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Africa/Global: Capital Flows in Context
June 2, 2015 (150602)
(Reposted from sources cited below)
"The dominant policy perspectives on illicit financial flows and
Africa's development tend to focus on the unethical, criminal,
corrupt and regulatory dimensions of illicit financial flows. Even
though these are a legitimate focus, their treatment fails to deal
with the structural and systematic dimensions of IFFs that make it
easy for the draining of resources from Africa. " Third World
"Tax justice," in the sense of "corporations and wealthy individuals
paying their fair share of taxes," cannot of course fully "end
inequality," as the headline to this document might be taken to
imply. But there is no doubt that it is an essential component of
any progressive agenda for checking inequality and promoting basic
economic and social rights for all.
This sets a broader context for the phenomenon of "illicit financial
flows," which has rightly gained increasing prominence in debates
about African development, most recently through the release and
endorsement of the Mbeki report by the African Union in February
this year (http://www.africafocus.org/docs15/iff1502.php). If these
flows, defined by the Mbeki report and by Global Financial Integrity
as funds that are illegally earned, transferred, or used, were to be
available in Africa, and taxed for development, this would be a
massive contribution to progress for the continent.
Civil society organizations in Africa and around the world, however,
point out that an exclusive focus on these clearly illegal transfers
must be put in the broader context of other mechanisms which may be
technically legal but illicit in the sense of illegitimate and
contrary to social justice. Likewise, the borderline between "tax
evasion" (illegal) and "tax avoidance" (legal but often
illegitimate) is constantly changing as lawyers, accountants, and
politicians collaborate in changing laws and their interpretations
to the benefit of the rich and powerful.
This AfricaFocus Bulletin includes several background documents
contextualizing "illicit financial flows," one an overview on
Financing for Development from the Trade Union Development
Cooperation Network, and two others from Third World Network-Africa,
stressing the need to put the Mbeki report's concept of "illicit
financial flows" conceived narrowly as those explicitly violating
the law into a broader context of other capital flight that may be
legal but equally damaging and illegitimate.
Another AfricaFocus Bulletin, sent out by email and available on the
web at http://www.africafocus.org/docs15/tax1506a.php, contains an
overview statement from the World Social Forum outlining the need
for tax justice for development and social justice in both the
Global North and the Global South.
For previous AfricaFocus Bulletins on tax justice, illicit financial
flows, and related topics, visit
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Trade Union position on Financing for Development (FfD)
Trade Union Development Cooperation Network
April 8, 2015
2-page summary below
Full version: http://www.ituc-csi.org/TUs-position-FfD
Financing for Development, the MDGs and Inequality
The FfD agenda is an important reference point for discussions on
development finance, and serves as a unique space where governments,
in particular from the South, are able to debate important issues
like trade and foreign direct investment as well as systemic issues
like the international financial architecture and financial
regulation. These are the global economic issues that were absent in
the origin and overall framework of the Millennium Development Goals
and remain piecemeal in the proposed Sustainable Development Goals
The MDGs have been able to mobilise the international community
behind agreed goals and targets without giving much consideration to
the enabling policy framework necessary to redress the structural
causes of poverty. Between the early 1990s and mid-2000s, the
economy grew substantially, especially in emerging and developing
countries, but the benefits of this expansionary period were
unevenly shared. Wage inequality is a key factor in income
inequality and it is striking to note that during the period
1990-2008 income distribution took place away from labour, despite
an increase in employment rates globally. In contrast, the share of
profits in national income increased virtually everywhere.
Decent Work and the Developmental Role of the State
Trade unions contend that the human rights based approach form the
foundation of our development objectives. This means that shared
prosperity creates decent work and sustainable livelihoods for all
and that internationally agreed principles and conventions are
respected and upheld everywhere for everyone. A new impetus to
jumpstart the global economy is the adoption of an alternative
paradigm that promotes fair distribution of wealth and resources,
addresses growing inequality and recognizes the centrality decent
work as a mechanism for employment generation, social protection,
social dialogue and rights at work.
The creation of policy space and democratic ownership for developing
countries is essential to counter-balance the current global trade,
financial and investment flows and undertake when appropriate,
counter-cyclical actions. Democratic States should be supported in
their developmental role as the legitimate and accountable partner,
driving innovation, incubating the creation of decent work through
employment and labour market policies, instituting pro-equity tax
policies, steering investments towards sustainable sectors and
implementing effective redistribution policies for inclusive growth.
Trade Union Priorities for FfD
Domestic Resource Mobilisation, Inequality and the Public Sector
- Universal provision of public services is a cornerstone to
- Establish or strengthen progressive taxation regimes and improve
and raise the ambition of intergovernmental cooperation to fight tax
evasion and avoidance practices by multinational enterprises.
