Addressing Corruption: A Roadmap to Recovery

766 views Published on 10th May 2017

Introduction

The theme of World Economic Forum (WEF) Africa 2017 is “Achieving inclusive growth through responsive and responsible leadership.” This is quite apt, given the challenges we face in a turbulent global and continental landscape. In addressing corruption and devising a roadmap to recovery we must be alive to the challenges at all levels. In understanding the challenges we will know the inter-relationships and intra – relationships at play.

Corruption is never about just looking at a singular image at any given point in time-corruption is multi-layered, multi- faceted and multi-dimensional. It is therefore important that in problematising corruption that we get the questions right – what do we wish to achieve, so that the problem-solving may yield the desired outcomes.

Effecting systemic changes in our approaches to combating the evil of corruption must be the undergirding to the type of responsible leadership we demand. It goes without saying: corruption includes tax crimes, money laundering and illicit flows which are part of a complex phenomenon which is undermining good governance, ethical politics, government and civil society programs intended to promote inclusive growth, reduce inequality and improve the standard of living of the poor and lower middle classes.

At an African continental perspective - our continent is one where illicit flows from and between African countries pose a significant threat to the developmental agendas of our countries.

How big is the problem?

We all know the numbers - Illicit flows from Africa could be as much as US$50 billion per annum. This is approximately double the official development assistance that Africa receives and, indeed, the estimates may well be short of reality as accurate data does not exist for all transactions and for all African countries.

The leakage of the Panama Papers, which covered over 11.5 million leaked documents for more than 200 000 off-shore entities, once again demonstrated how wealthy individuals are able to conceal their personal wealth.

Despite the commitment to action since the early 2000s, if we are to go by reports such as that of the High Level Panel, illicit flows have increased substantially both in Africa and elsewhere. The continent continues to lose money annually, including as a result of tax evasion and the mispricing of trade and services by multi-national companies.

Protecting African and South African Resources

Multinational companies contribute significantly to the income of many African nations, so it is imperative that the countries’ tax bases are protected from dubious practices such as profit shifting.

Building the capacity to counter transfer mispricing can be a long and sometimes difficult journey, as the South African experience demonstrates. South Africa’s transfer pricing legislation was first introduced in 1995 and we are still building our capacity in this regard some twenty years later. The journey has had its successes, with several adjustments to transfer prices in excess of R1 billion each. These are successes we aim to build on, learning from international dialogue and experiences of others;

We, in Africa, need to take advantage of the progress being made internationally and give effect to emerging international standards. The use of complex ownership structures is now the most commonly-used means of hiding ownership and control of assets;

It is in the interest of Africa that we quickly develop our capacity to implement the concept of beneficial ownership. Establishment of beneficial ownership is fundamental to detecting and preventing illicit financial flows, amongst other malpractices which goes hand-in-glove with the elimination of “secrecy jurisdictions.”

The revenue loss from tax base erosion and profit shifting can be very substantial for some countries in Africa and addressing these issues is therefore crucial. African losses from trade mis-invoicing are more than $20-billion per year and Africa needs to build its capacity to address this issue.

Offshore tax havens is another economic crippling issue and governments across the globe are hard up for cash, as the global economic slump has eaten into tax revenues, and we would like nothing more than to get our hands on all that offshore wealth.

An estimated amount-somewhere between $21 to $32 trillion in wealth globally, is unreported and shielded from taxation from various governments-all this in the age of big data and digital solutions being available at our finger tips. This is money that could be used to shore up, especially in the developing world, developmental imperatives such as poverty, inequality and unemployment.

Now – what is to be done?

Let me conclude with a practical proposal; How do we give effect to our leadership responsibilities – how, for example, can the public and private sector work together, better, and in effective partnership, to promote trust and growth and ensure we defragment our approaches to fighting this “elephant in the room”?

You will recall, in Davos, January 2017 I proposed that the public sector (domestically and regionally) should co-operate more determinedly and collaboratively. Should we not consider that this be piloted as a project? How about convening a gathering of the willing and give leadership to this enormous challenge?

I therefore propose that before we get to Davos in January 2018, we convene and gather together, in order to shape: A pan-African Regional Network to carve out a strategic response to corruption; Include our social partners (both private and public) in such a gathering; Build linkages with our Global Networks; Agree a strategic focus on 3 areas that will be championed, measured and tracked; Progress in respect of these be reported at WEF 2018; and That we build on this as we go along.

By Jeff Radebe

MP, Minister in the Presidency responsible for Planning, Monitoring and Evaluation, Republic of South Africa.


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