In a 2020 Economic Development in Africa Report released by the UN Conference on Trade and Development (UNCTAD), Africa lost about $88.6bn or 3.7 per cent of its Gross Domestic Product, to illicit financial flows.
Illicit financial flows are multi-dimensional, comprising several different kinds of activities, including flows originating from illicit activities, illicit transactions to transfer funds that have a legal origin, and flows stemming from legal activity being used in an illegal way.
The $88.6bn lost in Africa to IFFs is huge when considered from the standpoint that the continent is home to some of the poorest countries in the world.
While governance is supposed to be at the heart of addressing development challenges on the continent, the story is different in some countries in Africa because of lack of transparency and accountability which had undermined social, economic and political progress at many levels.
Illicit financial flows (IFF) and corruption are a serious consequence of these governance shortcomings. While these issues are not unique to Africa, it is the continent where the phenomena have the largest impact due to the small size of its economies, and the fragility of their financial systems.
The Former President of South Africa, Thabo Mbeki had identified the three principal challenges to confront in addressing IFFs. They are building capacity to combat illicit financial flows at national and continental levels; establishing a global coherence on agreed actions between African countries with a common position on the Mbeki Report; and developing global mechanisms to ensure adherence to implementation of whatever is agreed as solution.
In a bid to address the first of the three-pillar solution prescribed by Mbeki, the Independent Corrupt Practices and Other Related Offences Commission held a 2-day workshop on mitigating illicit financial flows themed “Capacity Building for Nigeria’s Negotiators for Improved Terms of Engagement with the Rest of the World.”
The capacity building workshop featured presentations from various notable speakers including; Professor Jonathan Aremu – Consultant at ECOWAS, who spoke on “Understanding Trade Agreements”; Mrs Patience Okala of the Nigeria Investment Promotion Council who had a paper presentation on “Understanding Investment Agreements”; Mrs Iniobong Abiola Awe – Director, Department of Climate Change, Ministry of Environment, who delivered a paper on“Understanding Environmental Agreements.”
Others include: Professor Abiola Sanni, SAN. Managing Partner Abiola Sanni & Co who spoke on “Understanding Tax Agreements;” Prof Dayo Ayoade an Extractive Industries Expert and Senior Lecturer Faculty of Law, University of Lagos who delivered a paper on “Understanding Natural Resource Agreements.”
The Chairman of ICPC, Professor Bolaji Owasanoye (SAN), while speaking at the event called for better negotiation skills in dealing with expiring international trade agreements as well as in establishing new ones.
In his paper titled “From Gunboat Diplomacy to the Negotiation Table”, Owasanoye explained that globalization has made interactions with diverse global communities inevitable, however the rules of engagement are more often than not, unfavorable to poor economies of the global south who lack the development and technological advancements of the global north.
“This has often led to poorly constructed trade agreements which have ultimately been disadvantageous to the growth of the country and also opened loopholes to encourage illicit financial flow”, he said
The ICPC Boss illustrated the archaic practice of European super powers using their military might to cohesively reach one-sided agreement with economic minions. This “Gunboat diplomacy” as he referred to it, eventually forced nations without capacity to depend on imperialists for raw materials and overseas markets.
According to Owasanoye, “This inimical approach was eventually countered by the Hague Convention (No 2) Respecting the Limitation of the Employment of Force for the Recovery of Contract Debts of 1907 and then replaced by diplomatic protection whereby states exchanged notes on how investors should be treated by other governments.”
The ICPC boss enumerated several reasons why there was need to focus on capacity building to improve negotiation skills especially in the trade and investment sector.
He said, “Nigeria requires trade and investment to grow the economy. To attain this desire, we must have the potential to harness capital and technology in a manner that is not inimical to development.”
He further pointed out that the pillars of international trade agreements were erected years ago and they tended to confer undue advantage to colonialists while Africa – itself largely under colonial rule – had little to no say and thus at a disadvantage. These pillars, in his opinion, do no not work for Nigeria.
The Chairman stated that Nigeria must align with one of the ideals expressed recently by President Thabo Mbeki which champions the need to ‘build capacity to combat illicit financial flows at national and continental levels.
He said that Negotiators must desist from accepting contract splitting designed to facilitate IFFs such as artificially dividing a single contract into a number of smaller contracts in order to avoid tax, duties or levies.
The ICPC Boss said multinational corporations with subsidiary or associate in Africa are fond of splitting contracts into local and foreign components.
According to him, the portion of the works that carries the larger value is later artificially classified as performed by the foreign company in its home country typically a low-taxed foreign jurisdiction or a tax haven.
