Archive | April, 2015

Financing the SDGs for health in Africa: Opportunities and risks

17 Apr

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.

However, over the past 40 years the Organization for Economic Cooperation and Development has fallen short of the 0.7 percent of gross national income commitment. It is vital that the summit address the need for donors to meet these commitments.

ODA must also complement national DRM efforts, and the summit should also ensure better financial reporting by establishing binding timetables supporting inclusive development in the most efficient way. Pooled resources and multistakeholder partnerships that bring together governments, civil society, the private sector, and donors such as Gavi, the Vaccine Alliance, Global Fund to Fight AIDS, Tuberculosis and Malaria, U.N. Population Fund and UNICEF need to be strengthened post-2015.

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.


Africa: AU Commission Chairperson Appoints Chief of Staff and Deputy

7 Apr

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.


Illicit financial flows rob Africa of $50bn annually

3 Apr

ILLICIT financial flow from the extractive sector particularly in the diamond mining industry is one of the biggest impediments to the development of the economy, experts in the sector have said.

Very little revenue from diamonds has gone to the national economy as most of the companies, save for one, have not contributed to the fiscus. Communities in the mining areas also have not developed since the discovery of the diamonds in Mutare West constituency.

Politicians, government officials, captains of industry, civil society organisations and other stakeholders have often raised concern over the manner in which the diamonds are being extracted and the little revenue getting into the national economy.

The bulk of diamonds from Chiadzwa have found their way into other countries through informal ways and the revenue has always been circulating outside the national economy.

Several other players ranging from the mining firms, authorities in government, local and foreign dealers have been fingered in the diamond looting resulting in illicit financial flows.

According to Africa University lecturer in the department of Institute of Peace Leadership and Governance, Solomon Mungure, illicit financial flows started at the height of the country’s economic hardships and to date the vice was out of control.

“Extracting started off as an informal enterprise and it was happening in a failed economy. The easiest revenue was resorting to nature for example selling firewood or illegal panning of minerals,” said Mungure during a Zimbabwe Environmental Law Association (Zela)-organised capacity building workshop in Mutare last week.

“Because we didn’t have the buying currency then people resorted to panning and selling the minerals to neighbouring countries or to foreigners who had the hard currency.”

He said during that time, government did not put any effort to ensure that the minerals were sold locally.

“There was actually an incentive for people to sell minerals outside the country considering the economic crisis at that moment,” Mungure said.

“The diamond and gold sectors have serious undercovers, opaque networks which can only be located in powerful capital pockets. At that time Zimbabwe was vulnerable. This means there were no taxes or royalties being paid. This indicated that the revenue base remained very weak and we had no investors coming to Zimbabwe.”

Mungure said lack of development was due to looting by mining corporates because all those miners are not accountable to the government and the people.

He said if the money from the diamond proceeds were put in the national economy to support other industries then the situation might be different from what is currently prevailing in the country.

Lyman Mlambo, who is the chairman of the Institute of Mining Research at University of Zimbabwe, said illicit financial flows emanating from the extractive sector should be a cause for concern to every citizen.

He outlined numerous ways in which the country suffered due to such practices.

“The money realised through illicit transactions escapes the formal system and the government can’t tax it and there is thus loss of potential tax revenue for government,” Mlambo said.

“Illicit flows affect the total amount of formal export revenue coming into the country hence the ability of the government to import important capital equipment for the development of the country will be affected. Illicit revenue tends to end up importing consumer goods mainly and not capital goods required for the development of the country as a whole.”

He said illicit flows distorted accuracy of reported statistics on revenue, production, trade, among others.
“Statistics are important for research, for government and industry decision-making, and should have a reasonable level of accuracy,” the mining expert said.

“It affects budgeting and development planning as the moneys made are unknown and are unavailable for example it perpetuates inequity and we have creation of money barons.”

Mlambo added that illicit flows in the form of transfer pricing, re-invoicing, thin capitalisation by big multinational companies perpetuate imperialism in a hidden way.

Transfer pricing is whereby a mine in Zimbabwe sells at very low prices its product to a sister company outside Zimbabwe for further processing after which the processed product is sold at high prices in the international market, thus the mine in Zimbabwe can make losses so that its sister company outside makes super profits which Zimbabwe cannot tax.

Re-invoicing is whereby a mining company in Zimbabwe forms a commodity brokering company in another country to which it sells the minerals for a song.

The brokering company just resells, without further processing the minerals, for high prices.

Thin capitalisation is whereby a mining company in Zimbabwe is funded by its parent company outside by very high-interest loans.

That way the local company makes little profit or heavy losses due to interest payment to the parent company outside.

According to Mlambo all these are methods of shifting profit from the country where resources are being exploited to developed countries or other countries thereby swindling the country hosting the mineral resources.

Tafadzwa Chikumbu from African Forum and Network on Debt and Development (AFRODAD) said the resultant net effect of illicit financial flows from the extractive sector will only hit the hardest on the poor communities.

“Mineral resource extraction is a sector where we extract a finite resource. Where the mining government should have the maximum benefits. The reasons why the minerals are not benefiting much is leakages. It comes with corruption, illegal resource exploitation and illicit financial flows,” he said.

“The mining companies are using loopholes within the tax systems and lack of capacity of the Zimra to avoid paying taxes.”

Chikumbu added: “The net effect is that revenue to the government is so low and they cannot offer quality services to the people in terms of infrastructure development, provision of clean water, good medical services among others.

“It will also result in the government introducing more taxes and the poor will continue to be burdened through taxes.”

Kimberley Process Civic Society (KPCS) Zimbabwe co-ordinator Shamiso Mtisi said the general impact of illicit financial flow was significant because if one looked at the statistics of production they do not meet the revenue realised.

There was a huge disparity on production figures released by the KPCS and ZimStat, a situation that will paint a picture of secrecy on operations of the sector.

“There is an indication that most of the minerals and subsequently the revenue are not coming into the fiscus, they are sold through the black market. The inconsistency on the figures shows that the country is being deprived of revenue by the officials in the companies and government officials who control mining,” Mtisi said.

He said in terms of the illicit financial flows, some companies evaded paying taxes.

“But where is the money going because we have nothing to show for it?” Mtisi asked.

“The Chinese are ripping Zimbabwe off because we don’t have beneficiation infrastructure. While it might not be illegal, it’s immoral. It means the government is not doing enough to promote the industry. The link with communities is that if there were no illicit financial flows then the communities will be in a position to develop, buy medicines, build roads, schools and finance other social amenities as well as paying of salaries.”

Up to now community members from Marange and those relocated to Arda Transau are complaining of unfulfilled promises made to them by the diamond mining companies. On the other hand the companies are complaining that business is low and they cannot afford to honor their pledges.

According to the United Nations Economic Commission for Africa, 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. By some estimates, illicit flows from Africa could be as much as $50 billion per annum. Article written by BY OBEY MANAYITI, Newsday