Miyandazi, L. 2017. Sealing the leak: Addressing financing around the 2030 Agenda. ECDPM Talking Points blog, 19 April 2017.
The theme of the High-level Political Forum on sustainable development this year will be “Eradicating poverty and promoting prosperity in a changing world”. In this blog, Luckystar Miyandazi explains why sealing the leak of illicit financial flow is essential to finance the success of the sustainable agenda in Africa.
More than 3 billion people worldwide live in poverty. The majority of these people live in Africa, Latin America and Asia. A growing urgency to eradicate poverty and promote global prosperity led to the 2030 Agenda adoption in 2015. However, the need to develop and maintain more strategic international partnerships based on mutually beneficial relationships cannot be over emphasised in trying to implement the goals.
Unsurprisingly, financing also plays an important role as, annually, an estimated $5-7 trillion is required to implement the Sustainable Development Goals (SDGs). Yet, there is a funding gap in developing countries estimated at US $1.9 and US $3.1 trillion each year between now and 2030. To implement the SDGs, Africa alone is estimated to need between $614-$613 billion per year.
In a world that is suffering from the aftermath of the financial and economic crisis of 2008, the importance of having appropriate policies designed to promote sustained and inclusive development and economic growth to ensure durable poverty reduction is pivotal.
Due to the scale and the negative impact of funds that are illegally earned, transferred or utilised globally, Illicit Financial Flows (IFFs) are a huge drain on resources. This should raise serious concerns to both developing and developed countries’ governments. On-going debates on available sources of financing to fund the SDGs has fostered analysis on the effects of IFFs on the global agenda for sustainability.
Africa, as an example, is a region with the highest share of IFFs as a percentage of its gross domestic product (GDP). Estimates indicate that the continent loses US $50 billion annually through IFFs. For a continent with a highly volatile average growth rate of 3.3%, coupled with the fact that 75% of the world’s poorest countries are in Africa, this loss becomes one additional blow on an already fragile system of public financing for sustainable development.
However, IFFs are multilateral in nature, and thus not only an African problem. The European Union is estimated to be losing between €50-70 billion per year because of the very same issue. These represent a huge amount of resources that could have helped alleviate poverty through the allocation and spending on public goods, services and reduce dependence on aid and external resources in funding the SDGs.
The SDGs demand for countries to work together and collaborate, not compete. Additionally, tackling IFFs demands for the same engagement of various actors from governments, donors, the private sector, NGOs and civil society. This can be done, based on fundamental principles of financial cooperation, at the regional, interregional and international levels, through common actions that can help to seal the leaks and loopholes that allow for IFFs to occur. In general, means of addressing tax avoidance and evasion – especially by multinationals – is what countries need to partner on.
Although IFFs occur in different ways, the most challenging to tackle is the commercial component, due to the technical capacity required to navigate it. This includes abusive transfer pricing, trade mispricing, misinvoicing of services and intangibles and unequal treaties. Recent research and various high profile exposés have further brought to the fore these advanced techniques used and the difficulties in addressing them.
Nonetheless, reforming the norms and principles of international financing for development requires increasing awareness and informed understanding through strengthening financial and technical capacity in many countries. It also demands to unleash the power of transparency and accountability and ensure meaningful dialogue and exchanges on the issues.
If these steps are taken, they will rapidly help deliver important development goals for all stakeholders involved. This requires a long-term willingness to invest in changing our mindset regarding the important link between the national, international and policy dimensions for financing the SDGs.
Financing alone does not guarantee success, inasmuch as it is a necessary component for the latter. It should be reinforced by implementing stronger policies and ensuring effective use of what is already available and expect to be recovered from IFFs. Evolving partnerships offer multiple benefits in advancing the translation of the universal targets into national actions, commitments and responsibilities to improve the lives of people in poverty.
This blog was originally published by the United Nation’s Sustainable Development Knowledge Platform on 13 April, in the context of a series of blogs in the run-up to the 2017 High-level Political Forum on sustainable development.
The views expressed here are those of the author and not necessarily those of ECDPM.
Photo courtesy of Institute for Money, Technology and Financial Inclusion via Flickr.