Former South African President Thabo Mbeki is chairman of the High-Level Panel on Illicit Financial Flows from Africa, created by UNECA and the AU. During the Third International Conference on Financing for Development in Addis Ababa, Thabo Mbeki spoke to African Business.
AB: Why do you think the issue of illicit financial flows (IFFs) has taken so long to attract mainstream attention?
Thabo Mbeki: Part of the reason has just been a matter of knowledge, then acquaintance with this subject, and recognition of the fact that there is a problem.
A challenge of this kind takes time. Our panel was set up by African finance ministers, because they saw and identified that there was a problem and a challenge. But they didn’t know enough about it to answer all the questions raised about what was to be done, so we decided to set up the panel. There was consensus with the Economic Commission for Africa to do so.
Our objective is for we ourselves, even ministers of finance, to get a better understanding of what this phenomenon is. So it has really been a problem of understanding and of education on the continent. But I think now we have got to the stage where people have recognised right across the continent that it is a challenge that has to be addressed.
I think, globally, what has helped in this regard is that the major Western countries found that this is their problem as well, because they discovered that many big multinational companies based in their own countries take a lot of the profit made in Africa into tax havens.
So you have billions of dollars that do not come back to the US or the UK or other places. Finally, Western governments now realise that it is in their own interests that this question must be dealt with, so there is a coincidence time-wise that you get this matter raised at the G8 and at the G20 meetings. Then it is vocalised that we must do something about these companies evading tax.
These matters also come up in the European Parliament – it’s decided that international companies must now report country by country.
They were addressing these challenges, which ultimately face their own economies. Be clear – they were not addressing these things to help us, but primarily to help themselves – but, as I said, time-wise the focus then coincided with these issues.
So by the time we, as an African panel, go to them and say ‘Here is a problem we are facing as Africans and we think this is what needs to be done’, you find people who have got their ears open to the issues. That’s because they are faced with the same challenge, so it becomes easier to internationalise the focus and respond to the issue.
AB: There is no precise target for reducing IFFs – probably one reason being that there are no real metrics. Would you share the analysis that this is a key problem that needs to be addressed?
TB: Yes, I think it would be premature to say let us reduce illicit outflows by 50% by 2030, because even if you take the figure we have used of $50bn that Africa loses every year, that is actually a partial reflection of the loss, because that figure reflects misinvoicing. What it reflects is the amount of money that the continent loses as companies overinvoice what they import into a country, and then underinvoice what they export.
This is only one form that the illicit outflows take. There are other forms, transfer pricing, for instance, which is when one of these big companies trades within itself. For example, a mining company in South Africa sets up a service company in Bermuda. It buys services from what appears to be an independent company and, of course, it overcharges them. So when they export foreign capital from South Africa, in fact it’s their own subsidiary. But the $50bn does not cover that. The reason we went that route is because we wanted to be accurate in the figures we cite.
Both the IMF and the UN maintain particular sets of statistics about trade. The data is there to calculate this misinvoicing – the data isn’t there to calculate other forms, however. So if you said ‘Now let’s make sure that in the 15 years of the sustainable development goals that are to be agreed later this year, we will cut illicit outflows in Africa by 50%, which means we come down from $50bn to $25bn’, that won’t be truthful or even possible, simply because there are so many other forms that illicit outflows take which are not covered by this $50bn, because the way of calculating them is not precise. So we said ‘Let’s use figures that we can actually substantiate with real data’.
AB: Where have you had your greatest achievement or encouragement in your crusade against IFFs thus far?
TB: I think the first and major achievement is that now, for the first time, we have a programme to deal with illicit financial outflows that emanate from the continent and that is approved across Africa.
When the summit meeting of the African Union looked at the report and agreed it, the AU then passed its own declaration of what was to be done. Now they know what to do, the report is there, and the whole continent has reached major consensus. I think that’s a major achievement.
The second achievement is that the matter of the illicit financial outflows serves as one of the principal items on the agenda of this international conference Financing for Development. In the end, we might be the originating countries in terms of outflows, but there are destination countries, and we need to act together with them.
So they are here as part of the Financing for Development conference, and the draft documents that are with them include illicit financial outflows as a major topic.
I think those are two achievements. I am sure the conference will adopt a document which reflects and takes into account the illicit financial outflows issue.
It’s the first time for Africa to construct a programme which is continent-wide – and also it will be the first time that it will be possible to construct a programme on the illicit outflows which can also be global. This is a major basis on which to move forward, and I think the really big challenge will be for us to say ‘We have gone so far, let’s get the results’.
Clearly, the issue has now been analysed properly, it’s been discussed in detail. The forms that it takes, and the ways and means in which the outflows take place, have been identified. You actually do have examples around the world of responses that have been made already. So in some of the instances, you don’t have to re-invent the wheel, you have got to say ‘Look, here is something that has been done, implemented and worked effectively. Why don’t we globalise it?’.
At the Financing for Development conference and beyond, what we have to focus on is implementation of these measures, so that we actually get real results, in terms of stopping the outflows and – more importantly – returning what has already left.
Darren Moore
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