Advancing inclusive industrialisation in Africa

Africa's economic development and growth have long been hindered by illicit financial flows, with countries losing billions of dollars each year. CNBC Africa caught up with Allan Mukungu, Senior Economic Affairs Officer at UNECA, on the side-lines of the 2023 African Economic Conference in Addis Ababa, Ethiopia, to discuss the critical issue and the steps being taken to address it. The issue of illicit financial flows in Africa is a significant challenge that the continent can no longer afford to overlook. Mukungu highlighted that in the early 2000s, Africa was experiencing positive economic growth, but traditional donors imposed conditions on financial aid. This led African ministers to recognize the need to address structural problems, including the loss of funds from illicit financial flows. A High-Level Panel chaired by former South African President Thabo Mbeki was established to investigate the issue of illicit financial flows across the continent. The panel's findings revealed that Africa was losing an estimated $50 billion annually to illicit financial flows, far exceeding the financial aid received from donors. This loss not only affects tax revenues but also reduces liquidity within African countries, driving up interest rates and affecting economic stability. Following the report presented by President Mbeki in 2015, African countries successfully advocated for the inclusion of illicit financial flows in the Sustainable Development Goals. Goal 16 now includes an indicator dedicated to measuring and quantifying these flows, providing a clear picture of the scale and impact of the issue. One of the primary drivers of illicit financial flows in Africa is the manipulation of tax laws by multinational companies, allowing them to repatriate profits and evade taxes. Mukungu emphasized the need for African countries to revisit their tax laws to close existing loopholes and ensure that companies pay their fair share of taxes in the countries where value is created. Recent efforts by the African group in New York, including tabling a resolution at the United Nations General Assembly, aim to address international tax cooperation and prevent multinational companies from exploiting tax havens to avoid taxation in African countries. The proposed international framework seeks to hold companies accountable for the profits generated in African nations and prevent the falsification of financial information to reduce tax liabilities. In conclusion, tackling illicit financial flows is crucial for Africa's economic development and sustainability. By implementing robust measures to combat this issue, African countries can retain vital resources, enhance revenue generation, and promote economic growth and stability across the continent.