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Illicit capital robbing Africa and its people of their future: UN trade and development chief

Illicit capital robbing Africa and its people of their future: UN trade and development chief

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Illicit financial flows (IFFs) are movements of money and assets across borders which are illegal in source, transfer or use, according to the new report entitled “Tackling illicit financial flows for sustainable development in Africa.”

It shows that these outflows are nearly as much as the combined total annual inflows of official development assistance, valued at $48 billion, and yearly foreign direct investment, pegged at $54 billion, received by African countries – which represents the average investment between 2013 to 2015.

 

Illicit financial flows rob Africa and its people of their prospects, undermining transparency and accountability and eroding trust in African institutions”, said UNCTAD Secretary-General Mukhisa Kituyi.

These outflows include illicit capital flight, tax and commercial practices like mis-invoicing of trade shipments and criminal activities such as illegal markets, corruption or theft, says UNCTAD. 

From 2000 to 2015, the total illicit capital flight from Africa amounted to $836 billion. Compared to Africa’s total external debt stock of $770 billion in 2018, this makes Africa a “net creditor to the world”, the report says.

IFFs related to the export of extractive commodities ($40 billion in 2015) are the largest component of illicit capital flight from Africa.

SDG progress at risk

IFFs represent a major drain on capital and revenues in Africa, undermining productive capacity and Africa’s prospects for achieving the Sustainable Development Goals (SDGs).

For example, the report finds that in African countries with high IFFs, governments spend 25% less than countries with low IFFs on health, and 58% less on education. Since women and girls often have less access to health and education, they suffer most from the negative fiscal effects of IFFs.

Africa will not be able to bridge the large financing gap to achieve the SDGs, estimated at $200 billion per year, with existing government revenues and development assistance.

Infrastructure, services suffering

The report finds that tackling capital flight and IFFs represents a large potential source of capital to finance much-needed investments in, for example, infrastructure, education, health, and productive capacity.

Sierra Leone for example, which has one of the highest under-five mortality rates on the continent, curbing capital flight and investing a constant share of revenues in public health could save an additional 2,322 of the 258,000 children born in the country annually.

In Africa, IFFs originate mainly from extractive industries and are therefore associated with poor environmental outcomes.

The report shows that curbing illicit capital flight could generate enough capital by 2030 to finance almost 50% of the $2.4 trillion needed by sub-Saharan African countries for climate change adaptation and mitigation.

All that glitters

The report’s analysis also demonstrates that IFFs in Africa are not endemic to specific countries, but rather to certain high-value, low-weight commodities.

Of the estimated $40 billion of IFFs derived from extractive commodities in 2015, 77% were concentrated in the gold supply chain, followed by diamonds (12%) and platinum (6%).

The report aims to equip African governments with knowledge on how to identify and evaluate risks associated with IFFs, as well as solutions to curb IFFs and redirect the proceeds towards the achievement of national priorities and the SDGs.

It calls for global efforts to promote international cooperation to combat IFFs. It also advocates for strengthening good practices on the return of assets to foster sustainable development and the achievement of the 2030 Agenda for Sustainable Development.

Tax revenues syphoned off

Tax revenues lost to IFFs are especially costly for Africa, where public investments and spending on the SDGs are most lacking. In 2014, Africa lost an estimated $9.6 billion to tax havens, equivalent to 2.5% of total tax revenue.

Tax evasion is at the core of the world's shadow financial system, according to UNCTAD. Commercial IFFs are often linked to tax avoidance or evasion strategies, designed to shift profits to lower-tax jurisdictions.

Due to the lack of domestic transfer pricing rules in most African countries, local judicial authorities lack the tools to challenge tax evasion by multinationals.

But IFFs are not just a national concern in Africa, said Nigeria’s President Muhammadu Buhari: “Illicit financial flows are multidimensional and transnational in character. Like the concept of migration, they have countries of origin and destination, and there are several transit locations. The whole process of mitigating illicit financial flows, therefore, cuts across several jurisdictions.”

Solutions in plain sight

Solutions to the problem must involve international tax cooperation and anti-corruption measures. The international community should devote more resources to tackle IFFs, including capacity-building for tax and customs authorities in developing countries.

African countries need to strengthen engagement in international taxation reform, make tax competition consistent with protocols of the AfCFTA, and aim for more taxation rights, said the UN trade agency.

