Tanzanian MP Zitto Kabwe calls on Commonwealth to tackle illicit capital flight

Zitto Kabwe MP

This is the transcript of the presentation by Zitto Kabwe, MP United Republic of Tanzania delivered to the  60th Commonwealth Parliamentary Conference Yaoundé, Cameroon, 2th – 10th October, 2014

“Parliaments shall exercise oversight on policies for tackling illicit capital flight, address inequalities within and between our countries, cut poverty and spur sustainable global economic recovery”.

The world has experienced tremendous growth over the past two decades fuelled by fast growth in the developing world especially emerging economies including Commonwealth members such as India. The global recession experienced in 2007 – 2009 has slowed this. Higher unemployment rates, sovereign debt crisis, and increasing inequalities are challenges faced the world over and of course across the commonwealth.

“The Commonwealth is an association of sovereign nations which support each other and work together towards international goals. With their common heritage in language, culture, law, education and democratic traditions, among other things, Commonwealth countries are able to work together in an atmosphere of greater trust and understanding than generally prevails among nations”

The Commonwealth charter reflects the greater ideals we share – but the very make-up of the Commonwealth, the diversity of member countries, varying in size, varying in wealth,  prompts us to acknowledge the tensions that may arise as we seek solutions to emerging problems in an unequal world.

Our world economy with 7.2 billion people, is now valued at US$74 trillion. Our Commonwealth represents a significant share of this with 1.3 billion people or one-fifth of the world population.

• Two of its nations are among 10 largest economies – The United Kingdom and Union of India.
• Four – United Kingdom, India, Canada and Australia, are among 20 largest economies in the world by 2013 (forming 10% of the global GDP)
• Two largest economies in Africa, Nigeria and South Africa, are leading commonwealth members. The latter forms 60% of the combined Sub-Saharan African economies.

These statistics reveal one thing, that global challenges are commonwealth challenges therefore parliamentarians in the commonwealth have a role to play to ensure they are addressed.

That said, the dominant place in the world economy claimed by some of our fellow commonwealth members masks a worrying complexity – Some of the growth we witness is driven by capital flows that are illicit – the proceeds of corruption, tax evasion and criminal activity.

• Let us remind ourselves of the estimates from Global Financial Integrity (GFI) which have shown that for the period 1970-2008, commercial tax evasion accounted for 60-65% of the illicit flows from developing countries, while criminal activity made up 30-35% and corruption accounted for 3%.

• Together with the African Development Bank, GFI has also estimated that Africa lost between US$597 billion and US$1.4 trillion in net resource transfers over the period 1980-2009, exceeding by far the amount of resources Africa received in the same period, and thus making Africa a net creditor to the world.

• The most recent study from GFI estimates that illicit financial flows cost developing countries as a group on average US$590 billion per year during the period 2002-2011.

In Tanzania PAC requested the Auditor General to conduct special audit on the sale transaction from a Malaysian Company Mechmar bhd to PiperLink Investment limited in British Virgin Island. This suspected fraudulent transaction is valued around US$250 million siphoned from the Central Bank of Tanzania. PAC is moreover conducting an inquiry on the extent of tax evasion and avoidance which is estimated to cost around 5% of Tanzanian GDP.  Surely, many countries represented here can share their own similar accounts, fraudulent activity, which ultimately restricts funding for social services like education and health.

While drawing attention to global economic challenges, it is imperative, that issues of criminal activity, corruption, tax avoidance and evasion are not side-lined. The black economy deeply affects developing countries, many of them in the commonwealth. What is more, some of the beneficiaries of these activities are also to be found in our commonwealth.

These challenges are explicitly narrated by the World Economic Forum “By almost any measure, in a wide range of countries, domestic income inequality is rising even as the gap between average incomes in advanced and developing countries declines. The upper end of the income distribution is developing a fatter and fatter tail, while the median income remains stuck in low-growth mode. Post crisis, the lower tail of the income distribution is also fattening as poverty increases. This pattern has emerged in the past 30 years.?It undermines social cohesion, political stability and causes declining support for an open global economic and financial system.

Compounding the distributional challenge is persistently high unemployment in the post-crisis period. Growth is nowhere near high enough to bring down these numbers fast enough. And in advanced countries, growth in the tradable sector of the economy has contributed relatively little to net employment growth in the past two decades”.

In our roles as Commonwealth Member States, in our roles as MPs, how do we begin to meet the challenges?

The relevance of the commonwealth will be measured among other things by its ability to address the challenge of global poverty and income inequality. With both advanced economies and the developing world within one association, there is an opportunity for solution. The secretariat has been given a role to play “providing analysis and interpretation of the global economy for the benefit of the Commonwealth countries, putting across the case for the membership need in international settings, and supporting members in achieving their domestic and international economic objectives”.

So what can public representatives of member states do to underpin this? Members of legislatures of the Commonwealth have to provide oversight and ensure that support given by the secretariat helps their countries to face economic challenges in the most effective and impactful way. Oversight over government expenditures, government revenues, public debt management, accountability and specific economic policies are so central to the role of parliamentarians in galvanizing the commonwealth to face global economic challenges.

My country serves another example of how wealth is siphoned from poor countries. In the Mining sector alone, Tanzania was collecting a mere 4% of the total minerals exported. This has been addressed through effective oversight exercised by Tanzanian Parliament. In 2010 the new Mining act was enacted in order to curb the abuses. Recently, Zambia has been in the media with regards to one multinational corporation misinvoicing its copper exports causing Zambia loose hundreds of millions of dollars in taxes.

As we challenge within our own countries, we must also be prepared to challenge each other within the Commonwealth. Wealth that is illicitly diverted from my country Tanzania and from other poorer members of our Commonwealth does not disappear into thin air. Illicit capital flight is facilitated by institutions laws and firms based in entities that if not full members of the commonwealth, are tied to it through their dependency on the United Kingdom – British Overseas Territories such as The British Virgin Islands or Bermuda, and places closer to London such as Jersey.  The structural reforms necessary require active parliamentarians across our member countries. Without tackling the blight of illicit capital flight, we cannot begin to address the inequalities within and between our countries – instabilities that are destabilizing and will act as a block on any sustainable global economic recovery.

Conclusion

The world is yet to do away with the scourge of infant mortality, income inequality and poverty. Poverty is basically a lack of entitlement to the basic needs of human sustenance. The challenges before the global economy are indeed tough. Timely intervention in the form of appropriate policies and fiscal help from the world bodies are needed to tide over the crisis. No less important is the political will needed for the seamless implementation of the policies.
The imperative now is to generate the growth necessary to create the millions of jobs needed to reduce unemployment and absorb new entrants into the labour force.

The reform process that I speak of will require political courage. This reform is however key to bringing about the most benefits to the population as a whole in our member states.  This reform is key to a continued building of inclusive countries that can be a proud example to the international community.