Lusaka, 19 June 2013 (ECA) - The High Level Panel on Illicit Financial Flows held a two day meeting in Lusaka from 17th -18th June 2013. The ten member Panel chaired by His Excellence, former President of South Africa Mr. Thabo Mbeki was established by the Economic Commission for Africa (ECA) and the African Union (AU) and was inaugurated in February 2012 to address the debilitating problem of illicit financial outflows from Africa.
The meeting which brought together over 60 delegates comprising key stakeholders from East and Southern Africa is part of a continental wide consultative process aimed at sensitizing and building a coalition on illicit financial flows which are grossly hurting the continent. It is estimated that Africa loses USD$50 billion a year in illicit financial flows that find their way to developed countries draining the continent of the much needed resources.
The Panel led by former President Mbeki also held separate meetings with H.E. President of Zambia, Mr. Michael Sata, as well as Vice President Guy Scott. Speaking during the meeting with the Zambian Head of State, Mr. Mbeki called for a stronger African voice on illicit financial flows which he said was the single economic issue hampering Africa’s development.
H.E. Mbeki told President Sata that illegal financial flows was a complex and global problem which Africa could not solve on its own without other players such as the G8 countries. “What we are saying is that what role can we play ourselves as Africans where these flows originate and what role can the G8 play as a major destination for these illegal flows? We are in communication with the G8 and we will be watching closely the outcome of their summit.” Former President Mbeki said on behalf of the Panel.
In response, President Michael Sata commended ECA for constituting the High level Panel. He said that poverty and the lack of Africans owning key industries like mining and oil corporations was fuelling illegal financial flows. “The biggest problem we have in Africa is poverty and unemployment which has made our people conduits, once we deal with poverty these problems will not be there”.
President Sata also said that there was need to build a strong entrepreneurial base in Africa so that Africans can successfully compete in the natural resource sector, “It doesn’t matter whether it’s in Cape Town or Cairo you don’t find many corporations owned by Africans worth talking about” he said.
The Panel later met Republican Vice President Guy Scott explaining the mission of the Panel and some of the effects of illicit financial outflows such as the draining of foreign exchange reserves, reduced tax collection, canceling out of investment inflows and a worsening of poverty. Vice President Scott thanked the Panel for their work and said that tax evasion was a major problem in Zambia. He said that Zambia was in the process of passing instruments to improve greater transparency to monitor the flow of exports and imports.
President Mbeki also held a press conference attended by more than 20 local and international media. “Africa is bleeding” he told the journalists arguing that USD$50 billion was a colossal amount when compared to gross capital formation.
Responding to a journalist on what recommendations the panel had for African governments, President Mbeki said the panel had not reached a stage for making recommendations as they were still doing consultations with key players on the continent to understand the scope of the problem. He said that a comprehensive report with recommendations will be ready in March 2014.
President Mbeki also gave special interviews to BBC Focus on Africa, Bloomberg and Zambia National Broadcasting Corporation calling for G8 for cooperation and greater transparency in the global financial system.
Delegates lauded the Economic Commission for Africa (ECA) for the ground breaking initiative and promised to support the work of the Panel.
It is the first time a continent wide organization has taken a lead on this matter. “Africa has never been in a stronger position to fight this, I want to thank-you ECA for this project” said a delegate from Mauritius, who also called for greater involvement of central banks, destination countries and regional financial bodies “to cut the clock of secrecy.”
While illicit financial flows are a global problem, their impact on the continent is monumental thereby representing a significant threat to Africa’s governance and economic development. Current evidence shows that Africa lost over US$ 854 billion in illicit financial flows between 1970 and 2008 corresponding to a yearly average of about US$ 22 billion. The trend has been increasing over time and especially in the last decade, with an annual average illicit financial flows of US$ 50 billion between 2000 and 2008. However, these estimates may well be short of reality as they exclude such other forms of illicit financial flows as proceeds from smuggling and mispricing of services. The level of illicit financial outflows from Africa exceeds the official development assistance to the continent, which stood at US$46.1 billion in 2012.
Illicit financial flows constitute, among others, undocumented commercial transactions and criminal activities characterized by over pricing, tax evasion, false declarations, mispricing of trade exports and imports facilitated by some 60 international tax havens and secrecy jurisdictions that enable creating and operating of millions of disguised corporations, oil companies, anonymous trust accounts and fake charitable foundations. Other techniques used include money laundering, transfer pricing and corruption.