Picture: Puri Devjee – Police seize counterfeit cigarettes to the value of about R150 000 and cash in a sting operation in South Africa. During his visit to the country, US Secretary of State Antony Blinken released details of the new US-Africa strategy.
By Mikatekiso Kubayi and Odilile Ayodele
The US-Africa Summit beckons later this year. This summit comes against the backdrop of the significant impact of the Covid-19 pandemic on global finance. At this summit, African leaders and their United States (US) counterparts will be deliberating on issues of concern to both and either sides.
Illicit Financial Flows (IFFs) have not ceased to be one of the major challenges facing developing economies, particularly in mineral rich Africa. Considering the already difficult conditions African economies faced prior to Covid-19 pandemic, IFFs do not seem to enjoy enough attention and priority.
The United Nations Conference on Trade and Development (UNCTAD) has conducted a study on illicit financial flows. When reading this 2020 report titled ‘Tackling Illicit Financial Flows for Sustainable Development in Africa, themes such African agency and the African Union’s (AU’s) seven priority areas immediately come to mind.
While the report recognises that tax evasion is a common global challenge, as the title of the report correctly suggests, supported by research, Africa’s development is heavily impeded by this. African development and integration and the reinforcement of the African voice in global matters are two of the seven AU priority areas of action.
One of the greatest hindrances to Africa’s stability and long-term development prospects are IFFs. Africa loses about 3.7 percent of its gross domestic product (GDP), which is approximately US$88.6 billion annually. This money could easily have been used to finance at least half of what is necessary to meet the Sustainable Development Goals.
But Africa cannot deal with these challenges alone as corruption does not operate in a vacuum. Politically connected enablers, practically impenetrable trust accounts are all part of the global ecosystem of that allows for the outflow of money from vulnerable states.
The UNCTAD report begins by acknowledging an effort in African agency by arguing that 2020 is a milestone for Africa and multilateralism and identifying the African Continental Free Trade Area (AfCFTA), a priority area for the AU, as an example of this. This report is important in the context of African agency because among the recommendations is the encouragement for strengthened multilateralism; a strength in collective action. It quotes the UN resolution on the “promotion of international cooperation to combat illicit financial flows and strengthen good practice in assets return to foster sustainable development”.
Frameworks such as the Organisation for Economic Co-operation and Development’s (OECD) Base Erosion Profit Shifting (BEPS), World Bank (WB) and UN’s Stolen Asset Recovery Initiative (StAR) are instrumental in this work. The two instruments are aimed at capacity development, information sharing and joint actions on combating IFFs in its various manifestations. These include among others corporate tax evasion which according to the High Level Panel on Illicit Financial Flows from Africa accounts for 65 percent of IFFs.
In addition, the AU, African Tax Administration Forum (ATAF) based in South Africa, partner entities and donor governments organised and ran the Africa Initiative, in which 32 of the 54 AU member countries participate. This is yet another significant effort at strengthening tax administration capacity, information sharing and the promotion of tax transparency. The 27th AU Summit of 2016, which appointed President Paul Kagame of Rwanda to lead the AU reforms also identified and resolved among other declarations, that a 0.2 percent levy on qualifying imports must be charged effective from 2017 to fund the AU and its operations to help bring to an end a dependence on donor funding.
Beyond the various multilateral and bilateral agreements that are signed, it is critical that wealthier countries also commit to fiscal transparency. During his visit to South Africa, US Secretary of State Antony Blinken released details of the new US-Africa strategy. The first strategic pillar of the strategy, Foster Openness and Open Societies, aims to work with African governments and civil society to address corruption and promote fiscal transparency. It refers to the US Strategy on countering corruption which, alongside the US Foreign Corrupt Practices Act, creates a framework to deal with all the members involved in corrupt dealings, including lawyers, investment advisors and accountants.
What this means in real terms is that the US will be closely working with law enforcement counterparts globally to counter IFFs and other forms of corruption. Hopefully, this change of tact, alongside the myriad of anti-corruption tools, would mean that all those involved in the illegal outflow of funds would be held to account.
More importantly, African citizens need to hold their political and business leaders to account – they need to vote at the ballot box and with their wallets. Combating IFFs are a fundamental step toward addressing the domestic and global governance challenges. The subversion of state resources, including development assistance, and the crippling of state institutions cannot continue unabated, particularly as the world teeters towards a possible global recession.
Reform of the global financial architecture would make it harder for individuals and corporations to benefit from porous frameworks and apparent indifference to corruption. African countries need to tighten internal controls and leverage external partnerships to curb IFFs and ensure stable and sustainable economies.
Mikatekiso Kubayi is a Research Fellow at Institute for Pan African Thought and Conversation, University of Johannesburg. Dr Odilile Ayodele is a Senior Researcher at the Institute for Pan-African Thought and Conversation, University of Johannesburg.
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