts.
“The monies being stolen from Africa through illicit financial flows could have been utilised to finance public service provision and efforts in the area of industrialisation towards creating decent jobs for our people. What is encouraging, however, is that governments and multilateral agencies around the world are waking up to this issue of illicit financial flows from Africa, and the pressure of transparency in financial reporting is also growing,” Muneku said.
He further said trade unions had no choice but to join the campaign to urge leaders and governments to adopt measures to curb the haemorrhaging of Africa’s resources while harnessing the same resources and investing them in the productive sectors of their economies to improve both living and working conditions on the continent.
And African Forum and Network on Debt and Development (AFRODAD) policy officer in economic governance
Tafadzwa Chikumbu said African countries were in need of tax justice systems to curb illicit financial flows.
“A functional state that can meet the basic needs of its citizens must ultimately rely on its own resources to meet development objectives. We have a situation where our African states look at debt and aid as the most sustainable source of financing development but using a fair tax system, our governments can mobilise domestic revenue, distribute wealth and provide essential services and the much-needed public infrastructure. A functional state should have an efficient and effective tax system that builds a social contract between governments and citizens,” said Chikumbu.
With the Addis Ababa Action Agenda on financing for development now set in stone, one question has come to the fore among the ranks of the global development community: What will be the impact on human development and rights issues of the so-called new financing mechanisms — blended, nongrant and private sector financing — promoted in the Addis agenda?
With the recent launch of the Global Financing Facility in support of the United Nations’ Every Woman Every Child initiative as the flagship instrument for the implementation of the #FFD3 action agenda, it is not surprising that stakeholders such as Countdown 2015 Europe — a consortium of 15 nongovernmental organizations working on sexual and reproductive health and rights issues, led by the International Planned Parenthood Federation’s European Network — are taking a closer look, by conducting in-depth research to assess the impact of these mechanisms on women’s health and rights.
On the sidelines of the recent third International Conference on Financing for Development in Addis Ababa, Ethiopia, Devex spoke to a number of luminaries to identify ways in which the development community can make private sector and nongrant financing work for health.
1. Only take up a loan for what you plan to own.
“Why would you take up a loan for a house you do not live in?” asked Munyaradzi T. Nkomo, information and communications officer at the African Forum and Network on Debt and Development — known as Afrodad — in an interview with Devex.
Nkomo referred here to the danger of pushing for the use of loans and public-private partnerships without taking into account countries’ — often insufficient — financial management capacities.
But let’s take this thought one step further: If you are given credit for renting a house you will only live in for four or five years, who is going to pay back the loan when it is due in 10 or 20 years’ time?
“Governments often think in terms of election cycles — without looking at the long-term debt sustainability and financial consequences of taking up loans,” explained Bodo Ellmers, senior policy and advocacy officer at the European Network on Debt and Development, or Eurodad.
This is perhaps especially true for sectors such as health and SRHR.
“When deciding on the type of financing to use, it is important to differentiate both by country capacity and sector,” affirmed Degol Mendes, secretary of state at Guinea-Bissau’s Ministry of Finance, who spoke exclusively to Devex. “Social sectors cannot be financed through loans they do not produce sufficient economic returns.”
This argument was nuanced by one representative from the banking and financial services sector, who asserted that while the health sector was perhaps seen as being weak when it came to short-term results and was therefore “de-prioritized for investments by governments and the private sector,” investing in health and education was, in the long run, the “best thing you can do to harness the highest yields for sustained economic growth.”
That is, of course, provided that reimbursement for related loans is appropriately sequenced to allow for gradual payback.
How can the Global Financing Facility Trust Fund bring down the cost of engaging the private sector in global health? Mark Suzman, president of global policy, advocacy and country programs at the Bill & Melinda Gates Foundation, explains in this exclusive interview.
As argued by Mark Suzman, president of global policy, advocacy and country programs at the Bill & Melinda Gates Foundation, loans could potentially even increase ownership as they “allow for long-term investments and looking at outcomes instead of two-to-three year outputs.”
