Africa: The Global Dilemma of Illicit Financial Flows - Time for Collective Action

press release

Illicit financial flows (IFFs) has become a serious global threat to the attainment of the global development agenda. This has led the President of the United Nations General Assembly (PGA), Tijjani Muhammad-Bande, and the President of ECOSOC, Mona Juul to announce the high-level panel on international financial accountability, transparency, and integrity (FACTI) as a means to address this challenge that inhibits financing for Sustainable Development Goals.

It should be noted that Sustainable Development Goals (SDGs) are critical for the prosperity of people around the globe in the context of social, political and economic development aspects. However, the achievement of this global development agenda highly depends on the United Nations Member States' capacity to mobilise resources to support and implement different development initiatives that target to achieve the Agenda 2030.

This is reiterated in the Addis Ababa Action Agenda, where it is stated that, " [... ] for all countries, public policies and the mobilisation and effective use of domestic resources, underscored by the principle of national ownership, are central to our common pursuit of sustainable development, including achieving the sustainable development goals." However, regardless of this fundamental commitment towards the SDGs success, still, most countries lag in terms of domestic resource mobilisation capacity.

This hinders the States' ability to secure financing for development due to insufficient public resources caused by loopholes in the national tax systems that prevent effective revenue collection. These loopholes that trigger illegal financial transaction practices and undermining domestic revenues are 'corruption, tax avoidance, and tax evasion' which in one way or the other lead to illicit financial flows (IFFs).

It is indicated by OECD that, in 2015, African countries as a whole had a total tax revenue to GDP ratio of around 19%, with Latin America and Asia averaging at around 22% and 15% respectively, compared to around 34% for OECD member countries. OECD pointed out that a variety of factors affect countries' ability to generate tax revenues, including the presence of large informal and subsistence sectors, narrow tax bases, and dependence on volatile export commodities. Moreover, Global Financial Integrity (GFI) estimates that in 2013 developing countries lost the US $ 1.1 trillion through IFFs. GFI further highlights that this estimate is highly conservative as it overlooked movements of bulk cash, the mispricing of services, or many types of money laundering. The GFI research propounds that about 45% of illicit flows end up in offshore financial centers, and 55% in developed countries.

Therefore, the interconnectedness of the flow of funds concerning IFFs from developing to developed countries where most of the stolen funds and assets are hidden signal the alarm of why this is a global plight that requires collective global efforts and actions. That being the case, the promotion of a strong international system architecture that is ready to combat and fully eliminate the problem is of prime importance. This should include deliberate efforts directed towards bridging the gaps or shortcomings of the existing international system architecture put in place by the United Nations and other regional bodies to fully be able to counter the predicament of IFFs which incapacitate states' to mobilize domestic resources needed to financing for development agenda.

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