Africa’s economic challenges – developing infrastructure, getting a better deal from extractives, and the scourge of illicit financial flows – were hot topics of discussion at the 24th Summit of the African Union. Political economic solidarity between countries is needed to overcome these collective challenges and seize mutual opportunities, as Editorial Director James Schneider reports from Addis Ababa, Ethiopia. But it may be harder than it looks.
Africa must increase mutual aid substantially to promote economic and social development. This analysis was the message from senior continental economic policy makers at the 24th Summit of the African Union. The economic focuses of the summit – combating illicit financial flows (IFFs), funding infrastructural development, and getting more out of natural resources – were coherent if lacking in implementation detail. The continent-wide policy organs are trying to push states into a greater posture of cooperation to achieve policy goals. But this collective action is proving difficult to achieve despite some of the lofty rhetoric that was delivered in the Nelson Mandela Plenary Hall.
IFFs: “An infectious disease”
Africa loses more than $50 billion per year in IFFs, according to recent estimates. This figure is likely to be an underestimate “by a significant amount”, according to Report of the High Level Panel on Illicit Financial Flows from Africa led by former South African President Thabo Mbeki. The report defines IFFs as “money illegally earned, transferred or used”. This illegal activity is growing at an alarming rate of 9.4%, according to Global Financial Integrity, a non-profit research and advocacy organisation. Carlos Lopes, Executive Secretary of the United Nations Economic Commission for Africa (UNECA), told New African that IFFs are “like an infectious disease”.
In Addis Ababa, African Heads of State took an important step to reverse this tide by adopting the Mbeki report as a declaration. This commitment is significant as the report proposes policies to counter IFFs in addition to raising awareness and researching their vast scale.
The momentum generated by the report will carry through to the annual meeting of African finance ministers hosted by UNECA later this month. Lopes calls this meeting “the big moment to define how” the Mbeki report should be followed up and implemented.
The finance ministers will be under pressure from civil society activists hungry for progress. Saviour Mwambwa, Policy and Advocacy Manager of Tax Justice Network Africa (TJN-A), told New African, “We don’t want this to be the end… it’s not enough for governments to commit at the AU level; it’s also important that individual governments are held accountable for the commitments they will make. And that’s why civil society will be important…to put pressure on the governments to implement the IFF’s measures.”
To keep this pressure up, Mwambwa wants “to see some kind of role for the HLP [Mbeki-led High Level Panel]”, formalised within AU structures. This, however, is unlikely to happen. Lopes told New African that “there are no discussions about institutionalising” Mbeki or the HLP. However, he confirmed that this isn’t the end of Mbeki’s “engagement on the subject” as UNECA and the former president will now take the report to the roadshow stage to publicise the issue.
National, regional and international attention is needed. Mwambwa sees the AU as “the link between what’s happening at the national level and global processes. So, for example, [with] the BEPS [Base Erosion and Profit Shifting – an aspect of IFFs] process, the AU should be spearheading or chaperoning Africa’s reaction to what is happening at the international level.”
At the regional level, Mwambwa is calling for African states to lead the world. He says on tax information exchange between countries, “they don’t have to wait for the global reforms. They could have a regional information exchange treaty among themselves and make it easy for revenue authorities to cooperate.” Likewise, he thinks Africa can lead the way on beneficial ownership rules.
He says, “There’s no reason why the EAC [East African Community] can’t say, ‘any business operating in the EAC must meet the following beneficial ownership transparency requirements’. I think some countries can make more progress than others but once they start, it becomes easier for others.”
Lopes is more circumspect about the prospects for this advanced, world-leading level of governance coordination by African states. He says, “I think leading the way may be too strong.” However, he does think Africa can act quickly on combating mispricing of its resources, a major source of IFFs. He says, “I think that’s our entry point because if you marry the debate about illicit financial flows with the debate we are having about the Africa Mining Vision [a mining policy framework developed by UNECA], that’s the closest you get to political attention. And it’s another one that will only move with a lot of public opinion pressure.”
