The latest African Development Dynamics report by the African Union Commission, Organisation for Economic Co-operation and Development (AUC, OECD) states that GDP for the continent is estimated to decline between 2.1% and 4.9% with an estimated US$360billion loss to the African economy. While the global north is releasing up to US$17trillion worth of stimulus packages, in the global south we don’t have that kind of money. Public revenues have been affected with tax-to-GDP ratio expected to decline by 10% in 22 African states. National savings are expected to drop by 18%. Remittances are expected to drop by 25%. Foreign Direct Investment (FDI) is also expected to fall between 40% to 80% and fiscal deficits are going to be affected.
Illicit Financial Flows (IFFs) and public debt levels are already rising and according to UNCTAD latest report, Africa loses close to US$90billion annually through IFFs. Because of the covid-19 pandemic, corruption is set to rise because procurement rules won’t be followed to allow for emergency funding to curb the pandemic. Moreover, several countries were having difficulties in meeting their debt commitments prior to the covid-19 crisis and now the IMF estimates that as of February 2021, 6 African countries were in debt distress and 14 countries at high risk of debt distress.
IFFs are also going to rise because of the loopholes in the global system in the short to medium term and the AU is set to conduct studies to estimate the actual figures of IFFs post Covid. US$9trillion have been released worldwide to deal with the financial impact of covid-19 therefore we expect that debt-to-GDP ratio is expected to soar to over 70% from 65.7% in 2020 and 56% in 2019 which is not good. We expect to see at least 7 African countries have debt-to-GDP% of over 100% which is very much unsustainable.
Recommendations by the FACTI Panel
- All countries should enact legislation providing for the widest possible range of legal tools to pursue cross border financial crimes.
- The international community should develop and agree on common international standards for settlement in cross boarder corruption cases.
- Business should hold all executives accountable; staff and board members who foster or tolerate IFFS in the name of their business should not be allowed to do so.
International tax norms, particularly tax-transparency standards, should be established through an open and inclusive legal instrument with universal participation. To that end, the international community should initiate a process for a UN Tax conversion. The OECD process is not inclusive although it has representation from developing countries who do not really contribute to the process.
- International anti-money laundering standards should require that all countries create a centralised registry for holding beneficial ownership information on all level vehicles. The standards should encourage countries to make the information public.
- Improve tax transparency by having all private multinational entities publish accounting and financial information on a country-by-country basis. International financial institutions should publish their accounting information.
- Building on existing voluntary efforts: all countries should strengthen public procurement and contracting transparency, including transparency of emerging measures taken to respond to covid-19.
- Taxpayers, especially multinational corporations should pay their fair share of taxes. The UN Tax Convention should provide for effective capital gains taxation. Taxation must be equitably applied on services delivered digitally. This requires taxing multinational corporations based on group global profit.
- Create fairer rules and stronger incentives to combat tax competition, tax avoidance and tax evasion, starting with an agreement on a global minimum corporate tax. Tax competition
- Create an impartial and fair mechanism to resolve international tax dispute, under the UN Tax convention.
- Create a multilateral mediation mechanism to fairly assist countries in resolving difficulties on international asset recovery and return and to strengthen compensation.
- Escrow accounts, managed by regional development banks, should be used to manage frozen/ seized assets until they can legally returned.
- Governments should develop and agree global standards/guidelines for financial, legal accounting and other relevant professionals, with inputs of the international community.
- Governments should adapt global standards for professionals into appropriate national regulations and supervision frameworks
- Non state actors
- The international community should develop minimum standards of protection for human rights defender’s, anticorruption advocates, investigative journalists and whistle-blowers. States should consider incorporating these standards in a legally binding international instrument.
- Civil society should be included in international policymaking forums in an effective and efficient manner
- International cooperation
- End information sharing asymmetries in relation to information sharing for tax purposes, so that all countries can receive information. The current system has so many barriers to information.
- Enable free exchange of information at the national level as standard practice to combat all varieties of illicit flows. Local exchange mechanisms should be strengthened
- Promote exchange of information internationally among law enforcement, customs and other authorities.
- International organisations must provide timely advice related to IFFs so that procedures, norms and policies can be updated regularly.
- Government must dynamically adjust their national and international systems in response to new risks
- Capacity building
- Create an international compact on implementing financial integrity for sustainable development to coordinate capacity building. Extend existing capacity building that tackles tax abuse, corruption, money-laundering, financial crime and asset recovery.
- The international community should finance the creation and maintenance of public goods that can lessen the cost of implementing financial integrity commitments.
- Strengthen the capacity of United Nations Office on drugs and Crime (UNODC) to do research on anti-corruption including in collaboration with other international organizations with the strategic aim of improving the effectiveness of capacity building and technical assistance.
- Establish a centre for monitoring taxing rights to collect and disseminate national aggregated and detailed data about taxation and tax cooperation on a global basis.
- Designate an entity to collect and disseminate data about mutual legal assistance and asset recovery efforts.
- Designate an entity to collect and disseminate data on enforcement of money-laundering standards, including beneficial ownership information.
- Implementation review
- Update the united Nations convention against corruption (UNCAC) implementation review mechanism to improve comprehensiveness, inclusiveness, impartiality, transparency and especially monitoring.
- Update UNCAC and other peer review mechanisms to reduce duplication and increase efficiency.
- National governance
Governments should create robust and coordinated national governance mechanisms that efficiently reinforce financial integrity for sustainable development and publish national reviews evaluating their own performance.
- Global governance
- Establish an inclusive and legitimate global coordination mechanism at ECOSOC to address financial integrity on a systemic level.
- Building up on existing structures, create an inclusive intergovernmental body on tax matters under the United Nations.
- Starting with the existing FAFT Plenary, create the legal foundation for an inclusive intergovernmental body on money laundering.
- Design a mechanism to integrate the UNCAC council of state parties (COSP) into the coordination body under the auspices of ECOSOC.
Post pandemic, African countries and African Union need to refocus on domestic resource mobilisation and in that regard curbing IFFs will be very critical. We should be using recommendations on the HLP on IFFs as this serves as the guiding document on the continent.
Secondly in the short to medium term, financing economic recovery through Special Drawing Rights by IMF, suspending debt repayments and in some cases restructuring of the same may prove to be very beneficial to achieve the African unions agenda 2063.
“Recommendations are not enough. All people must contribute through their actions. This is not a job for each government acting on its own. Political leadership is needed, both at national and international levels. Governments must come together to agree on new solutions for financial integrity. The private sector must meet higher standards. Civil society and the media have to help hold the powerful accountable” FACTI CO-CHAIR 2021