- The country-by-country tax reporting framework for MNEs should be
- Countries should effectively meet the standard Global Forum on
Transparency and Exchange of Information for Tax Purposes.
- The UN Tax Committee of Experts should be transformed into a new
- Transition to the formal economy will contribute highly to a
stabilised income and taxation (redistribution) environment, when
based on a coherent implementation of the rights based decent work
- Minimum wage and other appropriate labour market and fair fiscal
policies should be implemented. Foreign Direct Investment,
International Private Finance, Business, Accountability and Decent
- Private financial institutions should be made accountable and
ensure transparency all along the investment chains and should
mainstream internationally recognised environmental, social and
governance criteria in their investment policy.
- Ensure fair and transparent risk and reward sharing arrangements,
whenever public money is used to mobilize private finance.
- Ensure financial inclusion and financial consumer protection
strategies and minimise cost of remittances of migrant workers.
- Job-creation through private-financed investment and FDI should
pursue all dimensions of the decent work agenda.
- Enhance international cooperation to prevent mutually destructive
tax competition between countries through "harmful tax practices".
- Governments should protect people’s right to universal and
affordable public services and invest in public sector capacities
and ensure fair risk and reward sharing arrangements, whenever
public money is used to mobilize (long term) private finance.
Delivering Effective and Innovative Development Cooperation
- Allocate the 0.7% GNI for ODA and .15-.2% support for LDCs,
through time bound mandatory commitments.
- Progress on aid effectiveness commitments needs to be ramped up.
- The aid effectiveness frameworks should be empowered through the
legitimate UN framework.
- ODA should focus on poverty reduction, be untied, and addressing
essential sustainable development areas.
- Public policy frameworks should address the risks of new aid
- Effective regulation of the financial system and introducing a
global Financial Transaction Tax (FTT) are prerequisites for
enhancing sustainable developmental impact of international public
Trade, Growth and the Modern Economy
- Multinational enterprises are responsible to guarantee respect of
core labour standards, including women's rights, and environmental
integrity throughout their supply chains. * Legally binding
instruments should be developed so as to hold multinational
enterprises accountable for shortcomings along their supply chains.
- The current WTO negotiating round and the post-Bali working
programme should deliver the mandate of the Doha Development Agenda.
- Developing countries should enjoy ample policy space in all trade
agreements, including on the multilateral level.
- Domestic firms and workers should be entitled fair shares of the
gains from trade and domestic trade policies should be enhanced and
- Developing countries must not be bound to trade or aid packages
designed to suit the needs of the developed world.
Technology and Innovation for Sustainable Development
- The FfD agenda will need to consider measures to promote,
facilitate and finance access to and the development, transfer and
diffusion of environmentally sound technologies and corresponding
know-how to developing countries, on concessional and preferential
terms, as mutually agreed (Rio+20).
- Monterrey and Doha commitments for establishing a legitimate
international debt workout mechanism should be implemented taking
advantage of the recent UNGA resolution on the matter.
A Global System for Social Justice
- A new and inclusive global economic architecture should be worked
out accompanied by the creation of a UN Economic and Social Security
- The structural reform of the international financial and trade
systems must include full integration of fundamental human rights,
core labour standards, and decent work, and mechanisms to ensure
CSOs call for broadening of concept of illicit financial flows
African civil society groups have called for the broadening of the
agenda on the outflow of capital from Africa to not only include
illicit but licit means as well, writes Sylvester Bagooro*.
Third World Network-Africa, "Illicit Flows: Beyond the Mbeki Report"
African Agenda, V. 18, No. 1
* Sylvester Bagooro is Programme Officer, Third World NetworkAfrica.
The story of Africa in relation to illicit financial flows (IFFs) is
a familiar one. It has assumed a dominant position in policy
discourses both on the African Continent and beyond. In Africa it
has necessitated the setting up of an African Union Commission High
Level Panel (HLP) on IFFs, whose report was launched at the 24th
Session of the African Union Heads of State' Summit held in Addis
Ababa, Ethiopia from 30-31 January 2015.
Africa is a net exporter of capital, with the United Nations
Economic Commission for Africa (UNECA) estimating Africa's net
financial outflow between the years 1970 and 2008 at around 800
billion US dollars. The last decade has witnessed an exponential
acceleration of illicit financial outflows from Africa. From a
relatively modest figure of about 12.5 billion US dollars in 2002,
illicit outflows rose to 68.1 billion US dol lars in 2009 and have
averaged over 50 bil lion US dollars over the period. Thus, the
seemingly explosion of debate on IFFs and Africa's development by
different actors and at various levels of policy discussions is
But the debate is not without conceptual weakness and confusion. The
dominant policy perspectives on illicit financial flows and Africa's
development tend to focus on the unethical, criminal, corrupt and
regulatory dimensions of illicit financial flows. Even though these
are legitimate focus, their treatment fails to deal with the
structural and systematic dimensions of IFFs that make it easy for
the draining of resources from Africa.
