African Union Commission set to launch a Multi-Donor Action against Illicit Financial Flows in Africa
Illicit Financial Flows (IFFs) have been at the centre of discussions in Africa due to their negative impact on development financing, sustainable development and growth.
The emergence of the COVID-19 pandemic has exacerbated the fiscal deficit situation in some African countries, equally bringing to the fore, the urgency to address the vice of the illicit outflows.
This is in acknowledgement that the contraction in budgetary resources is likely to impede and delay the implementation of Africa’s Agenda 2063 and the United Nation’s Sustainable Development Goals (SDGs) and therefore, strengthening domestic resources mobilization by intensifying the fight against IFFs, and supporting current continental ongoing initiatives is crucial.
To enhance efforts to combat the scourge of IFFs on the African Continent, the African Union Commission through the Department of Economic Affairs, is scheduled to launch a Multi-Donor Action to add to the existing mechanisms established to stem the illicit outflows.
This joint action is co-financed by the European Union (EU) and the German Federal Ministry of Economic Development and Cooperation (BMZ) and implemented by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) through the Good Financial Governance in Africa Programme.
The Multi-Donor Action will be launched during the African Union’s Specialized Technical Committee (STC) on Finance, Monetary Affairs, Economic Planning and Integration from 1st to 4th December 2020.
The Multi-Donor-Action employs a two-fold implementation methodology and aims to strengthen the capacities of the AU Commission to play a pivotal role in coordinating anti-IFFs policies on the continent.
Simultaneously, the project focuses on the implementation of country pilot measures via the pan-African networks African Tax Administration Forum (ATAF); Collaborative Africa Budget Reform Initiative (CABRI); African Organsiation of Public Accounts Committees (AFROPAC); and the African Organisation of Supreme Audit Institutions (AFROSAI).
The Action is embedded in wider international initiatives, amongst them the Addis Tax Initiative, the resolution on the Impact of IFFs on Development Finance and the AU Special Declaration on IFFs.
Domestic Resource Mobilisation (DRM) is one of the most promising sustainable development financing sources. However, tax-to-GDP ratios in most of African countries have remained extremely low – averaging only 18 percent in 2018.
Tax revenue under-collection is largely associated with considerable IFF in the region. A recent report by the United Nations Conference of Trade and Development (2020) estimated losses at about US $89 billion annually.
These outflows are of tremendous concern, given the various socioeconomic challenges still faced by the continent. The amount of Official Development Aid (ODA) of US $48 billion and foreign direct investment of US $54 billion received on average annually between 2013 and 2015 amounts to nearly the same amount lost in illicit financial outflows.