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Society | Economy - Development

Illicit financial flows "ruining African development"

afrol News, 29 March - Leading African finance and development experts have called for strict monitoring and regulation of illicit financial flows into the continent. Illicit funds had a "devastating impact" on Africa's development prospects, they hold.

Gathered in Lilongwe, Malawi, the meeting of experts tackled financial integrity issues and the e-economy regulatory models during two panel discussions organised as side events to the Committee of experts meeting which closed yesterday after four days of intense discussions.

The main objective of the side events was to provide participants with an opportunity to address the phenomenon of illicit financial flows from Africa and its devastating impact on development prospects and also exchange views on how the financial regulatory models in the knowledge economy can help achieve a sustainable development in Africa.

During his opening remarks to the panel discussions on the illicit financial flows, the director of the UN Economic Commission for Africa (UNECA) Governance and Public Administration Division, Dr Abdalla Hamdok set the stage by indicating that 60 to 65 percent of the financial flows from Africa are taking place through fraudulent channels, including tax evasion, mispricing trade and criminal activities such as money laundry.

He explained that the illicit transfers are facilitated by a global shadow financial system which costs between 850 billions and a trillion US dollars to undeveloped countries.

Norway is currently chairing the Task Force on the Development Impact of Illicit Financial Flows. This Task Force is a global coalition of global leading civil society research organisations aiming at the curtailment of illicit financial flows to enhance poverty alleviation.

During the panel discussions, the Norwegian State Secretary at the Foreign Ministry, Ingrid Fiskaa stressed the willingness of her government to embark on strategic collaboration with Africa's finance and development leaders to curb the scourge of illicit financial flows.

The lead discussant, Raymond Baker, Head of Global Financial Integrity - a Washington based think tank - underlined the devastating effects of illicit financial flows on African economies. He said that they drain currency reserves, undermine trade potential and deprave the life of millions in poor countries. "It is a shift of money from the bottom to the top, from the poor to the rich," he added with deep concern.

The Head of the African Development Bank Research Department, Leonce Mdikumana also indicated that illicit financial flows from Africa are worth 98 percent of what is needed to achieve the growth rates required to achieve the Millennium Development Goals on target. Pr Mdikumana added that: "These illicit flows are also the double of what the donor countries have pledged at the G8 Summit in Gleaneagles".

There was a wide consensus among panellists that poverty alleviation and employment creation require drastic measures to curtail illicit financial flows through improved transparency and accountability mechanisms in the global financial system.

Key steps to curtailing illicit financial flows that the meeting indentified include: the creation of financial intelligence units, the establishment of a common basis for the fight against money laundry, as well as a wide dissemination of country reports on illicit financial flows. Panellists also advised that, due consideration be given to an African convention on transparency.

Setting up a conducive regulatory environment for a sustainable socio-economic development in a knowledge based economy was another key challenge addressed during the side events to the Committee of experts meeting, as part of the debate on how to promote a growth that generates employment in Africa.

The Director of the UNECA Information, Science and Technology Division (ISTD), Aida Opoku-Mensah, stressed in her statement the need to embrace ICT as a tool for development. However the panellists underscored the fact that ICT cannot yield results on the development front if the regulatory framework does not provide the conditions that attract foreign direct investments, improve quality, availability and affordability of services.

Discussants expressed concern regarding the reform of the regulatory framework which took place between 1980 and 1990 as it failed to materialize the expected changes.

According to Ashok Radhakisson, Legal Council and Government Policy Office Liaison in Mauritius, the regulatory process has not matched the expectations in many countries. A case in point is Mauritius, where Mr Radhakisson noted that, "the government is still retaining a residual power of 60 percent in the ICT sector, despite the establishment of regulation authorities to lead the liberalization process".

Panellists finally called for the establishment of independent, competent and empowered regulation bodies in African countries. It was also suggested that asymmetric regulations be put in place through differentiated tariffs to protect new comers on the ICTs market.

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