12 August 2014

Africa: Blocking the Extractive Sector Leakages

press release

One of the major obstacles to the development of the African continent is the massive loss of revenues from the extractive industries through corruption, tax evasion and other forms of Illicit Financial Flows (IIFs).

And according to the World Bank's Stolen Asset Recovery Initiative, cross border flow of proceeds from corruption, tax evasion and criminal activities ranges between US$1 trillion and US$1.6 trillion annually.

Furthermore, the Christian Aid estimates that transfer pricing and falsified invoicing between unrelated companies alone cost developing countries tax revenues of US$160 billion annually which, by far, exceeds all the combined aid budget of all donor countries to the developing world.

A more recent data from the Global Financial Integrity released in 2013 has also exposed the extent of illicit financial flows in Africa between 2002 and 2011, with the first 30 countries out of 177 countries surveyed, showing three African countries-- Nigeria, South Africa and Sudan-- all resource rich countries, having lost US$26.9 billion to illicit financial flows over the 10 year period.

Again, in West Africa, a total of US$23 billion was lost over the same period while Ghana is reported to be the 7th in West Africa losing US$316 million over the period, meaning that since 2002 until 2011, Ghana has lost US$32 million annually to illicit financial flows and capital flight mostly from the mining sector.

There is, therefore, the need to explore alternative options of defeating illicit financial flows and capital flight, from Africa's extractive industries.

For Mohammed Amin Adam, Executive Director of the Africa Centre for Energy Policy (ACEP), there should be for a more coordinated global approach to responding to multinational companies and collaborating governments perpetuating these practices, adding that Africa's natural resources such as oil, gas and solid minerals are important assets that must be transformed into development for the people.

Mr Adam thinks that African Governments ought to show commitment to blocking extractive sector revenue leakages and find innovative ways of maximizing mineral revenues before they were depleted. "This is why I am not pleased about the decision of Ghana to suspend the introduction of the proposed windfall taxes in the mining sector.

The argument by the government that the fall in mineral prices provides an inconvenient environment for the introduction of windfall taxes, and that this could affect investment attraction to the country, is fundamentally flawed," Mr Adam said, at an international conference on resource taxation organized by the African Center for Energy Policy (ACEP)and IBIS Ghana,

Dr Kojo Busia, Snr. Mineral Sector Governance Advisor, United Nations Economic Commission for Africa (UNECA), Addis Ababa, who delivered the keynote address at the conference notes, however, that the challenge of containing illicit financial flows was a complex one that would require a multi-faced approach involving internal collaboration and the strengthening of governance institutions domestic accountability systems within African states and regional co-operation among African countries.

Former South African President and Chairman of the High Level Panel (HLP) on Illicit Financial Flows (IFF) has also noted that Africa had lost more than US$850 billion in IFF since the early 1970's, with the funds ending up mainly in developed and emerging economies while Africa Is unable to garner the domestic resources needed to address its developmental needs.

According to Mr Mbeki, Africa will derive tremendous benefits if it is able to retain financial flows -- estimated at US$50 billion annually between year 2000 and 2008 -- that illicitly evaded the continent each year.

There can be no doubt that being able to stem the tide of illicit financial flows would, for instance, help Africa bridge the infrastructural gap and address its huge development challenges.

To that effect, the application of international conventions on transparency and corruption must be the first step, while the global coalition to identify and deal with the issue must be strengthened for the efforts to yield better results.

It is to be noted that the West and Central Africa Regional Consultations were the last round of the regional consultations on IFFs which took the HLP to Nairobi in East Africa, Lusaka in Southern Africa and Tunis in North Africa.

Apart from sensitising stakeholders about the importance of curbing the menace of IFF from Africa, the consultations also allowed the HLP to better understand the scale, manifestations and drivers of IFF across the continent.

The HLP, established by the Joint Africa Union Economic Commission for Africa Conference of Ministers of Finance, Planning and Economic Development, was inaugurated in February 2012 in Johannesburg with the mandate to address the debilitating problem of IFF.

Source: G.D. Zaney (ISD)

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