As a policy measure, he said Nigeria should avoid awards to shell companies incorporated in tax havens. Such companies, he noted, win big contracts only to sub contract to a local company at fraction of cost and then repatriate the huge profits.
He said there is also need to tackle corruption perpetrated by government officials who accept gratification to award contracts; accept clauses with odious obligation for government which is inevitably defaulted thus leading to penalty that is shared with officers that accepted such clauses in the first place.
He advocated the avoidance of “Inimical double tax agreements and tax treaties through which MNCs and foreign investors conduct aggressive tax planning that push ethical boundaries and subvert the intention of the treaty and undermine fairness and integrity of tax systems. Such create undue tax advantages for MNCs with base erosion and profit shifting practices, tax arbitrage and treaty shopping.”
In the same vein, the Chairman Inter-Agency Committee on Stopping Illicit Financial Flows (IFFs) from Nigeria, Dr. Adeyemi Dipeolu, lauded the initiative of the Commission in organizing the workshop, stating that negotiations happen in various day to day activities from the most mundane to the extremely significant occurrences.
Dipeolu who is also the Special Adviser to the President on Economic Matters in the Office of the Vice-President, suggested that it was essential for Nigeria to develop a crop of officials who are skilled in international negotiations in general as well as key thematic sectors.
He added that the cost of improper discussions has implications of varying degree. In his opinion, “The consequences of poor negotiations can range from paying twice as much as your neighbor for the same item to costing your country a billion dollars in a mining concession.”
While concluding his presentation, Dipeolu said public officials who are involved in negotiations must develop a personal repertoire of strategy and tactics. This, he suggested was achievable via early and continuous exposure to negotiation scenarios which would in turn build experience via constant participation.
He added, “Considering the range and complexity of issues under consideration in this capacity building program, participation is drawn from middle level officers in public sector agencies that undertake negotiations.
“Without dealing with IFFs, Africa cannot and will not achieve SDGs. She will also not be able to control its development priorities.
Also speaking, Prof Ayoade in his presentation on, “Understanding natural resource agreements,” said that petroleum contracts are best understood within its ecosystem (history, politics, socio-economic conditions, law, policy, regulations, practice, and contractual trends)
He explained that resource nationalism or emotions do not work in contract negotiations, adding that the legal or illegal outflows should be the central focus.
He said, “The enactment of the Petroleum Industry Act 2021 after almost two decades of delay does have a positive impact on the contractual arena in terms of governance, transparency and accountability.
“This is helpful against one sided contracts or contracts used as financial conduit pipes. Forward looking skilled negotiators have to ensure contracts work in good, bad and indifferent times.”
In his presentation at the workshop, a Professor of International Economic Relations,
Covenant University and Consultant, ECOWAS Common Investment Market, Jonathan Aremu, explained that the challenge of Nigeria is how to sequence the negotiation of the various regional and multilateral trade liberalization facing the country, so as to maximize development gains from all of them.
He listed some of the main trade agreements currently faced by Nigeria to include ECOWAS-Common Trade Policy; Africa Continental Free Trade Agreement; Economic Partnership Agreement with European Union; and multilateral negotiations at World Trade Organisation.
With varying degrees of complexities involved in each of these negotiations, he urged the government to introduce the least complex and least costly/high benefit elements first, and leave the more difficult, more costly, and less benefit elements to a later time.
“It is therefore advisable that Nigeria urgently concludes the domestic trade policy first to serve as a radar to other trade agreements to be negotiated,” he added.
With increasing regional agreements in the multilateral trading system facing Nigeria, he said the country must , as a matter of urgency establish an appropriate trade policy development strategy that agrees with the current development plan; use the strategy to formulate an acceptable Trade Policy by engaging the Executive Trade Policy Formulation Organogram process; and review the existing the Enlarged National Focal Point on Trade Matters (ENFP) of the country in line with the Trade Policy Dialogue and Consultation Process.
He also urged the government to put in place an effective/efficient trade negotiation strategy and sequence within the multiplicity of trading agreements; finalize the legal requirement for NOTN to be fully established by law, and put in place technically competent negotiators in the Office, as well as develop their trade negotiations capacity.
Similarly, he said there is need to synchronize the sequence of negotiating the numerous trading agreements facing the country with the country’s National Development Plans; carry out an extensive sensitization on future trade negotiations to secure the buy-in of the relevant stakeholders; engage in appropriate coalition with other countries in future trade negotiations; review the country’s position in the existing economic integrations such as ECOWAS, EPA, AGOA; AfCFTA for the better possible outcome; and ensure effective negotiation at all times making their provisions to be coherent with other national policies.