Tackle climate change and illicit financial flows together

Tackle climate change and illicit financial flows together
  • PublishedDecember 8, 2014

The gap between the amount of money Africa needs for climate change adaptation and the sum that has actually been secured from developed countries is enormous. The continent may need to raise the funds itself, and curbing illicit financial flows could be a start, as Richard Munang and Zhen Han argue.

As the droughts in the Horn of Africa in 2011 and the Sahel in 2012 starkly exhibited, climate change is not just an abstract issue or future risk for Africa. The continent is feeling the effects now and urgently needs financing to help it adapt, going forwards.

This is well established. According to the UN Environmental Programme’s Africa Adaptation Gap Report 2013, the continent already requires adaptation funds in the range of $7-15bn per year by 2020. After that point, the costs are predicted to rise even further, by around 7% per year, due to increased damage from higher warming effects. That means Africa would need $35bn/year by 2050 and $200bn/year by the 2070s. However, it should be pointed out that such figures are based on the premise that the world warms less than 2°C by 2100. If temperatures in fact rose 3.5-4°C, adaptation costs would be closer to $50bn/year by 2050 and $350bn/year by the 2070s.

The gaping hole

The international community has attempted to get some financial assistance to meet these costs from developed countries. But there is a huge discrepancy between the amounts required and what has been secured so far.

For example, under the 2009 Copenhagen Accord, developed countries agreed to provide a “new and additional” $30bn of Fast Start Finance over three years, from 2010-2012. But by the end of 2012, an analysis of the funding provided revealed that only 33% of it appeared to be new money, only 24% was additional to existing aid promises, and only 21% went to support adaptation.

Under the same accord, developed countries also committed to pay $100bn a year by 2020 into the Green Climate Fund (GCF) to help developing countries implement adaptation and mitigation practices. But even after the 2014 UN Climate Summit, the fund had collected just $2.3bn, made up of pledges from 10 countries. Many developed countries haven’t made any pledges.

Adaptation finance is urgently needed for a range of measures such as helping poor farmers access faster-maturing or drought-tolerant seeds, installing small-scale irrigation systems, or accessing reliable weather and climatic forecasts. But it seems clear that relying on external aid is a risky strategy. Africa also needs to look within.

It seems clear that relying on external aid is a risky strategy. Africa also needs to look within.

It has been suggested that Africa has the potential to fund its own development through domestic resource mobilisation. But one major obstacle in this is illicit financial flows (IFFs), which are a significant drain on Africa’s tax base. As the 2014 Africa Progress Panel (APP) report, Grain, Fish, Money: Financing Africa’s Green and Blue Revolutions shows, Africa loses $50 billion every year through IFFs. This is equivalent to 5.7% of Africa’s GDP and exceeds regional public spending on health. A joint report from the African Development Bank and Global Finance Integrity meanwhile estimated that Africa lost $1.2-1.3trn between 1980 and 2009 through IFFs. That is about four times Africa’s total external debt and is almost equivalent to Africa’s current GDP.

Startlingly, illegal outflows from Africa to developed countries considerably outweigh assistance inflow to Africa. About 60% of IFFs are believed to leave through tax evasion and profit-shifts by corporates, followed by corruption and criminal activities, which account for around a third of the total. If retained within the continent, these funds could be substantial resources for urgent development issues such as climate adaptation.

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