Alvin Mosioma, executive director of Tax Justice Network Africa (TJN-A), speaks about the challenges of Illicit Financial Flows (IFFs) and lack of effective fiscal regime governing the extractive sector across many African countries.
Newspage: According to the Economic Commission for Africa (ECA), sub-Saharan African countries loose up to USD50 billion every year to Illicit Financial Flows (IFFs). What does this loss means to Africa’s development, in terms of denying African citizens access to basic social services such as health, education and water?
Mosioma: Historically, the African continent and indeed other developing countries, have been seen as net recipients of aid; net recipients of support from abroad. What this study did was turned the conversation on its head in the sense that it provided evidence that not only was the continent not a net recipient but it was actually a net creditor to the world. It showed that there were more resources leaving the continent than coming in.
Yet, this figures are but a tip of the iceberg because even when we talk about USD50 billion, it is just an estimate; it doesn’t represent the actual figures, since a big part of these flows happen in opacity and darkness. Such that you don’t have the ability to really determine the actual numbers, and it is for this reason that the ECA report said for us to be able to determine the actual figures, we will need to increase transparency in the financial systems.
Moreover, what these figures do is, firstly, repudiate the perception of the flow of funds globally. Secondly, the reason why we have these figures is due to the nature of the global financial system which has been designed in such a way that it facilitates outflow of resources than it does inflow of resources, which basically points to the systemic flaw in the global financial systems. Thirdly, this numbers by themselves don’t tell you much, but if you put these figures in the context of the financing gap particularly for the SDGs and Agenda 2063, then you will realize the enormity of these figures.
If you look at the ECA report itself, it comes with three demands: first, we need to track where these resources are coming from and going to i.e we need to put a mechanism that allows African countries to track the flow of these resources. Second, we need to stop the outflow, by making sure we are sealing the loopholes. And thirdly, we need to ensure that African money being held by corrupt elites in Swiss banks and other tax heavens have been retrieved and returned to Africa for the continent’s development.
The challenge of Africa’s development has become even more apparent in the context of the COVID-19 crisis; in the mid ’80s and early ’90s, the continent and the world underwent a very severe structural adjustment programme which meant many of the public services were privatized, and this led to inability of governments to provide very basic services. So, the crisis we are seeing today and the USD50 billion we are talking about, have further severely affected the capacity of states to provide basic services.
It means many governments are living on budget deficits and are being forced to borrow. So, the debt traps that many African governments have found themselves in today is as a result of the inability of governments to seal up the gaps that facilitate the outflow of resources and consequently generate resources. This once again underscores the need for African governments to invest in measures and policies that curb the outflows.
Newspage: Despite being resource-rich, lack of effective fiscal regime governing the extractive sector across many African countries has resulted in inadequate mobilization of tax revenues from the extractives sector. How weak are the natural resource governance systems of African countries?
Mosioma: Actually, if you are look at the ECA’s report, it says the extractive sector in Africa is the largest source for the illicit outflow, therefore, countries that are resource rich are the most affected by the phenomenon of IFFs. Basically, the problem is complex in the sense that most African governments do not have the capacity to independently determine how much natural resources they have and what is the value of those natural resources.
There was a study by the Publish What You Pay (PWYP) campaign that shows that majority of companies that are active in the natural resource extractive sector of the continent operate from subsidiaries in tax heavens. What that basically means is that the mining or rather extractive sector in Africa is at the heart of the IFFs conversation. Basically, the tax avoidance and evasion schemes that facilitate the outflow of illicit finance are the instruments the multinational companies extracting natural resources in Africa use to facilitate the shifting of profits offshore.
However, if you look at the conversation on natural resource extraction in Africa, it only focus on negotiations, climate and environment issues; we have not centralized the conversations around what are these companies actually paying in terms of taxes and revenues. So, TJNA and our collaborating partners have been at the forefront of trying to bring this conversation to the front burner.
This is to ensure that eventually, governments only allow these companies to mine not because we are interested in say the gold or diamond – since our countries do not use the gold or the diamonds – but because we are hoping that the extraction of the gold and diamonds will translate to very effective revenues for our countries. As TJNA, we believe there is need to build African countries’ capacity to hold these companies accountable. But like I said, this is not just a national issue, it is a global issue because these companies have subsidiaries spread across various jurisdictions which make it very difficult for countries to monitor and track their financial operations.
Newspage: How has poor planning and the fact that African leaders continue to sign away minerals rights to foreign companies contributed to the current state of poverty or rather deprivation in the midst of plenty bedeviling resource-rich yet poor African countries?
Mosioma: As the Nigerian author Chimamanda Ngozi Adichie has said, we need to avoid or be conscious of the risk of a single narrative; the story of natural resource extraction on the continent is very complex. On the one hand, there is a financial system that has been deliberately designed to ensure African countries are not benefitting from their natural resources.
The companies are designing their financial systems in such a way that they can discreetly shift profits away from the continent. You also find rich governments using aid as a carrot to arm-twist African countries to sign contracts that are not to our own benefit. At the same time, there are our own elites that know better but because of short term gains and corruption are agreeing to sign those contracts.
So, it is a complex system of different parties playing a certain role that led us to where we are today. It is a tripartite relationship. However, African leaders obviously have the ultimate responsibility. But we also recognize the fact that they operate in a global financial system that is skewed and designed in such a way that even if you have African leaders with goodwill, they will get embroiled in a difficult situation.
Newspage: The AU’s African Mining Vision (AMV) seeks “to foster a transparent, equitable and optimal exploitation of mineral resources to underpin broad-based sustainable growth and socio-economic development.” Is the framework capable of helping Africa achieve robust natural resource governance systems?
Mosioma: I think the AMV is the most progressive policy instrument that African governments have ever designed when it comes to the management of natural resources; first, because of the process that led to its development, which was an inclusive process that involved different actors, namely the private sector, civil society and the academia. Secondly, it doesn’t just look at one dimension of the issue; instead it looks at the entire value chain of the natural resource governance from value addition, to resource mobilization and management.
So, it’s an all-encompassing framework that talks to the different dimensions of natural resource governance in Africa. Thirdly, it is a homegrown solution of the African governments themselves. However, although the AMV is a very progressive document, I think its limitation comes in the form of lack of political will to implement it by most of the AU countries. Although the document itself explains the solutions to the challenges, we have not been able to make progress because of the reasons I outlined earlier including pressure from rich countries who are befitting from the status quo.
Newspage: The Sustainable Development Goal (SDG) 16’s indicators 16.4, 16.5 and 16.6 seek to reduce IFFs and corruption as well as promoting transparent institutions. Is Africa on the path to achieving the objectives of these indicators?
Mosioma: My fear is particularly in view of the current COVID-19 crisis; many African countries were already moving towards a crisis before the COVID-19 pandemic, in terms of their economic growth. And the COVID-19 crisis is only likely to exacerbate the crisis which means many African countries are not likely going to meet the goals of the SDGs. So, I will take a cautious view on this question; even without the crisis, the goals and targets set by the SDGs were very ambitious. It would have required a redoubling of efforts in terms of inflows and addressing the structural problems bedeviling the continent, but we have not seen that happened.
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