And public attention and activism is crucial to making progress on this issue. Without it “governments might say it’s just too difficult,” explains Mwambwa. Ibrahim Mayaki, the CEO of the New Partnership for Africa’s Development (NEPAD), a technical body of the AU, agrees that it is a question of pressure on leaders. He told New African, “the critical issue for Africa in the next ten years… is the issue of leadership. We need leaders who have a clear sense of the national plans, a clear sense of the need to act regionally, a clear sense of national interest, a clear sense of fighting corruption, because don’t forget, $50 billion is going out [in IFFs].”
High-profile activism and investigative journalism helped create the attention on IFFs in the first place. It is likely that much more activism is required so that the Mbeki report is an early step in a long process rather than a high water mark. Mwambwa argues that activism in the United Kingdom over the tax affairs of Vodaphone, Starbucks, Google and Amazon “turned the heads of powerful people, including the G8.” These figures noticed that they were “getting screwed and [had] to do something about it.” This opened the space for African action and made it “easy for people to see that [Africa has] been screwed for a long time.”
Lopes agrees, saying, “The Starbucks effect has been huge. Huge.”
The African Development Bank (AfDB) says the continent has an enormous infrastructure shortfall amounting to a remarkable $93 billion per year. Whether this figure is realistic or not, it has helped to focus the minds of policy makers across the continent. Public budgets will not meet this shortfall. This poses a problem as, according to Mayaki, “in the last 60 years, more than 80% of Africa’s infrastructure was… public investment.”
This shortfall will not be met by aid either. Lopes argues that Africa needs “to minimise the role of aid and maximise other possibilities” to fund development. Domestic resources will play a substantial role here, and it is hoped that reducing IFFs will make domestic resources available. The Programme for Infrastructural Development in Africa (PIDA), of which NEPAD is the executing agency, is working to reduce the shortfall. It is preparing feasibility studies and regulatory and financing advice for 16 trans-boundary, regional infrastructural projects. To use Mayaki’s analogy, PIDA is not the car (the project), the driver (the countries involved) or the fuel (the financing) for these projects. The programme is the GPS system and advises on the fuel’s blend.
It does not appear that PIDA has a firm preference for funding source; rather, it evaluates them all on a deal by deal basis. It is likely that China, which already plays a large role in African infrastructure development, will be an important source of financing. On 27 January, the AU and China signed a Memorandum of Understanding (MoU) for the development of Africa’s rail, road, and air infrastructure, as well as industrialisation. The details of the deal are limited. However, it does demonstrate willingness on the part of Beijing to engage with Africa at the continental, rather than just bilateral level. This is significant, even if it doesn’t justify Zhang Ming, China’s Vice Foreign Minister, calling the MoU the “document of the century”.
Two projects that Mayaki expects to move forward in the near future are the road and rail bridge connecting Brazzaville with Kinshasa across the Congo River and the trans-Saharan road and fibre optic cabling project running from Algiers to Lagos. The long-suggested 4km bridge between the capitals of the Republic of Congo and the Democratic Republic of Congo may finally be nearing actualisation. According to Mayaki, the feasibility study will be finalised soon and private sector returns, which will mainly be generated by toll fees, are good. He believes “getting the private sector in will not be difficult”.
The Algiers-Lagos road and fibre optic cable is part of a proposed “development corridor” running from the Mediterranean to the Gulf of Guinea. Mayaki says the “financing has been closed, and it will be finalised by 2016”. The Algerian section of the project is completed, the Niger part is being worked on, so, according to Mayaki, there is “only the Nigeria segment to be completed”. The third component of the development corridor is a proposed gas pipeline from Nigeria, through Niger and Algeria up to Europe. The pipeline’s development looks some way off with increased risks of terrorism in Nigeria and Algeria, confusion over international partners, and concerns over feasibility of running the pipeline under the Mediterranean increasing the project’s price tag.
As Mayaki explains, it isn’t just the transboundary complexity that makes creating developmental impact from this kind of infrastructure difficult. National governments must provide services and link all their populations up to the big-ticket infrastructure. “In the theory of infrastructure development, big projects…boost intra-African trade. But this isn’t as easy as it looks,” argues Mayaki. “If you do not have rural infrastructure that complements these big infrastructure projects… the impact on development will be low,” he continues.
