BAPA+40 Side Event: Illicit financial flows and illicit trade in Africa in the context of the AfCFTA and the role of South-South Cooperation

Illicit financial flows (IFFs) and their costs for African economies has always been a development issue of major concern for African policy makers, more so now in the context of the AfCFTA. At a time when African countries are about to lower tariff barriers with the advent of the AfCFTA and at a time when debt sustainability issues are surging again on the continent (8 African countries are in debt distress, according to the IMF), there is a need for African countries to compensate for lost tariff revenues, resulting from regional preferential trade liberalization, with other sources of domestic and international finance. This necessity is rather acute in light of the huge financing for development needs of Africa in the context of both achieving the SDG and implementing the continent's AGENDA 2063 Vision, of which the AfCFTA is part. Reaping the potential gains of the AfCFTA is contingent on African countries addressing their infrastructure deficits and building their productive capacities, both of which command financial resources on a large scale.

In a world of increased cross-border trade, finance and investment, international cooperation (including South-South and triangular) are essential in addressing the problem of illicit financial flows and illicit trade. As Africa embarks on the AfCFTA and aims at unifying its diverse, fragmented markets into a single continental market, marked by increased intra-African trade and investment, it faces a set of priorities: addressing its huge infrastructure and related competitiveness deficits, developing its productive and industrial capacities and strengthening public and private capacities in a range of areas including customs administration and the monitoring of cross-border trade and finance. How to finance the operationalization of the AfCFTA is a critical issue that has to be addressed at national and regional level. Now more than ever, Africa needs all its available financial resources to operationalize the AfCFTA and reap its expected gains.

IFFs and illicit trade are a concern for Africa's AfCFTA for various reasons. To benefit from regional preferential trade liberalization, African countries need to build and diversify their productive capacities through industrialization in order to boost intra-African trade, develop regional value-chains and ensure that their markets are not being flooded with counterfeited illicit foreign goods that can undermine their local industrial development. Industrialization, boosted by the AfCFTA can reduce the dependence of African countries on the exports of raw primary commodities (a major source of IFFs in Africa) and spur the development of regional value-chains but industrialization cannot happen in Africa unless challenges are addressed, especially in the area of infrastructure and capacity-building.

UNCTAD indeed has pointed out in its Economic Development in Africa Report (EDAR) that Africa needs to undergo a process of structural transformation that shifts economic activities from low productivity sectors, such as mining, towards those of higher productivity, such as manufacturing and high value-added agriculture and services. This will help to create jobs for its growing young labour force in the formal sector, reduce multi-dimensional poverty, harness the benefits of regional integration, while deepening its integration into the world economy. The region will need to significantly catalyse its investment in soft and hard infrastructure in order to achieve transformative growth and structural change. Countries in Sub-Saharan Africa would have to invest US $93 billion per year in order to meet their infrastructure development needs, but actual investment is only US $45 billion per year, implying a funding gap of about $50 billion a year, roughly the amount of funds Africa loses every year through IFFs.

The AfCFTA can be a catalyst for industrialization, structural transformation and formalization of informal activities, including informal trade. Africa has to address IFFs and illicit trade in order to divert "lost" funds into the operationalization of the AfCFTA while the latter will also aid to create the conditions and incentives needed to reduce the "attractiveness" of illicit activities. Domestic resource mobilization should be an integral part of Africa's agenda for deepening regional integration by operationalizing the AfCFTA and the complementary measures needed to make the AfCFTA impactful. Addressing IFFs and illicit trade should be at the heart of this domestic resource mobilization agenda.

The meeting will take the form of a one-hour and a half expert panel presentation and interactive discussions. Participants will be drawn from government, academia, civil society, private sector and the United Nations system.