Addressing revenue loss from illicit financial flows in Africa

Africa is facing a significant challenge with illicit financial flows, losing nearly $90 billion annually according to the latest report from the United Nations. This alarming increase from the previous estimate of $50 billion is a major concern for the continent's economic stability and growth. The issue is multifaceted, with corrupt practices, illegal activities, and tax-abusive practices by multinational corporations being the primary drivers of illicit flows. To shed light on this pressing matter, CNBC Africa's Flora Limukii delved into a conversation with Chenai Mukumba, Executive Director of Tax Justice Network Africa. The discussion revolved around the shortcomings in the current global financial architecture, necessary reforms and regulations, and the potential impact of addressing illicit financial flows on Africa's development agenda. Mukumba highlighted the critical need for enhanced international cooperation in combating illicit financial flows. One of the main shortcomings identified in the global financial architecture is the lack of cohesive efforts among countries to address issues of international tax. The movement of resources across borders underscores the importance of cooperation to effectively tackle the problem. She referenced a high-level panel report chaired by His Excellency Thabo Mbeki, which emphasized the necessity of improved cooperation to curb illicit flows. Moreover, Mukumba discussed specific reforms and regulations essential for addressing the issue within Africa. She stressed the urgency of creating a platform where all countries can contribute equally to solutions. Currently overseen by the OECD, the global tax system lacks inclusive participation, hindering progress in combating illicit financial flows. The Africa group is spearheading efforts at the United Nations to establish a platform that addresses taxing cross-border services and tackles illicit financial flows. These initiatives aim to ensure fair revenue distribution among countries and curb the loss of resources through illicit means. Partnerships play a crucial role in formulating effective regulations to combat illicit financial flows. The ongoing convention process at the UN provides an opportunity for countries to contribute to solutions and address loopholes in the global tax system. Mukumba highlighted key issues like transfer pricing and country-by-country reporting as topics of discussion that can lead to practical solutions in combating illicit financial flows. In terms of numbers, the impact of illicit financial flows is staggering, with Africa losing close to $90 billion annually. This amount represents approximately three percent of the continent's GDP, underscoring the magnitude of the challenge. Closing loopholes and implementing practices to retain resources within Africa could significantly benefit the continent's developmental objectives. Increased revenue could be directed towards critical sectors such as education, health, and social protection, addressing poverty and inequality. In conclusion, addressing illicit financial flows is crucial for Africa's economic prosperity. By reforming the global financial architecture, enhancing transparency, and fostering international cooperation, the continent can make significant strides towards combating illicit flows. The ongoing discussions at the UN and the efforts led by the Africa group signal a proactive approach to addressing this pressing issue. As Africa continues its battle against illicit financial flows, the prospect of economic stability and growth looms on the horizon.