It was against this background that TWN-Africa convened a 3-day
Africa-wide meeting in Accra, Ghana, from the 10-12th of November
2014 with the main objective of broadening and deepening the
conception of IFFs and Africa's development trans- formation. The
meeting brought together participants from academia, civil society
organisations, the media and women groups for discussions on IFFs
and structural transformation of Africa's economies. In laying out
the main issues for the conference, Dr Yao Graham, Coordinator of
TWN-Africa, called for the discussions to go beyond illegality,
corruption and governance and to focus on how economic surpluses
are generated in Africa, the dominant players involved in the
process of generation and the distribution of the surplus.
Hence the meeting discussed a wide range of issues such as finance
and the financial systems and architecture, taxation, foreign
direct investment (FDI), the extractive sector and the role of the
The issue of illicit financial flows it became clear was only the
tip of the iceberg and is a manifestation of an economic system
that privileges foreign capital and corporations to the neglect of
the interests of majority of Africans and domestic capital. The
debate must thus be broadened to include structural drivers within
African economies and not just "resource losses". This is because
such a focus does not capture the whole magnitude of resource leakage
In using Foreign Direct Investments (FDIs) as an instrument and
means by which Africa loses resources it was revealed that the
expectations of FDIs in Africa have pushed most African countries
to give generous concessions to foreign companies with the
assumption that FDIs will help create wealth and lift millions out
of poverty and develop African economies. This is done through
rules, in most cases approved by legislative assemblies that
legitimize the earnings of corporations. Today, in Africa and many
parts of the world corporations wield enormous power over many
states. Though the earning is 'legitimate' it is made possible by
over-liberalized rules, which provide an avenue for accumulation
and repatriation of profits. The fact that no country has ever
developed through FDI seems to be lost on most African countries.
In most cases, the developmental impacts of FDIs are high when
there is a strong domestic investment component which foreign
corporations complement. Currently, FDI contributes more to
perpetuate Africa's role in the global division of labor as
producers of primary commodities and help keep Africa subservient
to the needs of the economic development of industrialized
countries. So Africa's fetish about FDIs has to be reversed if it
wants to minimize or control IFFs.
One other issue of concern was the financialisation of commodities
as a systemic approach through which resources are drained from
Africa. Thus instead of the financial sector playing its
intermediation role in the productive sectors of the economies it
has become a master. The privatization of the financial sector,
capital account liberalization - abolition of forex controls, other
forms of public regulations all introduced to promote interests of
finance sector players - was not to structurally transform the
continent. The most dominant financial institutions today in Africa
are thus foreign ones with development banks disappearing or
becoming rare on the continent. This has been made possible because
of the notion that foreign capital and its owners would bring good
regulation and therefore achieve a stable and reliable financial
system. But this has turned out to be a means of draining resources
out of Africa.
More so financialization is thriving in Africa based on Africa's
resources, production, and surplus among others through trade
agreements. Deregulation as contained in Free Trade Agreements
(FTAs) on financial services sets limits on regulation and capital
controls. For instance one of the rules on the General Agreement on
Trade in Services (GATS), and repeated in the Economic Partnership
Agreement (EPA) especially in the CARIFORUM EPA and other FTAs
states that parties should not limit the amount of foreign
investors in their financial sector. Institutionalization of
protection of investors through trade and investment agreements is
rampant in Africa.
In order to stem illicit financial flows the role of the state must
go beyond the regulatory function and the governance dimensions
into active participation in the generation of economic surpluses
in Africa. The state function cannot be reduced to regulations and
monitoring the behavior of the corporations operating in Africa.
This is because no country has achieved market- led development.
Development is a political process propelled by nationalism. Hence
the market cannot be an alternative to the state. The weakness of
the African states should rather be fixed. Limiting the role of the
state to the behavior of rules or good governance checklist is
anti-developmental. To fix the state, citizens must be empowered to
recapture the state from particular interest on one hand; and
critical engagement with national governments.
What the Mbeki Panel Says
Third World Network-Africa, "Illicit Flows: Beyond the Mbeki Report"
African Agenda, V. 18, No. 1
Set up by the Joint African Union and United Nations Economic
Commission for Africa Conference of African ministers of Finance
Planning and Economic Development, in February, 2012, the High Level
Panel on Illicit Financial Flows from Africa was among others to
ensure 'Africa's accelerated and sustained development, relying as
much as possible on its own resources.' It became known as the Mbeki
Panel after its chair former South African President Thabo Mbeki.
