If it is clear that it is not to be marked with a white stone for all the countries of the globe, the year 2020 has, in particular, more than ever shown that the Covid-19 pandemic and its ruthless impact on the oil market were not the only responsible for the current severe financial and economic crisis in Africa.
It goes without saying that the Covid-19 has certainly played an important role in accelerating the underlying financial pressure by wreaking unprecedented havoc on the energy market, but corruption, Illicit Financial Flows (IFFs) and fiscal irresponsibility, three phenomena viscerally endemic on the continent, also played a large part.
And it is not for nothing that the United Nations Commission on Trade and Development (UNCTAD), in its 2020 report on economic development in Africa entitled « Illicit Financial Flows and Sustainable Development in Africa », has once again pointed to the channels that exacerbate one of these phenomena: IFFs.
A focus will be made on the most widespread, namely « the harmful business activities of multinational corporations, drug trafficking and smuggling, corruption and embezzlement.
In addition to the over- or under-invoicing of trade agreements, transfer pricing manipulation (avoiding taxes by setting prices between their divisions), offshore banking and the continued use of tax havens », the UN document lists, with the aim of identifying gaps in the existing architecture to prevent FFIs and how Africa should contribute to this process in order to improve its efficiency, effectiveness and inclusiveness.
« While there is consensus on the sources of FFIs such as criminal activities related to, for example, trafficking and smuggling and those related to corruption, there has been debate and disagreement on the legality or illegality of certain commercial activities such as tax evasion and avoidance, » rightly explains Komi Tsowou, a trade expert at UNCTAD.
Those responsible for financial flows out of the continent are both internal and external actors, whether active or passive. « These flows are multidimensional and transnational in nature, since they have origins and countries of destination. Public and private actors such as multinational companies and certain high net worth individuals as well as jurisdictions involved in practices that promote illicit financial flows must take responsibility and combat this scourge, » he says.
Haemorrhage in the extractive industries sector
The large multinational companies operating in the extractive industries are particularly concerned, with more than 40 billion dollars, and this sector alone, considered one of the main causes of the financial haemorrhage from which Africa suffers, accounts for nearly half of outgoing financial flows. And if omerta have jumped under the pressure of powerful NGOs and bodies campaigning for tax justice in the world, the opacity surrounding the revenues of these giants as well as their tax regime remains a major factor in their very low impact on the populations of African countries, rich in resources, it is once again denounced in the UNCTAD 2020 report.
Other taboos have also been broken thanks to the global standard of the Extractive Industries Transparency Initiative (EITI), an international multi-stakeholder organization that brings together representatives of governments, companies, investors, civil society organizations and other partner organizations to « improve the governance of extractive industries and promote transparent and accountable management of revenues from the country’s natural resources.
In other words, a standard to monitor and « reconcile payments made by companies to governments and receipts of payments by governments from the extractive industries ».
The results so far achieved since its implementation in 2003 speak for themselves: no less than 2300 billion dollars disclosed by the 51 member countries of the EITI, whose purpose is to overcome fiscal inequalities and opacity of rent, to fight corruption and to improve the management of the sector in order to initiate the virtuous circle of development.
The Independent Commission for International Corporate Tax Reform (ICRICT), based in Mexico City, Mexico, is no less determined to combat tax misconduct by multinationals in all its forms, especially the most devious ones. For its part, the Independent Commission for International Corporate Tax Reform (ICRICT), based in Mexico City, Mexico, believes that the time has come for developing countries to mobilize more actively and combine their efforts to prevent capital flight, which is inseparable from large-scale tax evasion and avoidance. « For if the heads of state and finance ministers of these countries continue to leave the debates on the taxation of multinationals to experts, without understanding that this is a political and not a technical issue, they will soon be forced to accept an international tax system that will not suit them. The winners will always be the same, and then it will be too late to protest ».
The scourge with devastating consequences and whose precise quantitative overall assessment remains complex is growing in magnitude. According to estimates by the Global Financial Integrity (GFI), a Washington-based organization that works to curb the illegal cross-border movement of capital, about $1.1 trillion is illegally flowing out of all developing countries, more than what these countries receive in Foreign Direct Investment (FDI) and Official Development Assistance (ODA) combined.
FFIs accounted for between 4% and 7% of the total value of developing countries’ trade (exports and imports) depending on the region. The majority (55%) of FFIs from these countries find refuge in banks in developed countries (mostly in the US or UK), while 44% land in countries most frequently considered tax havens (Switzerland, British Virgin Islands or Singapore). In terms of taxation, capital held offshore by individuals, multinational companies and banks causes developing countries to lose no less than $190 billion, according to many economists and NGOs active in the field of social inequality and tax havens.