Thursday, July 18, 2024

Curbing illicit flows could bridge half of Botswana’s SDG financing gap

The large financing gap for Sustainable Development Goals (SDGs) cannot be closed solely through government revenues but tackling illicit financial flows as well. Currently Botswana continues to lose billions of Pula annually to illicit financial flows. Various data prepared by notable institutions such as the World Bank and Global Financial Integrity (GFI) shows that Botswana bleeds money mainly due to trade misinvoicing, which is a combination of tax, customs, and trade fraud.

Although there is no international consensus on how to define IFF, the United Nations (UN) defines it as all cross-border financial transfers which contravene national or international laws. Combating illicit financial flows is a major challenge for Botswana. However it is also an increasingly important priority for the country because it is a barrier to sustainable development, and to the implementation of the development goals.

In a research conducted by GFI in 2015, the data highlighted that several countries have trade misinvoicing levels significantly higher than the global average including: Sierra Leone (39.8%), Botswana (31.8%), Ethiopia (29.3%) and Cameroon (26%).

And in another policy brief prepared by Brookings Institution entitled: “Illicit financial flows in Africa Drivers, destinations, and policy options”, Botswana is designated as being among one of the top emitters of illicit financial flows in Africa between 1980 and 2018. According to the policy brief, between 1980 and 2018, Botswana emitted 31,486 IFFs (millions of USD) which equates to almost 16% of total trade at the time the report was compiled.

With only nine years to go until 2030 — the endpoint of the sustainable development goals, after which they’ll be re-evaluated and updated, curbing illicit financial flows out of Botswana is critical if Botswana harbours any intentions of achieving domestic resource mobilisation toward the sustainable development goals.

In Botswana, like in much of the rest of the world, Covid-19 has broadly undermined efforts to achieve SDGs which are the blueprint to achieve a better and more sustainable future for all. The U.N whose aim is to maintain international peace and security and achieve international cooperation says “SDGs address the global challenges we face, including those related to poverty, inequality, climate change, environmental degradation, peace and justice.”

But the arrival of Covid-19 pandemic has resulted in some quarters questioning whether the SDGs in their current state are fit for post-pandemic age.

An Economist who spoke to this publication indicated that illicit financial flows are a major threat to Botswana because they deprive the country of urgently needed resources for private and public investment, and in so doing hampering infrastructure building and economic growth.

“Illicit flows continue to weaken Botswana’s resource mobilisation efforts, dwarfing the amount of official development assistance the country receives annually,” says independent economist Peter Gaerole adding that “there is need for Botswana to fastrack resource mobilisation in order to meet some of those developmental goals.”

The Addis Ababa Action Agenda (AAAA) which provides a comprehensive set of policy actions by member states, with a package of over 100 concrete measures to finance sustainable development and achieve the sustainable development goals sets out a strategy to finance the SDGs. It also includes commitments to combat tax evasion and illicit financial flows through stronger regulation and international cooperation.

According to Gaerole the financing needs to achieve the 2030 Agenda for Sustainable Development in Botswana require a lot of money. He says if the country curbs illicit flows then it can use that money to finance the development goals. “Botswana needs to revisit the AAAA because it presents a policy framework that realigns financial flows with public goals,” says Gaerole.

According to the U.N: “The AAAA addresses all sources of finance: public and private, domestic and international. The AAAA presents a policy framework that realigns financial flows with public goals. A comprehensive approach, which mobilizes public finance, sets appropriate public policies and regulatory frameworks, unlocks the transformative potential of people and the private sector, and incentivizes changes in consumption, production and investment patterns in support of sustainable development.”

Although the UNCTAD’s Economic Development in Africa Report 2020 did not explicitly mention Botswana, it highlighted that the large financing gap for the Sustainable Development Goals (SDGs) cannot be closed solely through government revenues but tackling illicit financial flows as well. Illicit flows are a drain on capital and revenues in Africa, undermining productive capacity and Africa’s prospects for achieving the Sustainable Development Goals (SDGs).

The report also states that African countries with high illicit flows spend 25% less than countries with low IFFs on health and 58% less on education. Since women and girls usually have less access to health and education, they suffer most from the negative fiscal effects of illicit flows. Furthermore, the report says African countries will experience challenges in trying to bridge the large financing gap to achieve the SDGs, estimated at $200 billion per year, with existing government revenues and development assistance.

The Covid-19 pandemic has complicated the implementation of SDGs. A study by the International Monetary Fund found that developing countries face an average annual funding gap of some $2.6 trillion of investment in health, education, roads, electricity, water and sanitation.  For low-income developing countries, this means additional annual spending that can amount to as much as 15 per cent of their gross domestic product (GDP). The Botswana government’s purse is also running low due to the Covid-19 pandemic and this has put paid any plans to achieve the SDGs by 2030.

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