Friday, July 08, 2011

Pan-African Institutions highlight that tackling illicit capital flows is key for financing for development and economic transformation

A guest blog by Dereje Alemayehu, Chair of TJN's African Steering Committee

Governments in Europe often tell us that southern institutions say nothing about illicit financial flows. If this was ever true, it is certainly changing. The African Regional Forum on Financing for Development: Mobilising Resources for Economic Transformation in Africa, organised by the UN Economic Commission for Africa, the African Development Bank and the African Union Commission, has brought out the big guns..

After a scathing critique of the “traditional” sources of development finance (Aid, FDI and loans) and their inadequacy to meet Africa’s development finance needs, the conference highlighted that tackling illicit capital flows will be a major step towards economic transformation in Africa.

How are these illicit flows driven? Corruption of ruling elites in Africa, but also tax dodging by multinationals, facilitated by tax havens.

The press release issued after the forum highlighted the following issues:

  • tax dodging constitutes the major part of illicit flows from Africa; curbing it should thus be one of the major means to mobilise domestic resources for development
  • Tax dodging is a global problem that Africa cannot effectively combat without international cooperation. Commitment of the G20 to work towards multilateral agreement that ends tax haven secrecy and ensures transparency in global finance could enable African countries curb illicit flows from the continent
  • African countries have homework to do in terms of revising their tax policies to do away with loopholes that facilitate tax dodging practices; to eliminate unnecessary exemptions, to strengthen their revenue authorities and to enhance their transparency and efficiency.

How are they taking this forward? They are in the process of creating a High Level Panel to be hosted by the ECA to:

“address factors underlying illicit outflows and also impress upon the G-20 of the need for better transparency and tighter oversight of international banks and offshore financial centres that absorb these flows…[and]…mobilize political will amongst African governments, regional and international organizations, civil society, business and other stakeholders in support of adopting the necessary policies to curtail illicit financial outflows”.

The fact that the ECA, AU and ADB are now prioritising illicit financial flows by recognising it as a major challenge to domestic resource mobilisation is encouraging. This was unthinkable just a couple of years back.


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