Seminar in Entebbe, Uganda with our partner organisations Tax Justice Network Africa and SEATINI - Photo: Sara Jespersen

The recommendations discussed and debated at a recent seminar in Entebbe, Uganda with African NGOs, were that development finance institutions (DFI) should play a much stronger role in ensuring more transparency both in their own operations and investment structures, but also from their private sector partners. Only more transparency will ensure effective engagement with stakeholders such as local communities and NGOs. DFIs should also, according to the discussion, develop stronger policies on tax havens, tax incentives, a particular focus on the extractives sector, which is a core sector to many African and Latin American countries.

In addition, better coherence with what other institutional donors, such as the World Bank Group, are doing on the domestic resource mobilization agenda is needed. Often the World Bank is seen given advice on establishing tax incentives or financial de-regulation which can directly undermine domestic resource mobilization. Finally, much more knowledge and information needs to be gathered on the existing investments in Africa and Latin America.

Members of Tax Justice Network Africa and SEATINI came together for a pan-African conference to #stopthebleeding – the campaign slogan for their fight to end illicit financial flows from Africa and roll out the recommendations of the Mbeki report across Africa. Also members of parliament from across the continent participated which made for a very fruitful debate. One of the days of the conference was dedicated to understanding the role of DFIs in achieving tax justice and responsible taxation.

The Mbeki report shows that illicit financial flows severely undermine domestic resource mobilization in Africa, reducing public resources to invest in poverty eradication and realization of human rights. It also underlines that private companies play a role in this.

Meanwhile, several examples of where DFIs are investing in mega private sector projects across the continent were on the radar of the participants. DFI funds invested in the private sector have quadrupled since the early 2000s, which indicates that DFIs engagement in the private sector is rising. From the Addis Agenda for Action it is clear that innovative means of financing and leveraging the private sector continue to be a key focus area – thus we can expect DFIs to continue to play a role in development.

The Addis Agenda for Action and the Sustainable Development Goals also have a strong focus on domestic resource mobilization. At the conference, the debate was on how to ensure that the two agendas, leveraging the private sector and domestic resource mobilisation, can support each other for more sustainable development.

Two case studies by NGOs were presented and revealed tax dodging practices of companies in which the major DFIs International Finance Corporation and European Investment Bank are shareholders. Latindadd presented a case from Peru and the mining sector, the Yanacocha mine. Similarly, the case from Zambia treat an extractive company, the Mopani mine in Zambia. Both examples reveal what the negative impacts can be when investors have insufficient safeguards to ensure responsible taxation and that DFIs are currently at risk from enabling tax dodging through their existing practices.

A discussion paper by IBIS was presented which included an overview of what three of the major multilateral banks are doing in the area of responsible taxation. Of particular interest for the African continent were the International Finance Corporation and African Development Bank. Findings reveal that very little is done on the agenda beyond legal compliance issues, and even for that there is still progress to be made to support the domestic resource mobilization agenda better. Research by Eurodad was also presented which reveals the systematic use of tax havens both in DFIs’ own investment structures and by the DFIs’ clients.

The new Sustainable Development Goals and agreement on how to finance future development, clearly indicate that DFIs will be key vehicles to mobilise the private sector in development. However, DFIs should only invest where projects and private sector partners meet the highest standards for sustainability, “do no harm” and actively contribute to development including through paying taxes.