SUMMER SCHOOL
Illicit financial flows and domestic resources mobilisation in the era of digital economies in Africa: prospects and challenges


  • Pretoria, South Africa.
  • 25th- 29th November 2019
  • 40 Participants

Illicit financial flows and domestic resources mobilisation in the era of digital economies in Africa: prospects and challenges

About the Summer School

In an effort to contribute to the development and implementation of transparent, accountable and efficient mechanisms for the mobilization and utilization of both domestic and external financial resources in Africa, AFRODAD has been successfully hosting annual summer school training for parliamentarians, civil society, faith leaders and the media since 2015. This year’s Summer School was held on 25th-29th of November 2019 under the theme ‘illicit financial flows and domestic resources mobilisation in the era of digital economies in Africa: opportunities and challenges’. The summer school provides an innovative way of engaging with a core group of influencers and decision-makers to build their understanding and commitment to key issues of concern, particularly related to illicit financial flows (IFFs), corruption, inequality, natural resource governance, debt management, the aid system in Africa and Public Private Partnerships.

Background

Achieving Sustainable Development Goals (SDGs), Agenda 2063 and national development plans requires the mobilisation of resources. The current state of development funding presents a huge gap contrast between the required funding to eliminate poverty and meet the SDGs by 2030 and the actual available resources. According to United Nations Conference on Trade And Development, developing countries alone face an estimated US$2.5 trillion annual investment gap in key sustainable development sectors[1]. A fundamental cause of this gap is that developing countries lose hundreds of billions of dollars every year to corruption, (IFFs), tax incentives, tax evasion and debt servicing.

Mobilising domestic resources remains a central developmental issue, surpassing past emphasis that focused on scaling up aid and external borrowing to finance development. Domestic resources present the African continent with potentially the biggest source of long-term financing to sustainable development. Effective domestic resource mobilisation not only provides African governments with the resources necessary to alleviate poverty and fund essential public services, it also presents them with a stable and predictable fiscal environment which is a critical step on the path out of aid dependence. The 2015 Addis Ababa Action Agenda (AAAA) outcome document identifies domestic public resources as one of the seven action areas under its global framework for financing development post-2015. It recognizes that “for all countries, public policies and the mobilization and effective use of domestic resources, underscored by the principle of national ownership, are central to the global common pursuit of sustainable development, including achieving the Sustainable Development Goals (SDGs)”.

Given the huge mineral resource endowment of Africa, it is indubitably that revenue mobilisation from the mining sector is key in the ongoing domestic resource mobilisation efforts aimed at ensuring that the continent becomes self-reliant and finances its own development. Despite the huge mineral resources endowment, Africa has failed to fully benefit from the extraction of her resources as a result of IFFs. Failure to curtail IFFs has deprived the continent from reaching its full revenue mobilisation potential to sustainably and predictably fund its development. As noted by the Mbeki report, the continent has been loosing a tune of USD 50 billion annually through IFFs. Given the complexity, secrecy that characterise IFFs and the difficulties in calculating IFFs, AFRODAD strongly believes that this figure could be more than the above stated. At this juncture its paramount to highlight that 70% of all IFFs from the African region are from the extractives sector.

One of the key characteristics of illicit financial flows is the illegal transfer of money across national boundaries. In a context where new digital tools for money transfers, such as online and mobile banking, electronic payments, cryptocurrencies, e-commerce providers, and online gambling services have evolved, it is crucial to interrogate the implications of these tools on the taxation and illicit financial flows. The evolution and growth of digital economies has caught many developing countries in the horns of a dilemma. The quandary is on the developmental impacts of digital economies. Digital economy refers to an economy that is based on digital computing technologies, although it is increasingly perceived as efficiently conducting business through markets based on the internet and the World Wide Web.

On one hand, there is an argument that the benefits of the digital economy for emerging economies are potentially large. Digital economies have significant competitiveness and productivity-boosting opportunities related to access to digital products and services that help optimise processes and production, reduce transaction costs, and transform supply chains. On the other hand, digital economies may be seen as a threat to development given that they may exacerbate illicit financial flows through facilitating easy transfer of financial resources across borders. The illegal transfer of money as a result of advances in information and communication are permissible due to automation, speed and the cross-border nature; anonymity; complex online transactions and less or no regulation. Moreover, digital economies can also be seen as a medium of underground economies. In order for underground economies to thrive, they always search for safe havens offered by states with weak governments and unstable political regimes. African countries are characterised by weak legal and institutional frameworks on taxation.

The global digital economy and the borderless internet create loopholes in the taxation frameworks, blur the line between illegal tax evasion and legal practices of tax avoidance, and pose particular challenges for tackling illegal activities. Currently, the biggest distress is that majority of multinational companies operating within the digital economy are said to be paying tax where they are incorporated as compared to other jurisdictions where they also do or aid businesses[2]. This potentially leads to revenue losses on hosting countries, the majority of them being African countries.

