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By Felix Otiato
Africa has long grappled with the challenge of illicit financial flows and other forms of domestic resource leakages. According to the High-Level Panel Report on Illicit Financial Flows from Africa that was chaired by His Excellency Thabo Mbeki, the continent loses USD 50 billion annually, on the back of the over one trillion dollars that the continent had lost in the three decades prior.
Estimates indicate that since the report, illicit financial flows have almost doubled by up to USD 90 billion buoyed by commercial practices related to trade and tax abuse by multinational corporations, criminal activities such as money laundering, trafficking and lastly corruption and abuse of office involving government officials.
Adding to this is the skewed nature of the global financial architecture, largely driven by the Organisation for Economic Cooperation and Development (OECD) which has for decades favoured rich countries. This has left Africa and the Global South to deal with an ineffective and non-inclusive system that has orchestrated huge losses in their domestic revenue in the form of cross-border tax evasion and avoidance.
Consequently, African countries have taken the easy route of regressive taxation and external borrowing to meet their financial needs, perpetuating the cycle of inequity as well as debt and foreign aid dependency, often with conditions that undermine African countries’ sovereignty and place their domestic resources at ransom.
African countries are set to pay record amounts in debt service in the coming years with debt service projected to average 12 per cent of government spending. This figure is higher than average spending on healthcare, education, social protection and other public services that can have a huge impact on reducing inequality and improving the living standards of many of the African poor, especially women and children.
Addressing revenue leakages that compound the debt problem is, therefore, a political issue and African legislators play a crucial role in enacting and overseeing legislation related to financial regulation and transparency. Platforms such as the African Parliamentary Network on Illicit Financial Flows and Tax are promoting cooperation among hundreds of legislators from across the continent on progressive taxation and fighting illicit financial flows.
Due to the opacity and secrecy surrounding the origin and destination of illicit financial flows, cross-border collaboration and transparency among Africa’s tax administrators remains a prime solution to the illegal movement of resources out of Africa. Tax transparency standards such as the exchange of information and beneficial ownership information provide practical solutions. As of 2023, a total of 34 countries were signatories to the Yaoundé Declaration which aims at boosting African countries’ efforts towards tax transparency tools to improve their domestic resource mobilisation. The Tax Transparency in Africa 2023 Report indicates that in 2022, African countries reported EUR 66 million in additional revenues in terms of taxes, interest and penalties as a result of the exchange of information collaboration, a 77 per cent increase compared to 2021.
In November 2023, 125 countries resoundingly voted for a resolution tabled by Nigeria on behalf of the African Group at the United Nations General Assembly Second Committee on the commencement of the process towards a UN framework convention on international tax cooperation. This resolution was a result of longstanding calls by global south countries and civil society organisations for the democratisation of the global tax system and the correction of the glaring imbalances. Africa’s civil society has remained united in drawing attention to the negative consequences of illicit financial flows through joint advocacy campaigns, undertaking research and proposing actionable policy solutions.
In the face of these interlinked developments, key stakeholders championing sustainable domestic resource mobilisation in Africa must heighten collaboration to ensure that the continent is finally taking decisive steps to cement its place as a key player in global development by ensuring that Africa’s abundant domestic resources drive prosperity for its people.
The writer is the Communications Manager at Tax Justice Network Africa
Image Courtesy, Brookings.edu