Is it really time for Africa? Prospects for Africa’s Inclusive Transformation

Dear Friends,
Good day. I have all along written about all sorts of interesting subjects (well from my perspective) but today I have decided to share and discuss with you what you may consider a technical issue- the problem of illicit financial flows. It is my hope that I do not lose you but I think it’s essential to share on this issue. In part two I will focus on a possibilities of a new development compact that is based on already existing conversations taking place across the continent.
Regards,
Tendai

Is it really time for Africa?
Prospects for Africa’s Inclusive Transformation
Part One

It is conservatively estimated that Africa loses approximately US$50 billion annually through Illicit Financial Flows (IFFs). The AU/ECA’s High Level Panel on Illicit Financial Flows report and other studies argue that Africa has lost in excess of US$1 trillion through IFFs in the last 50 years- an amount similar to the Official Development Assistance that has been poured into Africa over the same period.

Many, including ourselves at TrustAfrica, have always been suspicious of the over dramatized narrative of ‘Africa Rising’ especially as it mostly uses Gross Domestic Product (GDP) as the measure of growth. Other Human Development indicators such as Gross National Income (GNI) , access to affordable health care, education, and decent jobs are rarely a part of the ongoing optimism surrounding Africa. Whilst GDP growth has indeed been above an average of 5% for most of Africa- rarely do we get studies that pay significant attention into the structural organization of African economies and the manner in which the continent is inserted into global financial circuits especially the extent to which the commanding heights of the economy are dominated by multi-nationals whose primary mission is to extract maximum value for their shareholders who are mostly in jurisdictions outside of Africa and also the fact that very limited value addition takes place on the continent. The current growth cycle (although slowing down) is driven largely by a global commodity super cycle fed by resource hungry China and India. Others have also identified the major leaps in the telecommunications industry as explaining the growth. Enterprises engaged in the production and trade of the commodities (mining and agricultural) are large multinationals mostly domiciled outside of Africa and in most cases enjoy tax holidays, revenue repatriation arrangements and relaxed labour laws- the hallmarks of an investor friendly policy mix. Revenue repatriation agreements allow companies to officially remint their revenues to the head office- this practice is NOT part of IFF but provides a necessary background.

Beyond the benefits cited above these large companies in mining and agriculture are the drivers of illicit financial flows. They mostly work closely with a corruptible African political elite. According to the AU/ECA report the most common practices include trade mispricing entailing under-invoicing of exports to allow for significant amounts of foreign currency to be lodged outside of the country of origin of the goods being exports, exaggeration of import values to again allow foreign currency in the company’s FCAs to be used for purchasing of capital goods and general tax avoidance schemes. The actual IFF processes are very complex in nature and please visit http://mgafrica.com/article/2015-06-24-africa-the-billions-that-got-away-ebook for a more detailed expose on how these resources are being siphoned off- except to restate that Africa loses approximately US$50 billion per year. Please note that currently only 8 out of 54 countries have a GDP above US$50b- which makes this matter even more serious.

The conversation on IFFs is probably ten years late- we are reaching the end of the commodity super cycle which has been the reason behind the dynamic growth which we have commonly referred to ‘Africa Rising’ We actually risk having very little to show for the huge exports of commodities since the turn of the century. We should have been quicker to pick this up. Unfortunately we are nowhere close to poverty reduction despite the positive economic growth and also the often cited statistic about mobile phone penetration- as if that addresses material consumption needs. What we have instead witnessed is the widening of the gap between the very few rich and the many poor. Interestingly there is a huge focus on the growing middle class instead of also the equally if not faster growth of groups living on less than a dollar a day at the Bottom of the Pyramid (BoP).

Human development, inclusive of access to quality health provision, education, jobs and decent standards of living remains an unattainable goal for many on the continent. The benefits of the current growth cycle have mostly been limited to those at the top of the income distribution and has been highly unequal. The number of Africans perishing in the Mediterranean trying to cross over into Europe in search of greener pastures continues to grow every year. We have also learnt that we need approximately US$50billion annually to fund infrastructural projects in a context of stagnating of declining Official Development Assistance (ODA).

The AU’s Agenda 2063 singles out improved domestic resource mobilization as a key pillar for Africa’s sustainable and inclusive development. It is in this light that we at TrustAfrica alongside our friends and partners within civil society are calling for a new development compact underpinned by values of transparency, accountability and equity. We are working towards collecting a million signatures against an opaque global economic system that accommodates IFFs. Africa cannot afford to lose another single dollar through IFFs. It is morally reprehensible for economic actors to continue engaging in these harmful practices at the expense of the continent’s future. We have to create sufficient public anger and an outcry for the immediate end of these practices. Our governments and regional processes should play their part in ensuring that adequate mechanisms and laws are fast tracked to ensure compliance with the new thinking- Africa (especially her youth) deserves better!