However, according to Richard Willis, press officer at the European Investment Bank, this has to be done “in a gradual and appropriate way and in close collaboration with relevant development institutions.”
In conclusion, the aid effectiveness principle of “country ownership,” which has guided the development rhetoric for a number of years, ultimately also needs to be applied to the “new” financing mechanisms: “Own your house and manage your debts” could be an appropriate apothegm — something that can, however, be done by engaging in helpful partnerships.
2. Join forces to minimize risks.
According to the Nigerian proverb, “It takes a whole village to raise a child.” Indeed, joining forces is essential for investing in women’s and children’s development.
“Take our experience in the agriculture sector,” EIB’s Willis explained. “Agriculture is a challenging sector for long-term investments, but we can work with partners to overcome these challenges — and through adequate partnerships, certain sectors may become bankable that have not been bankable before.”
Speaking exclusively to Devex, Tim Evans, senior director for health, nutrition and population at the World Bank, explained how GFF aims at doing just that by challenging what he sees as a misperception of health being a “nonproductive” or “noninvestable” sector.
“GFF will attract new external support by developing a robust investment case that provides confidence to investors — it will highlight evidence-based, high-impact and cost-effective interventions,” he said.
What is crucial here, Evans said, is the instrument’s openness and flexibility to a wide range of innovative partnerships to seek the most suitable combination for each partner country. The World Bank’s AAA credit rating, for example, could be used to issue a bond that would attract private investors toward contributing to large-scale health investments. Supporting mHealth PPPs would be another option, especially those applications targeting women’s and children’s health.
Although GFF has only just launched, some organizations are already thinking of how to best complement it through other innovative instruments.
The Health Credit Exchange, an innovative financing tool launched during #FFD3 by GBCHealth, Total Impact Advisers and the MDG Health Alliance, aims at doing exactly that. Established as a performance-based pooled funding mechanism, HCX aims to attract private capital toward financing high-impact health projects, such as those targeted by GFF.
As explained by Gary Cohen, acting CEO at GBCHealth, HCX could potentially help buy down the repayment obligations of governments that take up a GFF loan. In this way the fund could contribute to mitigating the risks associated with taking up loans for social sectors.
In essence, according to Eurodad’s Ellmers, it is about smart and appropriate risk-sharing between the private and public sectors.
“It can’t be that the public sector starts bearing all the risks of private operations when working with corporations that are perfectly able to bear these risks themselves,” he said.
3. Prioritize win-win PPPs.
Many in the global development community are talking about using official development assistance to leverage private sector finance — but how do we avoid “wasting” scarce ODA resources to invest in the for-profit sector?
A number of #FFD3 participants told Devex that the most cost-effective scenario is to prioritize those initiatives that have a natural “win-win” outcome for both sides, where no major additional ODA injections are needed.
GBCHealth studies show that for companies with a large female customer base, which employ a largely female workforce or operate in areas where the status of women is the underlying cause of poor health and maternal deaths, investments in women’s empowerment and reproductive and maternal health can have a significant impact.
This was confirmed by an Ethiopian woman entrepreneur visited by Devex on the fringes of the #FFD3 conference in Addis: With a high number of female employees, Genet Kebede, founder of small textile company Paradise Fashion, quickly recognized that caring for her employees’ sexual and reproductive health and education needs was key to avoiding multiple long-term absences due to maternity leave and child care. She made family planning education part of the work-related training given to her staff and is now looking into the possibility of providing family planning supplies for free within the premises of her company.
And what is the role of ODA here? It could simply be about helping these women-run SMEs connect with the right partners to ease their access to both domestic as well as international finance and markets.
This is what the International Trade Center has been doing in close collaboration with the Ethiopian government for local businesswomen, explained Arancha González, ITC’s executive director. Amelza Yazew, founder of baby garments company Little Gabies and an ITC beneficiary told Devex that ITC had enabled her to connect with Mongolian entrepreneurs, a collaboration which resulted in a high-quality, blended cotton-Kashmir product that is proving to be very popular on the U.S. market.
