How local content can stem illicit financial flows

The stakeholders’ recommendations come at a time when reports show that there are growing impacts of IFFs, with African continent being the victim in its efforts to mobilise public resources.

According to reports, Africa has been losing over $50 billion (Sh125 trillion) annually on IFFs.

The United Nations Economic Commission for Africa (ECA) report estimates that over 56.2 percent of the IFFs from Africa lost between 2,000 and 2010 came from the extractive sector.

The Global Financial Integrity (GFI) report also shows that despite adopting measures to combat IFFs on trade based money laundering, Tanzania was losing $1.5 billion (Sh3.75 trillion) annually.

The GFI report argues that Africa bears the most disproportionate burden of unrecorded cross-border financial outflows, representing 8.6 percent of the Gross Domestic Product (GDP).

Similarly, the International Monetary Fund (IMF) observes that while gold exports increased from $500 million to $1.5 billion between 2007 and 2011, government revenues remained unchanged at $100 million a year.

The need to strengthen local content in order to reduce IFFs was first highlighted by Prof Abel Kinyondo in his presentation titled Track it, Get it, Stop it: Exploring Illicit Financial Flows and their Barrier to Domestic Resource Mobilisation.

Tabling the paper on Friday during the breakfast debate organised by Policy Forum, Prof Kinyondo said since multinational companies exploited Africa’s resource-rich countries through cost inflation, strengthening local content would increase the firm’s reliance on local products.

“It is difficult to hold the companies accountable when they inflate costs of imported goods as compared to when they procure from domestic firms,” he said.

He said the firms have been inflating operation costs to 85 percent and above 100 percent in their deliberate efforts to declare small profits that would ultimately be shared by host countries.

“Sometimes, multinational companies have been declaring zero profit, hence denying host countries any share of extractive activities. In most cases, operation costs have been covering areas of jobs and procurement of goods and services,” he said.

Prof Kinyondo said the negative impact of IFFS on DRM and the general country’s development cannot be overemphasised, recommending the need for inclusive, transparent, collaborative, and global governance frameworks to curb the vice.

He further recommended an increase in technical support for Base Erosion and Profit Shifting (BEPS) as well as establishing progressive African leadership to promote international tax cooperation and ensure that there is policy consistency for effective fight against IFFs.

A participant from the Tanzania Renewable Energy Association (Tarea), Mr Moses Rutta, said there was a need to revise country laws in order to establish the stumbling blocks.

“If foreigners can enter the country and infringe on its laws, then something is wrong with that country. For our part, something needs to be done,” he said.

However, Mr Japhet Makongo, another participant, said political will should be emphasised, with expertise from domestic professionals being exploited for the country’s benefits.

For her part, the Dar es Salaam University College of Education (Duce) former student, Ms Catherine Majere, said Tanzania is blundering when inking contracts with multinational companies.

“Tanzania can sign a 20-year investment contract with an investor, who in turn may declare to have not broken even after 17 years of operations. It is time that we should design strict contracts for the country’s benefits,” she said.

“The contracts should make it mandatory for the deposition of a certain amount in a bank account in terms of bonds in order to protect the country against such behaviours,” she added.

However, the Tanzania Revenue Authority (TRA) deputy commissioner of tax investigation and operations, Mr Hashim Ngoda, said in 2018, Tanzania introduced the Mining Local Content Regulation to address challenges facing the sector.