 

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South African President warns pandemic has set back African development

South African President warns pandemic has set back African development
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Despite the continent-wide approach taken by African countries to combat COVID-19, the pandemic has set back their development aspirations, South African President Cyril Ramaphosa told world leaders at the UN General Assembly on Tuesday.

Speaking via video-link, Mr. Ramaphosa noted that, with resources redirected to fighting the virus, efforts to provide housing, health care, water and sanitation, and education have been hampered, and called for interest payments on African countries’ debt to be suspended.

Meeting the Sustainable Development Goals

“Until we eradicate global poverty, we will always fall short of realizing the vision of the founders of the United Nations”, Mr. Ramaphosa told world leaders, reminding them of the importance of meeting all the Sustainable Development Goals (SDGs) of the UN’s 2030 Agenda for Sustainable Development.

The South African President emphasized gender equality, including the expansion of opportunities for women, and ensuring their rights in the workplace, political life, and in society as a whole.

South Africa, he noted, is a member of the UN’s Generation Equality, prioritizing the eradication of gender-based violence and femicide, and is working to adopt an African Union Convention on violence against women. African Union member states, he continued, are also working on measures to support financial inclusion for women.

‘Silence the guns’

Turning to peace and security matters, Mr. Ramaphosa declared that South Africa is continuing with efforts to “silence the guns”, through conflict resolution and peace-building.

Increased cooperation between the UN and African Union has, he said, contributed to improving peace and security in the Darfur region of Sudan, South Sudan, Somalia, Mali and the Central African Republic.

And, as a non-permanent member of the Security Council, South Africa has, continued Mr. Ramaphosa, promoted international peace and security by advocating for the peaceful settlement of disputes and inclusive dialogue.

‘Advance green economies’

Looking ahead to the post-pandemic recovery, Mr. Ramaphosa noted that it presents an opportunity to “place the global economy on a low-carbon, climate resilient developmental path”.

The principles of green, and circular, economies must be advanced, he declared, for the sake of the environment, as well as for job creation and economic growth.

The South African premier added that climate change adaptation, mitigation and support must be at the heart of the global recovery effort.

A choice between tolerance and prejudice

For Mr. Ramaphosa, one of the upshots of the pandemic is that is has presented the world with a choice, and an opportunity to create a new order, rooted in “solidarity, equality and unity of purpose.”

“When history faithfully records the global response to the worst health emergency of this century”, concluded Mr. Ramaphosa, “let it be said that we stood and acted as one, that we provided leadership, and that we gave the peoples of all nations hope and courage”.

 

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At UN General Assembly, President of Burundi rejects diplomatic aggression against his country

At UN General Assembly, President of Burundi rejects diplomatic aggression against his country
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The “indiscriminate consequences” of the COVID-19 pandemic have underscored the importance of multilateralism and how the world handles global challenges and contradictions, the President of Burundi told world leaders gathered virtually for the UN General Assembly. 

Addressing the Assembly’s annual high-level debate, via a pre-recorded video, President Evariste Ndayishimiye stressed that multilateralism must “drive forward” the world’s efforts to overcome massive obstacles. 

Warning of a “trend” that has seen States imposing coercive unilateral measures against other States, the Burundi leader strongly rejected diplomatic aggression against his country by foreign Governments. 

He also alleged that political forces are behind Burundi’s inclusion on the agenda of the UN Security Council, which, he said had destabilized rather than helped the country, calling for its prompt removal. 

President Ndayishimiye also called for addressing the relations between African countries and those with a colonial past, adding that “shaking off the colonial yoke” has cost millions of lives and left wounds that are difficult to heal. 

Turning to the 2030 Agenda for Sustainable Development, President Ndayishimiye said Burundi’s priorities include fighting against poverty and protecting the environment. However, in spite of its national sustainable development plan, more action and resources are needed to realize the Sustainable Development Goals (SDGs). 

With development being the “backbone of progress”, he said broad efforts are being made to foster achievements. With stability across the country, initiatives are now focused on citizens returning home, with 92,000 refugees having been repatriated, added the President. 

“This planet is facing a climate crisis, worsening daily and threatening decades of progress. The clock is ticking,” he said, emphasizing that Burundi launched a national project to reduce deforestation.  

Burundi’s fight against terror 

Burundi is also fighting against terrorism, President Ndayishimiye told world leaders, adding that the scourge should never be linked to religion or ethnic origin.  