And as highlighted by a number of other Devex interviewees, it is also possible to find win-win scenarios in other types of industries too — although it may require thinking outside the box.
The innovative aspect of the Health Credit Exchange, for example, is the cost-effective way it plans to work with the private sector. Selected high-impact health interventions will be assigned a certain number of “exchange credits” based on the specific characteristics of the health interventions. Companies invest by purchasing credits and directing them towards interventions that align with their areas of interest.
“The intent is to establish these credits as a private sector social financing instrument that will be well recognized by governments and international agencies overseeing the implementation of health goals, as reflected in the SDGs,” said GBCHealth’s Cohen, adding that organizations involved in the initiative are exploring potential methods to incentivize the credits purchased by companies — in areas such as regulatory or tax benefits — to provide further motivation for companies to invest in HCX.
4. Set clear rules for healthy investments.
“What is often forgotten when it comes to PPPs, is the word ‘public,’” Afrodad’s Nkomo told Devex.
Indeed, the primary role a government must take in the context of PPPs is that of a regulator. Even the private sector itself is asking for that in the name of investment security.
“In any sector there needs to be clarity about the rules for investing,” said one private sector representative during an #FFD3 side event on impact investments. “Otherwise, the project may be deemed too risky.”
As highlighted by nonprofit organizations, such as Eurodad and Afrodad, a number of international frameworks and principles have already been established to help regulate the so-called new financing methods for development. Among others, these include the U.N. principles on responsible sovereign lending and borrowing, the U.N. principles on responsible investments, and the Organization for Economic Cooperation and Development principles for public governance of public-private partnerships.
The next step is to make these frameworks binding, translating them into national laws and policies. Establishing an open, transparent and participatory U.N.‐led process for oversight, monitoring and review of international PPPs is another recommendation coming from CSO platforms such as the FFD women’s group.
5. Involve communities and civil society for local buy-in.
Not only governments, but also communities need to be won over to make a project work.
According to Afrodad’s Nkomo, there are numerous examples of private sector initiatives in Africa, especially in the extractives industry, which have failed due to a rejection and blockage from local communities. In other cases, communities successfully pushed for certain conditions to be attached to companies’ activities, for example the building of local technical capacities.
One key ask of the CSO community represented in Addis was that community-level impact assessments should be carried out prior to engaging in any major PPPs. Prior and informed consent by affected communities should be sought, they said, especially for those PPPs aimed at delivering or affecting what is considered to be a public good, such as health, for example.
6. Identify high-impact innovations.
What products and services benefiting women’s health are worth investing in? And which are likely to reach the markets, are scalable and will have the highest impact?
Showing value for money is particularly important when it comes to investing in social sectors.
“The problem is not so much on the supply side, but on the demand side,” said one private sector participant at a #FFD3 side event on impact financing. “How can we find investable social projects?”
One possible answer to this question was provided by the recent Reimagining Global Health report, launched by the newly created Innovation Countdown 2030 initiative. It highlights 30 lifesaving health innovations selected by external health experts for their potential to transform global health by 2030. Accessibility, affordability and scalability were key criteria for selecting the best innovations from more than 500 entries submitted.
Striking examples included a low-cost uterine balloon tamponade kit, suitable for use in remote areas that could reduce deaths due to postpartum hemorrhage by 11 percent and thus potentially save 169,000 maternal lives by 2030; and in the area of reproductive health, a number of long-lasting, low-cost and easy-to-use contraceptives were presented that may be self-administered by women, outside health care settings.
Now that the dust has settled in Addis and the global development community knows who should set the rules of the game, who are its key players, as well as how much and and what to bet on going forward, there is one logical next step: to put the pieces of the puzzle together to make markets work for health and health work for markets.
he private sector has long been seen as an engine for economic growth, but it has in recent years also increasingly been recognized as a crucial player and partner in international development. While the manner of business’ involvement is still under contention, some companies are beginning to join the shared value movement by transforming traditional corporate social responsibility activities to better respond to their possible new job description.
