As part of recommendations from a recent convening on the impact of Illicit Financial Flow (IFF) on Liberia and Africa, and how to curb IFF, a stern call has been made for government to tighten all loopholes that hemorrhage the economy when companies and officials engage in mispricing, transfer pricing and outright corruption to rip off the country.
The call to tighten all loopholes against Illicit Financial Flow was made when the Institute for Research and Democratic Development (IREDD) hosted a two-day international conference from 13-14 December 2016 which brought together Civil Society Organizations, development partners and donors to discuss the economic impact of Illicit Financial Flows (IFF) on growth and domestic resource mobilization in Africa in general and Liberia in particular and how to adopt effective strategies to mitigate IFFs. The seminar held at the Boulevard Palace Hotel in Monrovia, was held under the theme “Harnessing the African Experience on Illicit Financial Flows: Issues, Opportunities and Challenges”. Among other suggestions and recommendations, the conveners prayed that national government adopts harmonization frameworks with other regional and continental regimes to avoid the concept of “race to the bottom”, a situation where governments in developing economies compete against one another in lowering or waiving taxes for companies and concessions as a means of sweetening investment. Companies and concessions operating in Liberia, the conveners stated, should be compelled by national government to add value to their production even if they are given tax breaks. “A coordinated approach that involves government, civil society and donor is needed to mitigate the critical issue of IFF both at the local and regional levels,” the conveners advised, while calling on national government to adopt a single currency regime as a means of cubing IFF. During the convening, the delegates and participants noted that Liberia faces severe economic decline in the wake of collapse in the prices of the country’s primary commodities (mainly iron ore and rubber) on the international market. As a result, President Ellen Johnson- Sirleaf has called on Liberians, on two separate nationwide addresses in November 2015 and January 2016, to prepare for tough years ahead. Prior to the president’s announcement, a significant percentage key concessions in iron ore, oil explorations and logging have either announced the scaling down of their operations or sold out their concessions for various reasons attributed to decline in commodity prices, external economic crisis or unfavorable operational conditions as well as the impact of the Ebola outbreak. All these developments will have severe negative impact on the national economy and the population. According to the conference conveners, Illicit Financial Flows (IFFs) defined by the African Union High Level Panel (HLP) on Illicit Financial Flows from Africa as “money illegally earned, transferred or used” is bleeding African countries including Liberia, dry of significant investible financial resources required to develop the continent’s economies. The HLP, which was chaired by the former South African President, Thabo Mbeki, further noted that Africa loses a minimum of US$50 billion dollars annually. The continent lost nearly US$1 trillion between 1980 and 2012. Official government data indicate that Liberia’s extractive industries attracted US$16 billion in Foreign Direct Investment between 2005 and 2011, but there is very little evidence on the ground by way of improved condition of living of the average Liberia especially in the area of provision of healthcare, electricity, safe drinking water, paved roads and job opportunities. It was established that developing economies such as Liberia usually prefer the much easier but risky route of unbridled tax exemptions to multinational corporations (MNCs) rather than providing critical infrastructure facilities (such roads, electricity, water, etc) that spur investments. Very little positive correlation has been established linking arbitrary tax exemptions to MNCs to domestic resource mobilization. Indeed, large tax incentives granted major MNCs undermine Liberia’s ability to raise adequate tax revenue to underpin reconstruction of the economy. These tax incentives promote a “race-to-the-bottom” and undercut African countries’ ability to fund their development from domestic resources. The parallel use of the United States dollar alongside the local currency as legal tender was also noted to spur IFFs from Liberia. The maintenance of a dual currency system without the institutionalization of structural regimes could lead to economic and social chaos in Liberia, as experienced in the 1930s and the 1980s, the conveners stated.