OP-ED

SADC Summit must challenge rich countries on massive financial outflows from the region

By Sunit Bagree 16 August 2019

South Africa alone loses at least $5.9-billion every year from trade-related illicit outflows, says the writer.

Southern African governments cannot afford to ignore $30bn losses from trade-related illicit outflows and external government debt payments.

As another Southern African Development Community (SADC) Summit rolls around, human rights defenders in the region, along with their allies around the world, can be forgiven for asking a simple question: what is the point?

Certainly, SADC’s performance on upholding civil and political rights is nothing other than miserable. When the intergovernmental organisation has engaged with these rights, for example in Lesotho and the Democratic Republic of Congo, its approach has been weak and confused. In other countries beset by oppression, such as eSwatini and Zimbabwe, the organisation has not even bothered. As Peter Fabricius has argued, SADC only acts on threats to democratic governance when it believes that stability is threatened.

Sadly, President Cyril Ramaphosa has not said or done anything to suggest that he is uncomfortable with this prevailing amoral mindset. Yet it remains unclear whether or not he and other SADC leaders are prepared to work more effectively on economic and social rights.

More effective action on economic and social rights is sorely needed. In southern Africa, two million children under the age of 5 (29.3%) are stunted. There are at least 617,400 new HIV infections in the region per year. More than 40% of the population in 12 SADC countries do not have access to basic sanitation services. More than half (52%) of people in the region do not have access to electricity. In the period 2010-16 the regional youth unemployment rate was 31%, compared to 29% in 1995-1999.

SADC governments can undoubtedly do more to realise the economic and social rights of their citizens. But a key factor behind the lack of economic and social rights fulfilment in the region is the lack of resources at the disposal of SADC member states. And as a new report by Action for Southern Africa (Actsa) illustrates, rich countries are presiding over an international economic system that results in massive financial outflows from the region.

Actsa estimates that trade-related illicit outflows from southern Africa amount to at least $8.8-billion per year. Furthermore, Actsa calculates that external government debt payments from the region amount to at least $21.1-billion per year.

Trade-related illicit flows, a major component of illicit financial flows, are generated through trade misinvoicing. Trade misinvoicing involves the deliberate falsification of the value, volume, and/or type of commodity in an international commercial transaction of goods or services by at least one party to the transaction.

South Africa alone loses at least $5.9-billion every year from trade-related illicit outflows. All trade-related illicit outflows are illegal, and thus a percentage of the entire regional figure of $8.8-billion could be taxed – and the funds used to realise economic and social rights – if this trade were actually legal. Indeed, Global Financial Integrity (GFI) has estimated that the South African government lost an average of $7.4-billion annually in revenue in the period 2010-2014 due to trade misinvoicing.

The proceeds of trade misinvoicing are diverted to offshore financial centres (tax havens) via secrecy jurisdictions. It is rich countries such as the US, UK, Switzerland and Luxembourg that make up most of the main players in this world of financial secrecy and offshore accounts.

The economist Gabriel Zucman has estimated that an astonishing 30% of Africa’s wealth is held offshore. Yet it must be pointed out that southern African countries are not entirely free from blame. Mauritius and the Seychelles demonstrate high levels of financial secrecy and thus expose the rest of the SADC region to illicit financial flows, including those that are generated through trade misinvoicing.

While the external debts of governments are not necessarily bad for their citizens, external government debt payments from southern Africa are, in many respects, fundamentally unjust. This is because some of these foreign public debts are illegal (eg the $2-billion of secret loans to Mozambique by the UK branches of Credit Suisse and VTB Capital in 2013 and 2014) and some of these debts are odious (eg the $23-billion of apartheid debt inherited by South Africa’s first democratic government). Other foreign public debt is illegitimate because the amount and/or the terms of some loans put an undue burden on SADC countries, thereby clearly hurting their prospects of realising economic and social rights.

Moreover, rich countries must recognise and pay the climate debts that they owe to the SADC region. Due to climate change, for which rich countries bear the greatest responsibility, extreme weather events such as Cyclones Idai and Kenneth are only likely to become more frequent and intense. Southern Africa urgently needs funding for adaptation and mitigation to reduce the impacts of climate change.

Taken together, these debt-related injustices deprive SADC governments of huge resources that they could utilise to realise economic and social rights for their citizens. Obviously, steps towards debt justice require safeguards to ensure that debt cancellation benefits citizens. This is especially important in SADC countries that lack checks and balances in relation to public financial management. These countries tend to be the same ones that do not respect civil and political rights.

SADC leaders can take certain measures now to address trade misinvoicing and unjust debt. For example, they can train customs officers to use innovative tools to better detect potential misinvoicing of trade transactions in real-time. Similarly, they can initiate comprehensive public debt audits that take place in a participatory and transparent manner.

Yet they must also rally together and press rich countries to not only support these efforts, but also to address their own shortcomings. It is high time, for instance, that rich countries genuinely cracked down on tax havens, and made all loans to southern Africa fully transparent and in line with their international human rights obligations. DM

Sunit Bagree is Senior Campaigns Officer at Action for Southern Africa (Actsa), the successor organisation to the Anti-Apartheid Movement.

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