Heightened interest and optimism about business’ place in development have been triggered in large part by austerity measures that have forced many traditional donors and donor countries to tighten their belts on development aid. Unsurprisingly, mobilizing domestic resources and leveraging private finance for development objectives were among the hottest topics at the recently concluded third International Conference on Financing for Development in Addis Ababa, Ethiopia.
By generating jobs and contributing taxes to the government, business plays an important part in a country’s economic development. However, the global development community — particularly civil society — remains less sure about just how far the sector can go in working to eradicate extreme poverty and promote human rights globally.
‘Excited but skeptical’
While business revenues keep economies afloat, the reality is that tax evasion and illicit financial flows keep the money from trickling down and improving conditions for the world’s poorest.
With the Addis Ababa conference on Financing for Development in full swing, last minute suggestions on the right priorities are flooding in. However, two critical pieces of the puzzle for leveraging adequate financing for development have received little attention so far, namely more concrete commitments on tax justice and developing countries’ capacity to enforce public finance policies. While the importance of these issues is highlighted in the draft outcome document, the proposals on each point are unfortunately short of concrete ideas, activities and initiatives that will change the landscape of taxation in developing countries for the better. Both developed and developing countries need to show greater commitments here.
First, the Addis conference offers participating states the opportunity to put forth actionable commitments for the taxation of private sector players and, in particular, of multinational corporations in a way that achieves social and economic transformation in developing countries. The importance of this has already been stressed by the finance ministers of the G7 countries, who reaffirmed the importance of curbing systemic “base erosion and profit shifting” (BEPS) at their recent meeting in Dresden on 27 – 29 May 2015. It would be an important signal from the Addis conference to follow this lead and to go beyond the lofty phrasing in the current draft outcome document that “we will make sure that a fair share of taxes is paid where economic activity occurs and value is created”.
Concretely, the outcome document should include a commitment to implement the OECD BEPS Action Plan that already has support from the OECD members and the G20 countries. The action plan on base erosion and profit shifting is an attempt to address flaws in international tax rules such as transfer-pricing that allows multinational to shift profits to low-tax jurisdictions. Such practices effectively reduce developing countries revenues and make financing of development by developing countries themselves more difficult. More forward looking, the action plan also provides new ideas for taxing an internationalized digital economy, which steadily increases in relevance in developing countries as well. Since poor countries were not invited as equal negotiating partners in the BEPS process but were only consulted, the conference offers an opportunity for these countries to engage in shaping the implementation of the plan. In particular, a clear indication of where companies should pay taxes on money earned in developing countries should be at the center of debate and which is currently not part of the BEPS plan. There is also a need to include measures of support by developed countries to developing countries for implementing key recommendations made in the action plan that are too expensive or too technical for some of the poorest countries to put into action by themselves.
Further and alongside bringing the BEPS action plan to life, the Addis outcome document should include a clear roadmap and timeline on automatic exchange of tax information between national tax administrations to move from political statements to concrete implementation. A central problem in levying taxes at the national level are cross-border financial flows removed from the reach of national tax collectors because they simply don’t know about these outflows. In that case, the territoriality principle of taxation is undermined by a lack of information on assets that should be taxed at home, but are transferred abroad. As a remedy, FFD3 should include a commitment by industrialized and developing countries to harmonize tax regimes and to strengthen information exchanges on tax data at the administrative level within a five-year period. Such actionable points would considerably strengthen the Addis conference outcome and signal that domestic resource mobilization is possible and desirable.
Second, the outcome document must also provide specific ideas for strengthening the capacity of the public sector for dealing with finance and tax administration. Developing countries do have a responsibility to improve their public financial management and tax administration, otherwise the reforms mentioned above will be superficial and not bring the desired results. As such, developing countries must hold themselves accountable for improving tax collection. To make this a reality, the Addis conference should emphasize the importance of initiatives such as the “Collaborative Africa Budget Reform Initiative” and ensure commitments to scale up the peer-to-peer exchanges among national budget officials. Such informal exchanges should aim at a dissemination of good practices on taxation and the joint drafting of recommended practices that every tax administration can use to improve their policies and tax collection practices.
