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.