Getting a better deal
Almost everyone agrees that the continent gets a raw deal out of its natural resources. As Erastus Mwencha, Deputy Chairperson of the AU, said at an AU press conference on 28 January, Africa “tend(s) to end up with bad deals” for its minerals. Mayaki knows this tendency too well as a former prime minister of Niger, Africa’s largest uranium producer. His time in government, as well as ten years working in the industry, demonstrated to him the problem of the relative power of the extractive multinationals over the producing country. The largest uranium company in Niger, the French parastatal Areva, has a greater annual revenue than Niger’s GDP. To improve its bargaining position, the continent needs “political economic solidarity”. As he explained, “Many [resource] producing countries could get together in order to have a capacity development strategy, share best practices, work out rules and then initiate contract negotiation in a collective manner.”
Unfortunately, practical pan-Africanism between governments is currently too thin on the ground. To assist governments working together, UNECA is promoting regional tax investment templates. Lopes calls these “low hanging fruit” as it is “possible to insert this element into [regional economic blocs]. It’s easy, technically speaking, and politically I think it would be acceptable.”
To force change, UNECA has to play a political, not purely technical, role, trying to change policy frameworks. While regional cooperation is still at a low level, there are the actions of some countries that UNECA can use as role models. Lopes pointed to the examples of Guinea’s renegotiation of minerals deals and Chad’s withdrawal of operating permits from China National Petroleum Company (CNPC) over a row about a $1.2 billion fine for environmental violations. He says he “[uses] them all the time.” Once “you have concrete examples,” he continues, “it moves.”
Civil society groups are agitating alongside UNECA and NEPAD calling for more solidarity. Mwambwa calls for states to agree on minimum tax rates and coordinate investment rules for foreign investors. He believes there is already a strong and growing constituency in several African countries that are politically demanding a better deal from their resources. He used the example of the recent presidential by-election in his native Zambia. The opposition candidate Hakainde Hichilema campaigned to scrap a recent increase in the royalty paid by mining companies and lost narrowly to the ruling Patriotic Front’s candidate Edgar Lungu. Mwambwa argues “that [policy is] part of the reason why he lost.”
Not just one happy family
The cooperation in activism on IFFs is encouraging. If it were translated into practical cooperation by countries, real developmental impacts would result. Unfortunately, this is easier said than done. Antagonisms between different actors exist.
Mwambwa thinks “the AU can play a very critical role” to overcome some of the conflicting interests. For example, the AU can work internationally to increase financial transparency, which may be to the detriment of Mauritius, which is a tax haven, or South Africa, which has financial secrecy at levels higher than Cyprus. Lopes agrees “some of the countries in Africa are safe havens for IFFs… It’s as horizontal as it is vertical, geographically speaking.” Tackling IFFs is in the continent’s collective interest, but not necessarily in the interests of powerful people or industries in some key countries. As Lopes reminds us, “there are a lot of people who are benefiting from the current state of affairs”.
Mwambwa cautions that Africa has to be aware of the fundamental interests of some of their Western partners, with whom they are pushing for action on IFFs. He explains, “Western NGOs see things through their own lenses. That’s fine. We may not always agree on some broader philosophical, ideological issues but as long as we identify those limits, that’s fine. We can work together on certain things.” Part of this difference in perspective between Northern NGOs and Southern CSOs stems from Western government funding of big Northern NGOs. As such, according to Mwambwa, Northern NGOs “are willing to push only up to a certain extent”. This divergence is because some Western nations are ultimately beneficiaries of IFFs from Africa. Mwambwa is excited by the levels of international cooperation taking place but is clear that TJF-N is “not naïve to think that we’re all in this together, and we’re all one happy family.”
The continent needs this sort of clear-eyed activism to promote deep African political and economic solidarity and to engage strategically with non-African actors. Without intense pressure from below, and the painstaking policy work taking place in research centres and continental organs like NEPAD and UNECA, the sort of leadership required will not develop to drive forward this pan-Africanist agenda. The stakes are high. As Mayaki says, “If we don’t have a collective leadership we might be faced with a remarginalisation of Africa in the next ten years.”