What is more, developing countries must commit to spending greater resources on domestic resource mobilization and collection in addition to technical reforms. Concretely, developing countries must commit to a yearly annual increase of financial and personnel resources for national budget and finance authorities. Further, the current draft document states that “no developing country that has set out credible plans for strengthening domestic revenue mobilization and tackling corruption will lack for international support to make these plans a reality”. This should be reworded into a commitment by donors to match the incremental increase in funds suggested above and to use the additional resources to train and reward public finance and tax administrations that underwent effective reforms and have improved tax collection.
While these are by far not the only ways to strengthen the Addis outcome document, they go beyond the vague language of the current outcome document by offering concrete and actionable ideas for strengthening the tax base of developing countries and ensuring that national budget institutions are capable of collecting taxes effectively. There is still time left to shape the final outcome document into one that truly changes the landscape of development finance for the better.
This article was also featured in the FfD3 UN Blog
Dr. Fanwell Bokosi, Tadazwa Chikumbu, and Alexander Gaus
Dr. Fanwell Bokosi is Executive Director and Tafadzwa Chikumbu Policy Officer of AFRODAD, the African Forum and Network on Debt and Development. AFRODAD is a civil society organisation established in 1996 as a regional platform and organisation for lobbying and advocating for debt cancellation and addressing other debt related issues in Africa. AFRODAD is also part of the African Policy Circle, a group of African think tanks engaged in strengthening Southern Voices in global and regional development debates.
Alexander Gaus is a Research Associate with the Global Public Policy Institute (GPPi) in Berlin, Germany. He currently supports the establishment of the African Policy Circle.
Africa has lost $1 trillion through illicit financial flows (IFFs) over a 28-year period.
The loss was recorded between 1980 and 2008.
The continent is reported to be losing $50 billion annually through the illegal activities of rich individuals and multinational companies in the extractive sector mostly in oil, gas and mining.
According to the African Union/Economic Commission for Africa High Level Panel (HLP) on IFFs from Africa report, the multiplier effect of these challenges were loss of jobs, income, decent education, healthcare facilities, infrastructure and other basic needs of Africans.
“Some of the effects of illicit financial outflows are the draining of foreign exchange reserves, reduced tax collection, cancelling out of investment inflows and a worsening of poverty. Such outflows which also undermine the rule of law, stifle trade and worsen macroeconomic conditions are facilitated by some 60 international tax havens and secrecy jurisdictions that enable the creating and operating of millions of disguised corporations, anonymous trust accounts, and fake charitable foundations. Other techniques used include money laundering and transfer pricing,” the report noted.
It is at the backdrop of these glitches that a campaign to battle illicit financial flows from Africa has been launched in Nairobi with a call on African governments to collaborate to stop the annual $50 billion financial loss.
Stop the Bleeding
An interim working group (IWG) of Africa IFF Campaign platform comprising – six pan-African organisations namely Tax Justice Network-Africa (TJN-A), Third World Network-Africa (TWN-Af), Africa Forum and Network on Debt and Development (AFRODAD), the African Women’s Development and Communication Network (FEMNET), the African Regional Organisation of the International Trade Union Confederation (ITUC-Africa) and Trust Africa supported and joined by the Global Alliance for Tax Justice (GATJ), met at the Uhuru Park in Nairobi, Kenya to launch the campaign.
Dubbed “Stop the Bleeding” Africa IFF Campaign, individuals from all walks of life joined in the movement, which is aimed at preventing IFFs from Africa in order to promote development.
Speakers at the launch voiced their frustrations and urged Africans and African governments to collaborate to bring an end to the plundering of Africa’s wealth.
The Chairperson of the Pan-African MPs Network on IFFs and Tax, Ms Khanyisile Litchfield Tshabalala; the Chairperson of the International Trade Union Confederation Africa, Mr Joel Odigie, and the Head of US-Africa Network, Dr Anyango Reggy, gave brief speeches calling for an end to IFFs.
They were unanimous in stating that Africa was not a poor continent and, therefore, deserved better.
