News: Investing in development - what’s next?

Source: PWYP coalitions

Two weeks ago, leaders and decision-makers gathered in Addis for the 3rd Financing for Development Summit (FFD3) to commit to strengthening and exploring innovative ways to finance development. Whilst there were quite some progress, the outcome of the meeting also presented some serious let downs.

PWYP decided to share the hopes and expectations of the various PWYP coalitions for FFD3 to make sure their voices are heard in the run up to the New York deliberations scheduled for September.

With Africa’s population set to double by 2050, rising faster than sustainable development projections, modernising local economies will prove vital to make the continent more competitive and to increase people’s living standards. Hence we cannot afford to let another dollar disappear into thin air, says PWYP Zambia. Every lost dollar is a dollar that could have been used for national sustainable development. Aid should focus on ending illicit financial flows and implementing tax justice for the benefit of citizens of developing countries.

If, and only if, a fair and efficient tax system is in place, will resource rich countries actually be blessed by their resources by being able to finance their own sustainable development.

Some of our coalitions in Africa weighed in on what FFD3 could have meant for financing development, with a particular need to address illicit financial flows, make fairer deals, solve tax justice issues and invest in development funds for future generations.

The cost of lack of transparency

For years, Malawians have been traumatised by abject poverty and hunger whilst at the same time it has ranked very highly in the Global Financial Integrity’s index of illegal financial movement. In Uganda illicit financial flows and tax evasion is entrenching poverty, making it more and more difficult to lessen the gap. Data from the Global Financial Integrity shows that Zimbabwe has lost more well over US$2 Billion cumulatively from 2003-2012 to illicit financial flows. These figures are clearly conservative. Financing development in Zimbabwe and in other developing countries has to address illicit financial flows. When profitable mining corporations dodge paying taxes in developing countries they negate our efforts to escape poverty as they starve us of our public revenue with which to finance social service delivery and development.

What we wanted from FFD3

Natural resources revenue can play a critical role in financing a country’s own sustainable development, allowing the biggest investments in public services and infrastructure. For this to be possible, transparency as well as key changes and reforms are needed, which requires a strong political will and active citizenry. Tax justice must prevail whilst illicit financial flows have to stop. Paying taxes means advancing accountability. Tax Justice promotes transparency and accountability right from legislation, to contracting and monitoring of payments and eventually on how the revenues generated can benefit citizens. But most governments in developing countries have inadequate laws and institutions to deal with the issue of taxation avoidance and evasion. And in the case where there is a sound fiscal regime, like in Niger, multinational companies such as AREVA refuse to comply with the existing laws and negotiate an exemption.

PWYP Malawi Reducing donor dependency
PWYP Uganda Transparency and accountability governance systems
PWYP Zambia Tax justice
PWYP Zimbabwe End tax dodging

Western Governments should also be asked to either abandon or renegotiate all bilateral and multilateral trade agreements with the developing countries in Africa, with the goal to have fairer deals between developed and developing countries. On a similar note, African leadership must be chastised for their corrupt motives.

No global body for tax justice

Developing countries have the capacity to finance their own development. To realise this capacity there is need to take global decisive action to deal with tax dodging and illicit financial flows. Reforming a skewed global financial system should not be the exclusive reserve of OECD countries, the very countries that are the destinations of illicit financial flows. Unilateral action to address illicit financial flows and tax dodging by developing countries or rich countries will not cut it. But the participants of the FFD3 failed to address this and the current global tax system remains directed by the OECD, thus excluding developing countries from influence this system. Without this, we are uncertain how developing countries will be able to finance their development and grow more independent from aid.

Some solutions?

Africa must invest in Taxation development, be it training, improved access to information and acquire latest software that makes dodging taxation hard. This of course should be supported by strong political will as well as functional judicial system. African leaders must not facilitate and benefit from tax dodging. Developing countries should streamline their taxation regime in order to cover hidden profits from the companies especially in the extractive sector. Illegal financial flows must be seriously addressed through a global approach, as recommended by the Thabo Mbeki High Level Panel; which stated the need for “a more rigourous effort support of a unified global architecture on the issue of IFFs”.