Needed billions leaving Africa yearly

Africa needs financing for development projects that will operationalise the development strategies.

This year, 2015, is a strategic make or break year for Africa’s development. With the launching of the post-2015 development agenda, the fulfilment of the Sustainable Development Goals (SDGs) will be pivotal towards ensuring socially inclusive and environmentally sustainable economic growth in Africa.

The common African position towards the post-2015 development agenda and the AU agenda 2063 represents Africa’s own blueprint towards poverty eradication and human development. The alignment of these frameworks to the global developmental priorities as spelled out in the SDGs constitute a defining moment that Africa should collectively capitalise on and craft strategies to ensure socially inclusive and environmentally sustainable economic development.

Capturing this defining moment means Africa must mobilise adequate financing for development projects that will operationalise the development strategies. The funding needed is however colossal.

Africa development strategies

For instance, in climate adaptation, the IPCC AR5 records that Africa is expected to invest in excess of $70bn to $100bn annually until 2050 in order to deal with hazards such as rising sea levels, storms, droughts, and other climate change effects.

Under a below 2 degrees celcius warming scenario, the Africa gap report notes that Africa is still confronted with considerable impacts with long term adaptation costs estimated at around $35bn annually by 2050 and $200bn annually by the 2070s.

The highest adaptation costs are projected to be needed in the water supply, coastal zone protection, infrastructure, and agriculture sectors. On infrastructure, the Africa Competitive report observes that Africa needs $93bn annually until 2020 for infrastructure development.

Regardless of this great need, Africa can no longer rely on external public financing.

Official Development Assistance to Africa is declining and unreliable. A 2005 pledge by the G-8 to increase aid by $50bn by 2010 (half of which was destined for Africa) did not materialise. Instead, aid increased by $30bn and only $11bn went to Africa.

On climate change funding, UN’s green climate fund capitalisation only reached $10bn at COP20. On actual disbursement, the gap report observes that funding for the years 2010 and 2011 amounted to $743m and $454m respectively.

It is projected that to meet the adaptation costs for Africa by the 2020s, funds disbursed annually would need to grow at an average rate of 10 percent to 20 percent annually from 2011 going into 2020, and so far this has not been achieved.

Africa losing billions

All this external financing however pales in magnitude when contrasted with annual illicit financial flows (IFFs) from Africa.

The 2015 joint AU/ECA high level panel report on IFFs in addition to the 2014 Africa progress report and the New African magazine, demonstrate how much Africa is losing in IFFs. The progress report observes that that Africa loses in excess of $50bn annually from IFFs, representing 5.7 percent of the region’s GDP and exceeding the region’s spending on health.

The report observes that Africa loses $50-60bn annually, and cumulatively, over the last 50 years, Africa has lost amounts estimated to exceed $1 trillion; a sum roughly equivalent to all of the official development assistance received by the continent during the same timeframe. This is an amount that could have covered Africa’s external debt four times.

These losses lay the case by the joint AU/EAC high level panel, that by stemming these IFFs, Africa can recoup enough resources to leverage external sources of funds and finance its development.

Africa revenue cash cow?

The high level panel goes further to make recommendations on how IFFs can be stemmed by taking targeted actions on the main contributors – the commercial sector (the largest contributor at 60 percent through profit shifts and tax evasion by corporates), organised crime and public sector activities, with corruption playing a key role in facilitating these outflows.

Building appropriate capacity, improving accountability and strengthening the independent institutions and agencies of government responsible for preventing IFFs in order to curtail IFFs occurring specifically through trade mis-pricing, transfer pricing, base erosion and profit shifting and lack of transparency on ownership and control of companies, partnerships, trusts and other legal entities that can hold assets and open bank accounts.

The setting of specialised financial intelligence units who should share pertinent information with counterparts across the continent is further recommended to counter cross-border criminal activity.

As the world looks into implementing the post-2015 SDG agenda as well as Africa implementing its agenda 2063, the potential source of financing these grandeur agendas could come from curbing IFFs.

These resources as articulated in the 2015 high level panel report on IFFs, can help leapfrog Africa’s development.

Implementing the recommendations that comes with the report provides a good starting point for internal revenue generation for inclusive growth and development for all.