Dr Reggy disclosed that the United States of America (USA) was also a victim of IFFs with a loss of $100 billion annually.
A five-kilometre walk through major streets in Nairobi was organised after the launch.
More than 80 individuals joined the coalition in the march aimed at drumming home the need for concerted efforts to protect the African purse and resources.
The procession attracted Kenyan citizens who came out of their offices to catch a glimpse of the march.
Motorists had to give way to the procession, which was under tight security.
The procession began at the Uhuru Park and was rounded off at the same park.
The organisers said the march would be replicated in other African countries.
They also disclosed that the campaign would be sustained until Africa got what it truly deserved.
Meanwhile, a training programme on tax and IFFs organised by the Tax Justice Network – Africa (TJNA) for selected African journalists has ended in Nairobi, Kenya.
Illicit financial flows out of Africa have become a matter of major concern because of the scale and negative impact of such flows on Africa’s development and governance agenda.
The amount lost by Africa through IFFs is approximately double the official development assistance (ODA) that Africa receives and, indeed, the estimate may well be short of reality as accurate data does not exist for all transactions and for all African countries, the HLP report has noted.
Preliminary evidence showed that taking prompt action to curtail illicit financial outflows from Africa would go a long way to provide a major source of funds for development programmes on the continent.
“One of the keys to achieving success is the adoption of laws, regulations and policies that encourage transparent financial transactions,” said the report.
AFRICA loses massive financial resources of about $50 billion each year through illicit activities of multinational companies and rich individuals.
These resources, if retained in the continent, could be invested in productive sectors of economies to lift Africa’s growing population from poverty.
According to the African Union/Economic Commission for Africa High Level Panel, chaired by former South African president Thabo Mbeki, on Illicit Financial Flows (IFFs) from Africa report the continent lost about $1 trillion between 1980 and 2008.
The multiplier effects of these losses are much larger. IFFs from Africa in real terms mean loss of jobs, income, decent education, health facilities and other basic infrastructure critical to transforming the economy of countries in Africa and the socio-economic conditions of Africans.
According to the High Level Panel’s report the major perpetrators of IFFs from Africa are multinational companies, especially those operating in Africa’s extractive sector, mostly in oil, gas and mining. These activities pose a major threat to sustainable development and security
It is against this backdrop that the Interim Working Group (IWG) of the African IFF Campaign Platform came about, comprising six Pan-African organisations namely; Tax Justice Network-Africa (TJN-A), Third World Network-Africa (TWN-Af), Africa Forum and Network on Debt and Development (AFRODAD) the African Women’s Development and Communication Network (FEMNET), the African Regional Organisation of the International Trade Union Confederation (ITUC-Africa) and TrustAfrica supported and joined by the Global Alliance for Tax Justice (GATJ) will launch a unified African campaign platform on Illicit Financial Flows.
Dubbed “Stop the Bleeding”, the launch will take place on June 25, 2015 in Nairobi, Kenya.
As the world prepares to converge on Addis Ababa, Ethiopia, in July for the third Financing for Development Summit, evidence has shown that the health sector has delivered successful campaigns and partnerships to implement the Millennium Development Goals.
Africa is now at a critical stage in its development trajectory. Since 2000, the continent has registered remarkable progress in a number of sectors. Political conflicts have declined, economic growth has increased, and economic management has improved. Governance and political stability in most countries have contributed to Africa’s development.
But while progress on socio-economic indicators has been positive, it has not been enough to achieve the MDG targets. Of particular concern are the high rates of child and maternal deaths, as well as communicable diseases such as HIV and AIDS, malaria and tuberculosis.
Yet, the sustainable development goals present fresh impetus on how to finance health.
Africa has established a common position on the post-2015 agenda, to speak with one voice and facilitate the global consensus on the SDGs. The Chatham House report recommends $86 per capita will be needed to finance health, which for sub-Saharan Africa comes to $80 billion or 5 percent of gross domestic product. Therefore, it is vital that African countries meet the Abuja commitment of 15 percent of budget expenditure on health leading up to the summit.