Against this dilemma, the need to have a profound understanding of digital economies and how they can be utilised to promote sustainable development in developing countries arises. An analysis of how developing countries can maximise the developmental impacts of digital economies and the enabling factors that developing countries can develop and use as foundations for their digital economies while assessing how the negatives from digital economies can be minimised.

AFRODAD commends member countries of the African Union who took a major step to boost regional trade and economic integration by establishing the African Continental Free Trade Area (AfCFTA). A large free trade area in Africa will amplify the potential for economic transformation in the region. It will not only boost intraregional trade, it will also attract foreign direct investment and facilitate the development of regional supply chains, which have been key engines of economic transformation in other regions. Against the backdrop that African countries need to mobilise resources domestically, there is need to interrogate the implications of the AfCFTA and trade finance on domestic resources mobilisation.

The prudent management of debts is also an important factor as far as the mobilisation for resources is concerned. Many African governments fail to adequately deal with their debts as a result of weak governance frameworks. Debt legal frameworks of many African countries are characterised with high borrowing limits, vesting too much borrowing power in the hands of a few and limited parliamentary oversight. The institutional framework is characterised by understaffing, lack of capacity and heavy political influence. The lack of prudent debt management is a breeding ground for unsustainable debts which imposes a heavy burden on the citizens. Given the complexities around taxing Muti National Corporations (MNCs), governments turn to squeezing their own people in a bid to mobilise resources.

over the last eight years, Africa’s rapid economic growth has brought relatively small improvements for human development[3]. One of the barriers to this has been limited enabling financing for service delivery and infrastructure development. Whilst the World Bank, the International Finance Corporation (IFC) and International Monetary Fund (IMF) have been at the fore front in the promotion of Public Private Partnership (PPPs)[4] in service delivery and infrastructure development;

_ governments and business leaders across Africa have come to accept PPPs as a means of procuring services and financing infrastructure projects. An increasing number of countries are developing PPP policies and frameworks that typically reflect the institutions, procedures, and rules needed to implement the partnerships in each nation[5]. Given this push, over the last twenty years, a rising trend in developing countries of delegation to the private sector of the provision of public services has been witnessed in various forms. Against this backdrop, There is therefore need to unpack and rethink the issues of blended financing and the changing financial landscape.

Aim and Objectives

Broadly, the summer school aims at enhancing the knowledge of participants on emerging issues that have implications on the prevalence of illicit financial flows and domestic resources mobilisation. Specific objectives of the training were:

  • To improve participants’ knowledge and understanding of digital economies and their implications on illicit financial flows and domestic resources mobilisation in Africa;
  • To establish how digital economy tools can be utilised for improved revenue collection and to curb illicit financial flows;
  • To expand participants’ knowledge and understanding of domestic and external sources of financing for development - particularly on issues of Debt, IFFs, Official Development Assistance, Public Private Partnerships and AFRODAD’s work in the region.
  • To establish linkages between civil society organisations, government officials and parliamentarians who are working on issues related to domestic resources mobilisation.

Proposed Dates and venue

The 2019 AFRODAD Summer School will run for five days starting from the 25th to the 29th of November in Pretoria, South Africa.

Content and structure

Adult learning approaches and participatory methods of learning were used. The summer school included interactive sessions, group discussions and work, parliamentary sessions as well as guest presentations by lead experts: -

  • General concepts (theory and practice);
  • Comparative analysis of current situations (nationally, regionally and globally);
  • Case studies;
  • Policy labs to analyse cases and develop practical analytical skills;
  • Policy discussions/group work and conclusions;
  • Follow ups with individual participants and organisation.

Modules

  1. Understanding Digital Economies;
  2. Taxation in the era of digitalisation: opportunities and challenges;
  3. African Continental Free Trade Area: Implications on domestic resources mobilisation and international Finance management in Africa;
  4. Base Erosion Profit Shifting;
  5. IFFs, corruption and digital economies;
  6. PPPs, emerging lenders and the changing financial landscape;
  7. Existing frameworks and tools for preventing and dealing with unsustainable debts – limitations and strengths;
  8. Strengthening Civil Society space on Sustainable Debt and Development Policies in Central and West Africa: Challenges and opportunities;
  9. The role of the faith-based movement in mineral resources governance and financing for development.

Links

[1] UNCTAD (2014) World Investment Report, http://unctad.org/en/PublicationChapters/wir2014ch4_en.pdf#page=11

[2]http://www.sundaystandard.info/experts-exchange-notes-digital-economy-impact-tax

[3]https://blogs.worldbank.org/ppps/infrastructure-africa-s-development-ppp-imperative

[4]PPPs are contractual arrangements between a public entity, or authority, and a private entity, for providing a public asset or service, in which the private party bears significant risk and management responsibility.”

[5] SADC Banking Association, PPPs in Africa, https://www.sadcbanking.org/news/public-private-partnerships-africa/

 

 

 

 

 

 



 

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