In the foreword to its report presented in January, Thabo Mbeki
states that in their work, 'it became clear that Africa was a net
creditor to the rest of the world, even though, despite the inflow
of official development assistance, the continent had suffered and
was continuing to suffer from a crisis of insufficient resources for
This assertion is based on findings by the Panel that at least $50
billion ( a 2010 study by Kar and Cartwright - Smith says Africa has
lost over $1 trillion in illicit flows in the last 50 years) is lost
by Africa annually 'through illicit financial outflows' and a timely
intervention to stem this fleecing of Africa will ensure according
to the report that, 'these development resources remain within the
continent'. The Panel acknowledges that it did not include capital
flight out of the continent even though it could contribute a lot to
the diminishing of resources on the continent because it could be
'entirely licit'. According to the Panel, 'to escape 'complicated
explanations of what qualifies as IFFs and debates' it decided not
to include capital flight which may be investors' rational response
to 'economic and political risk'.
The Panel's work was thus based on the need to:
i. Develop a realistic and accurate assessment of the volumes and
sources of these outflows
ii. Gain concrete understanding of how these outflows occur in
Africa, based on case studies of a sample of African countries and
iii. Ensure that we make specific recommendations of practical,
realistic, short-to medium term actions that should be taken both
by Africa and by the rest of the world to effectively confront what
is in fact a global challenge.
Six African countries were selected based on regional
representation, importance of extractive sector in their economies
and post-conflict countries. Thus, Algeria, The DRC, Kenya,
Liberia, Mozambique and Nigeria were selected as case studies. In
the end it did not prove a bad selection as the countries did not
only fit the bill for but also provided eye-openers to long-assumed
situations. As a kind of control measure, Mauritius and South
Africa were also thrown into the bargain to as it were 'gain an
understanding of how their institutions and processes are geared to
mitigate illicit financial outflows'.
In a session titled 'Main messages of the Report', the Panel says
the 'IFFs are not only an African problem but are indeed a matter
of global governance that calls for a wide range of actions,
including at the level of the global finan cial architecture.' It
also contends that 'successful com- bating of IFFs will generate
positive impacts for the gov ernance landscape of Africa, resulting
in sustainable improvement and enhancements for the local business
and private sector development.' The report's definition of IFFs
and how it manifests itself also takes a chunk of the session on
'Main messages'. Those resulting from commercial activities include
hiding wealth, tax evasion, dodging customs duties and domestic
levies. Others are transfer pricing, trade mispricing, misinvoicing
of services and intangibles, unequal contracts and illegal export
of foreign exchange. Criminal activities aimed at keeping
transactions away from authorities are another major conduit of
IFFs. These include trafficking of people, drugs and arms,
smuggling, financial fraud, money laundering, stock market
manipulation and outright forgery among others. The report
acknowledges the challenge involved in estimating the IFFs as they
are 'mostly hidden and therefore difficult to track' but in doing
so it nevertheless 'felt that there was enough scope to track IFFs
based on existing work and on discrepancies in economic
transactions recorded between Africa and the rest of the world.'
The existence of the IFFs, according to the report can be traced to
a number of 'Drivers and enablers' underpinned by 'push and pull
factors'. Chief among which is the 'desire to hide illicit wealth'.
This is helped by poor governance, weak regulatory structures,
double taxation agreements, tax incentives, financial secrecy and
or tax havens. Having identified these, the report expresses its
alarm that the IFFs from Africa are not only large but 'increasing'
across the three major categories mainly, 'commercial, criminal and
corrupt activities'. At the heart of the fight against IFFs must be
a political resolve to tame it, need for transparency and closer
monitoring of commercial routes of illicit flows. African countries
must also critically look at their over-dependence on the natural
resource extraction sector because it has proven to be one of the
main vectors of IFFs through 'transfer pricing, secret and poorly
negotiated contracts, overly generous tax incentives and
The services sector, a growing area in Africa's economies is
another area prone to IFFs because of the challenges in measuring
its contribution as well as its digitized form and 'novel and
abstruse ways'. The 'digital revolution' that has led to 'speedier
transfer of money' and data general ly has led to an increased
vulnerability of African countries to IFFs as they are not yet
technologically and human resource-wise ready for this radical
technological advancement. Even if they are they are yet to match
the speed with which the changes take place. For all these and
others African countries must be cautious in dealing with foreign
transactions which invariably lead to the outflow of resources from
In conclusion, the Panel sees its work as a 'contribution to
addressing the complex issue of the illicit outflows of capital
from Africa'. Recognising that it is a global issue that requires
the involvement of other actors outside of Africa for instance the
UN system and individual developed countries, the Panel
'The sources of IFFs are from within the continent, and the
fundamental responsibility for eliminating the sources rests with
the governments of African states. Therefore the Panel calls for
the African Union to take leadership in ensuring that Africa takes
the necessary measures to curtail and indeed eliminate all avenues
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