Instead, its root causes must be addressed, he said, adding that Burundi has deployed 5,000 troops to the peacekeeping mission in Somalia.  

Strong UN needed to face current challenges 

Commending the Secretary‑General for his reform efforts, the President of Burundi said the United Nations must be strong to face current challenges.  

He said this General Assembly session is an excellent opportunity for Member States to reflect on how the UN must address global challenges and for adopting a consensus-based approach to tackle global issues, from migration to climate change.   

Echoing the common African position on Security Council reform, he called for permanent seats to be allocated to the continent’s countries.   

While the pandemic has highlighted fragilities in the world, he said Burundi believes in international solidarity and will play its full role in building a global order that respects the UN Charter

 

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Digital Technologies Could Help Uganda’s Economy Recover Faster

Digital Technologies Could Help Uganda’s Economy Recover Faster
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Uganda’s real gross domestic product (GDP) growth in 2020 is projected to be between 0.4 and 1.7% compared to 5.6% in 2019, according to the latest edition of the Uganda Economic Update released by the World Bank today. 

The report, “Digital Solutions In A Time of Crisis” shows the economy has suffered from the triple shocks of the COVID-19 (coronavirus) related economic and social disruption, a locust invasion and floods. Up to three million Ugandans could fall into poverty due to economic hardship and a lack of alternative means of survival. 

Global and local restrictions in the movement of people and goods and provision of services to contain the COVID-19 pandemic have resulted in lower consumption, loss of jobs and a 43% reduction in remittances. Due to a sharp drop in tax revenues, Government has also been forced to borrow much more to continue providing services to Ugandans. 

Uganda, however, remains at low risk of debt distress based on the April 2020 joint World Bank-IMF debt sustainability analysis. With total debt service (interest and principal due) expected to average around 55 percent of government revenues over the next three years, there is a need to cut back on non-priority spending in order to provide essential public services such as health, education, water and sanitation and electricity. 

A more widespread pandemic could pose significant risks to the outlook, as well as any further significant locust invasion. Weak economic growth in the post COVID-19 period will continue to reduce overall consumption and commodity demand. In addition, crude oil prices are expected to average $35 per barrel this year and $42 per barrel in 2021. Although this will limit external inflationary pressures for import-dependent Uganda, these prices are below the estimated breakeven price of $60 for oil production in Uganda. This could negatively impact Uganda’s prospects of becoming an oil producer within the next four to five years.

The increased use of digital technologies during the COVID-19 lockdown such as mobile money, on-line shopping, on-line education, digital disease surveillance and monitoring, and dissemination of public health messages shows the great potential to support faster economic recovery and strengthen resilience against similar shocks. 

“The digital space in Uganda is very innovative – and has quickly adapted during the pandemic. Fintechs have offered payment options, and digital solutions have reinforced and enabled the health sector’s calls to social distance and limit movement and contact. These solutions, if upscaled and developed to their potential would boost the digital economy and maximize its benefits to Ugandans,” said Tony Thompson, World Bank Country Manager for Uganda.

The report points to the current national ID system as one of the successes of technological advancement, which can be leveraged to support more efficient e-government systems and authentication by the public and private sectors while expanding financial inclusion, strengthening social protection delivery, supporting immigration control and refugee management. 

While Uganda has made reasonable technological strides, the analysis notes that it still lags with a phone penetration rate of 69.2% of the population, far below the average of 84%for Africa. There are gender and geographical gaps in access; for example, 46% t of female adults have access to mobile phone compared to 58% of male adults. Similarly, adults in urban areas are more likely to own mobile phones (70%) and have access to the internet (25%) compared to adults in rural areas (46%own phones and 5 percent have internet access).

The economic update makes several recommendations for the economy and ICT sector, including implementing supportive policies and regulation, review of taxation in the digital economy, leveraging technology to support the health sector and economic recovery through increased digitalization of agribusiness and manufacturing, expansion of social safety nets, and transparency and accountability of government’s response to COVID-19. It also recommends the development of a coherent strategy of ecosystem support and catalyzing regional and global integration of Uganda’s digital economy.

“There are areas of the economy that have shown resilience in the current crisis and by leveraging digital technologies are inventing new ways of operating and doing business,” said Richard Walker, World Bank Senior Economist for Uganda.