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News & Analysis

UN Targets 'Hidden Source' for Development Funding

By Thalif Deen

UNITED NATIONS (IPS) - The United Nations has estimated a hefty funding requirement of over 3.5 trillion to 5.0 trillion dollars per year for the implementation of its ambitious post-2015 development agenda, including 17 Sustainable Development Goals (SDGs), approved by world leaders in September.

But at least one key question remains unanswered: how will the UN convince rich nations and the world’s multinational corporations to help raise the necessary trillions to reach those global goals, including the eradication of poverty and hunger by 2030? SPANISH | GERMAN | HINDI | JAPANESE

According to the UN, there is at least one “hidden source” for development funding, primarily for the world’s most impoverished continent: capturing the illicit financial outflows from Africa, estimated at over 50 billion dollars annually.

James Zhan, Director of Investment and Enterprise at the UN Conference on Trade and Development (UNCTAD), told delegates that tackling illicit financial flows was essential for Africa to achieve the Sustainable Development Goals.

The estimated resources leaving Africa in the form of illicit financial transfers, he pointed out, was nearly 530 billion dollars between 2002 and 2012.

“That was a huge cost for the continent’s development as those resources could have been invested into Africa’s economic development and structural transformation.”

He said illicit financial flows undermined institutions, drained the state of much needed economic resources, reduced the development resource base and led to higher domestic tax burdens to fill the resource gap.

The 17 SDGs also include quality education, improved health care, gender equality, sustainable energy, protection of the environment and global partnership for sustainable development.

Bhumika Muchhala, Senior Policy Researcher, Finance and Development Programme, at the Third World Network (TWN), told IPS the three key causes of illicit financial outflows are widely held to be commercial tax evasion, criminal activity and government corruption.

She said tax evasion and avoidance, as well as transfer mispricing (trade mis-invoicing) practices of multinational corporations (particularly in the extractives sector), constitute the leading problem, along with money laundering practices and criminal activity such as trafficking in drugs and labour.

As many social movements, non-governmental organisations (NGOs), academics and policymakers point out, this does not happen by accident, she said.

Many countries and their institutions actively facilitate, and reap enormous profits from, the theft of massive amounts of money from developing countries.

“This undoes decades of economic development and sabotages the chances of future generations to grow beyond the need for economic aid,” she added.

Following an investigation last year, a High-Level Panel on Illicit Financial Flows from Africa had concluded that combating such flows was no longer a choice; it had become an imperative.

The Panel, established by the Economic Commission for Africa (ECA), called upon the African Union (AU) to engage with its partner institutions to elaborate on a global governance framework to determine the “conditions under which assets are frozen, managed and repatriated.”

Ambassador Oh Joon of South Korea, President of the Economic and Social Council (ECOSOC), told delegates at a UN panel discussion in October that Africa, like other regions, would have to mobilize resources from within the continent.

And the illicit outflows of finance represented an important loss of foreign exchange reserves, an erosion of legal tax base and bygone investment opportunities from natural resource rents, he added.

With an estimated 50 billion dollars per year in illicit financial flows, the effectiveness of domestic resource mobilization would be significantly curtailed if such illicit flows continued, he argued.

Addressing the high level segment of the General Assembly in September, the President of Senegal, Macky Sall, said illicit financial flows from Africa virtually exceeded official development assistance (ODA) to the continent (which amounts about 50 to 55 billion dollars annually).

“If 17 per cent of those assets were recovered, African countries could pay off their entire debts and finance their own development.”

UNCTAD’s Zhan said Africa was the only region where illicit financial flows reached about 5 per cent of gross domestic product (GDP).

He urged transparency and accountability through the strengthening of civil society and called for the promotion of institutional reforms and the creation of anti-corruption commissions.

He said African governments had a big responsibility to tackle the problem but so did the international community.

But African countries could not do it alone. Multinational companies and foreign direct investment (FDI) were also an important part of the solution. United Nations agencies such as UNCTAD could offer advice to African governments to design investment policies and handle tax avoidance and illicit practices by multinationals, Zhan said.

Muchhala told IPS while many organisations highlight the urgent need for reforms in information-sharing and transparency policies in the European Union and the United States, the Tax Justice Network, a key social movement comprised of various NGOs, has been stressing the need to counter tax evasion and tax avoidance.

To this extent, an advocacy campaign to establish a UN global tax body, with the universal membership of the UN, was carried out during the 2014-2015 negotiations for the third Financing for Development (FfD) conference.

The conference, held in Addis Ababa in July 2015, failed to garner consensus for a global tax body due to the resistance of developed countries.

While this is a major disappointment, she said, the push for a global tax body by both developing countries and global social movements, will persist both inside and outside the UN. (5 November 2015)

This article is part of IPS North America’s media project jointly with Global Cooperation Council and Devnet Tokyo.

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