As Africa was seeking to sort out its issues at the just-concluded AU Summit in Kigali, another meeting of global proportions, and just as critical, was beginning in Nairobi, Kenya, where countries on the continent sought to push for a consensus on how to stem tax evasion by multinationals.
Tax evasion deprives the continent more than $50 billion in revenue annually.
The 14th UN Conference on Trade and Development (UNCTAD), that ended yesterday, looked to move towards greater international co-operation in tackling tax evasion, reforming investment governance and improving international governance of debt.
Under the theme “From Decisions to Actions”, the conference also sought to consider the most appropriate means to finance and deliver on the post-2015 development agenda articulated in the Sustainable Development Goals.
But the realisation was as valid that developing countries could also pull their weight in financing the SDGs in their local situations if they were not losing so much through tax dodging.
Fair taxation lobbies Tax Justice Network-Africa and ActionAid estimate that East Africa is currently losing over $2 billion per year to tax dodging.
Country-wise, Rwanda’s annual loss stands at $176 million, Uganda at $370 million, Tanzania at $790 million and Kenya $1.1 billion.
The evidence of the loss is well documented. The UNCTAD 2016 World Investment Report titled “Investor Nationality: Policy Challenges” shows how more than 40 per cent of affiliates of foreign firms worldwide entail complex ownership chains with multiple cross-border links, making it easy for them to repatriate their profits to tax havens and bleed the economies of developing countries where they make these profits.
As this column recently observed, some of the effects of financial outflows are self evident, and involve the draining of foreign exchange reserves, reduced tax collection, cancelling out of investment inflows and a worsening of poverty (see “Why Africa must fight illicit financial flows”).
But the UNCTAD meeting in Nairobi painted a picture of decisions that must be acted upon, in which, in another report, “Development and Globalization: Facts and Figures”, it was observed that developing countries would have been better able to finance the Sustainable Development Goals if rich countries were meeting their 2002 target to put 0.7 per cent of gross national income which to date would have amounted to $2 trillion.
The wide-ranging meeting also looked at matters trade, of which it is noteworthy that a database listing non-tariff measures of 56 countries, covering 80 per cent of world trade was launched to enhance transparency on non-tariff measures.
Non-tariff measures are trade barriers that restrict imports or exports of goods or services by other means besides imposition of taxes. The measures usually cover a broad range of policy instruments that, for instance, may include health protection stipulations to safeguard a country’s citizens as well as its environment.
The UNCTAD data showed how G20 countries non-tariff measures costs least developing nations an estimated $23 billion annually, an equivalent of 10 per cent of their exports to the group. G20 – the Group of Twenty – brings together Finance Ministers and Central Bank Governors from 19 industrialised and developing economies.
The database will allow policymakers to search by country and product to find out quickly the relevant non-tariff requirements, as well as aid in trade negotiations.
Indeed, the UNCTAD meeting was about compromise and coming to consensus between different negotiating sides, and which the Group of 77, a group of 134 developing countries and China, sought to address the issue of tax cheating as well as sovereign debt management and sharing of new technology.
But it is the issue of tax dodging that seemed to hog the day with the developing nations pushing for UNCTAD to cover the wider mandate, citing the billions of dollars they are losing every year in illicit financial flows.
In the end, and despite activists’ loud protestations, the Group of 77 lost their bid for the UN body to draw up rules and enhance monitoring of tax cheats among multinationals.
Still, the UNCTAD meeting had its compromises, as the final document called the Nairobi Consensus will attest, but it will leave Africa still bleeding from illicit financial flows.