Nairobi, August 1 — With COVID-19 proving to be the most adverse peacetime shock to the global economy, tax advocates have raised concern over a possible rise in the scope of Illicit Financial Flows (IFFs) in Africa.
Fearing that existing fragile health systems might be swiftly overwhelmed if the pandemic spreads beyond a small number of cases, governments across Africa are stepping up their preparedness to curb its spread.
A recent tax justice advocacy training done via online conferencing sought to end aid dependency in Africa, helped redefine roles to be played by various sectors in an effort to eliminate the structural causes of poverty and underdevelopment in Africa.
The training by International Tax Justice Academy (ITJA) and Tax Justice Network Africa (TJNA), attracted participants from 40 African countries drawn from the media, academia, civil society, and trade unions.
“Since we started such training in 2014, we have so far imparted knowledge on over 1,000 participants on issues which include the need for domestic resource mobilization to finance Africa’s development,” Alvin Musioma, Executive Director at Tax Justice Network Africa, a Pan-African advocacy and research network of 31 members in 16 African countries told the conference in his opening remarks.
It is estimated that illicit financial flows in Africa stand between $50 and $80 billion annually; with 44 percent of the continent’s financial wealth thought to be held offshore, which corresponds to tax revenue losses of some $20 billion. The ultimate objective is not only to reduce but ultimately eliminate illicit outflows.
Africa, endowed with significant natural resource wealth with good husbandry has the potential to finance its development but existing illegal cross border movements of money and capital that threaten the continent’s sustainable development have been growing every year.
“The threat that illicit financial flows pose on the continent’s integrity and stability of its financial system in normal times has existed over decades, and now there is much to worry of in the face of the pandemic,” adds Mosioma.
Carried out by experts in their respective fields, the trainers shed light on an array of topics including Double Tax Treaties and the role they play in facilitating international corporate tax avoidance, global financial secrecy and how tax systems are rigged against Africa as well as techniques used by multinational companies to reduce or avoid taxes among others.
This year marks the 7th Edition of ITJA training with the theme: Tax Justice Advocacy: Increasing Participation of Civil Society Organisations (CSOs) and Journalists through Capacity Building. This, according to Mosioma proved that with technology, regular capacity building activities can be held amid a global pandemic as COVID-19.
Africa is home to the world’s largest arable landmass, second largest and longest rivers (the Nile and the Congo), and its second-largest tropical forest.
A study carried out by the African Development Bank Group estimates that the total value added of the continent’s fisheries and aquaculture sector alone stands at US$ 24 billion. Besides, about 30 percent of all global mineral reserves are found in Africa.
The continent’s proven oil reserves constitute 8 percent of the world’s stock and those of natural gas amounting to 7 percent. Minerals account for an average of 70 percent of total African exports and about 28 percent of gross domestic product.
Even with such enormous resources, the continent’s poverty rate stands at 41 percent, and out of the world’s 28 poorest countries, 27 are in Africa all with a poverty rate above 30 percent.
Undoubtedly, IFFs have turned the continent into a net creditor. During the academy, TJNA empowered the target groups with skills to identify, track, and report illicit outflows from the continent.
Trade misinvoicing, tax evasions, and the criminal smuggling of cash, illicit goods ad human trafficking across borders are the main types of IFFs.
A recent Global Financial Integrity (GFI) report on the problem of trade misinvoicing found that illicit cross-border movement of money by hiding within the regular commercial system indicates massive levels of IFFs are going undetected through the global trading system.
“Approximately $ 8.7 trillion is the sum of the value gaps identified in trade between 135 developing countries and 36 advanced economies over the ten-year period 2008-2017,” says the GFI report.
Between 1980 and 2018, Sub-Saharan Africa received $2 trillion on foreign direct investment and official development assistance and emitted over $1 trillion on IFFs. Ethiopia, South Africa, Democratic Republic of Congo, and Nigeria account for over 50 percent of illicit financial flows in Sub Saharan Africa.