Domestic resource mobilization is critical to financing the health SDGs. Reforms on tax legislations, systems and structures will ensure that more funds are allocated to the health sector, as well as address the issue of illicit financial flows and losses through transfer mispricing, corruption, double taxation agreements and tax evasion.
This would require international tax cooperation through the implementation of the Mbeki report on illicit financial flows for Africa. Increasing tax on items like tobacco and alcohol, foreign exchange transactions, air tickets and mobile phones, in addition to stricter taxation laws on harmful greenhouse gases, is an innovative way to raise funds for health budgets.
Domestic public finance has increased, but for most countries it remains low. Trade can boost domestic production and generate critical revenue for health; yet, tariff-free trade to developed countries ends up costing the export country. The summit should ensure that these transaction costs are lowered.
Remittances are also key. For example, Nigeria and Senegal receive 10 percent of GDP from remittances annually. However, the cost of remitting funds to Africa remains extremely high, even within Africa. These barriers must also be reduced.
Official development assistance remains a critical funding source, particularly for low-income countries, providing 70 percent of all external funding, as well as a third of public expenditure available to governments. ODA continues to provide financial and technical cooperation from both OECD donors and emerging donors.
The private sector too plays an important part by focusing on infrastructure, energy, agriculture, urban development, water systems and technology. There is a need to align private incentives with public goals thus creating a policy framework that encourages for-profit investments in these areas. Initiatives such as the U.N. Global Compact can be utilized by African governments to partner with private sector and mobilize finance to achieve the SDGs.
Pension funds, insurance companies and sovereign wealth funds are also a potential funding pool, although it incorporates risks such as a lack of feasibility studies and bankable projects, expertise to finance infrastructure projects, and adequate governance mechanisms.
One of the major engines of external financing to sub-Saharan Africa is foreign direct investment amounting to 19.5 percent per year. In 2010, BRICS countries contributed 25 percent of sub-Saharan African FDI and their share is growing.
However, despite these gains, FDI flows are mainly going to resource-rich countries and extractive industries. Discussions in Addis Ababa should ensure that FDI allocations are spread evenly.
South-south cooperation plays a pivotal role in financing the health sector, as countries continue to share experiences and promote common development. It is commendable that African countries are well-coordinated through the African Union. However, mobilization of the above resources can be negatively impacted by environmental disasters, and now, Ebola, as well as global economic and financial turbulence.
Discussions in Addis Ababa must critically address the above challenges. After all, the SDGs evolved from a consultative process; hence all actors should play an important role in financing them.
This piece is part of a series of articles to be published in “Health Matters,” a news bulletin commissioned by Action for Global Health for European Health Month, as part of the European Year of Development 2015. The paper brings together key stakeholders working on health to confront the challenges of the post-2015 framework, provide recommendations on the means of implementation, and raise awareness on the importance of health for all.
ddis Ababa — The Chairperson of the African Union Commission Dr. Nkosazana Dlamini Zuma has appointed Ms. Jennifer Susan Chiriga and Amb Febe Potgieter-Gqubule as the new Chief of Staff and Deputy Chief of Staff respectively in the Bureau of the Chairperson.
Ms. Jennifer Chiriga takes over Amb Jean Baptiste Natama who resigned in February 2015. Acting Chief of Staff since March 2015, Ms. Chiriga was been the Deputy Chief of Staff since June 2014. Details of her Bio is below.
The new Deputy Chief of Staff, Amb. Febe Potgieter-Gqubule, has since October 2012 been Advisor for Strategy and Planning to the AU Commission Chairperson. Prior to joining the AU in 2012, she was South African Ambassador and Head of Mission to Poland. See details of her Bio below.
The appointments are in line with the Dr. Dlamini Zuma’s commitment to assertively promote women within the management of the AU Commission. Professional staff in the Bureau of the Chairperson is currently drawn from at least fourteen countries, including Angola, Benin, Cameroon, Cote d’Ivoire, Congo Brazzaville, Democratic Republic of Congo, Ethiopia, Mali, Mauritius, Nigeria, South Africa, Western Sahara, Zambia and Zimbabwe.