The global community set comprehensive development targets, the Sustainable Development Goals (SDGs) to be achieved by 2030. Midway to the goal in 2015, the world’s leaders gathered in Addis Ababa to review the progress and set a new pace to keep the right momentum to achieve the goals. The conference in Addis adopted the Addis Ababa Action Agenda to expedite efforts towards realizing the objectives per the schedule. Several reports however indicate that the world is off track from achieving the goals on the set time. With only six years left to the deadline, the world seems never desperate to take more actions to catalyze the measures and realize the goals.
One of the major gaps is financing. So the world has planned to hold the Fourth International Financing for Development Conference in July 2025 in Spain. This week the stakeholders have held their 1st preparatory meeting here in Addis Ababa.
Oliver Schwank is the chief of the policy analyst and development branch in the financing for the Sustainable Development Office with the United Nations Department of Economic and Social Affairs (UN DESA). His office provides substantive support to the discussions that we have here this week in Addis Ababa.
The Ethiopian Herald has discussed with Schwank how the conference would attempt to bridge the financial gap and what hopes are there to achieve the goals. Here is the detail:
My first question would be just about the overall review of SDGs and the Addis Ababa Action Agenda.
This is a meeting where the world takes stock of how far we have come since 2015. on the SDGs, we now understand that we are not on track to meet them by 2030. Only 17% of the SDG targets are currently on track to be achieved by 2030. So unless we change course, we will not achieve these global goals. And it’s often the financing challenges that are the reason why countries are not able to achieve their goals. Financing gaps are larger now than they were in 2015. We said that many countries have very limited space to invest in these goals. And that’s why we are falling behind. So this week here in Addis Ababa, we focused on these financing challenges. And it’s critical to address them, if we want to have any chance to achieve the SDGs by 2030, we have to find solutions for the financing. And that’s the purpose of the discussions this week.
It is well known that developing countries lag behind the developed ones in terms of economy, finance, human resources, technology …etc. How would it be possible to plan for such heterogeneous categories to pass through the same path and achieve the same goal? What were the considerations made during the planning of the goals?
The first thing I would say is that in 2015, when this Addis Ababa action agenda was agreed, that was a historic breakthrough. This agenda is still sound and valid. If you listened to the discussions here, most countries and experts agree that the framework we have is still the right one. But there are many commitments in there that we haven’t met. So we have good agreements, but we haven’t implemented them. And then the second thing is that since 2015, the world has changed. And there are, of course, some positive developments. But overall, we are in a much more difficult environment now than we were in 2015. We had a pandemic, we have conflict, and we have now inflation and very high interest rates. So we have a lot of new challenges that have set us back and the countries are struggling with. So I would say what we achieved in 2015 is still valid, but we have to do better in implementation. And we have to address some of these new challenges.
What were those unexpected challenges?
I think we knew in 2015 that climate change would trigger a major crisis down the line. Now, nine years later, it’s not just an expectation, we see it every week. You see countries are dramatically affected by this. There were unexpected things like the pandemic (COVID-19), and conflict.
How much is Africa involved and contributing to the planning and execution of the SDGs?
I actually think it’s playing a very prominent role and African countries have been leaders on some of these issues, especially on the financing questions. Ethiopia played a leading role in 2015. It hosted the conference, it helped shape this agenda. And, ever since, African countries have been very vocal about the need to take action on the financing questions. I can give you several examples. One of the topics that come up a lot in the discussions today is the need to allow countries to mobilize more resources at home; tax revenues. And that also means we have to take action internationally. Sometimes, this revenue mobilization is made difficult because of the rules we have internationally. And African countries have stressed time and again, that we need to ensure that this financing that’s mobilized doesn’t immediately leave the country again, through illicit outflows. So they have been very vocal and real leaders in putting these issues, tax cooperation, and the fight against illicit flows on the agenda. And, that’s why we discussed them today. And that’s why there is also action being taken. But these are just two examples. The African countries have been real leaders in this area. African leaders have been incredibly vocal on the need to take action on climate and also to give countries access to the financial resources that they can.
About raising domestic resource mobilization how do you think African countries are advancing in this regard?
Domestic resource mobilization is a critical source of finance; of course, it’s the primary source of, spending and investment on sustainable development goals and objectives. In most countries, it’s by far the largest resource available. And it’s also really important. There’s a social compact that countries have with the citizens, and accountability that comes by raising resources from your citizens, that also helps ensure that citizens then hold the government to account. African countries have worked very hard to increase these domestic resources.
Part of the challenge is that the world has been changing quite dramatically. And we have brought down, for example, tariffs and trade taxes so that countries can integrate fully into the world economy. Countries have tried to attract the investment that they desperately need. And so sometimes they do that by, giving investors tax incentives. And, then it has become easier, partly because of technology, partly because we have such an internationalized economy, for some of these actors to avoid their responsibilities, and to avoid paying their taxes. All of these pressures have made it very difficult to raise revenues domestically, despite the ambition of countries to do so. And that’s what a discussion like the one we have here can help. There’s a lot that countries can do by themselves, but they can’t do it all. So we need to come together as a community because addressing illicit flows, addressing, the ability of corporations to shift their incomes and avoid paying taxes can only be addressed by countries coming together, and that’s what these discussions here at the UN are about.
When you say countries coming together does it mean forming a free trade area like AfCFTA?
That can be part of it, but also thinking about the rules and agreements they have around, for example, how to allocate taxing rights. If you have a company that’s based in one country operates in the second, maybe has a headquarters in the third. It’s even overseas. Then it’s too easy at the moment for these actors, with different accounting measures to avoid the responsibility to contribute their fair share in the countries where they operate in. So then the host countries where these corporate investors operate are left empty-handed; they do not get their fair share of revenue. And, that’s not something a country can address on its own. There needs to be a dialogue and agreement between these different countries to ensure that it’s not so easy to avoid these responsibilities for paying taxes. They can avoid paying a fair share of taxes because they can book their profits in one jurisdiction. And, the countries that may need the resources, most are left empty-handed.
And we’re missing illicit financial flow. Is it all sides of a continent or just visiting the continent itself?
Both are true. But if you look at the data, which is not easy to collect, because these are illicit activities, it can be both within the continent and beyond. There is a lot of evidence that a lot of these resources are flowing out of the continent. So they are leaving Africa, and then are not available for investment in Africa’s prosperity.
When we say illicit financial flow, does it refer to the ones that are not accounted or registered through the legal financial flow?
Exactly! That can be on the tax side, it can be tax evasion, and it can be proceeds of corruption that are then transferred outside the country. But what unites it is that these are resources that should be available to invest at home. But then, leave the countries or leave the continent. And then that’s partly why you don’t have enough resources here in Africa to invest.
And is there any evidence to what extent this is affecting these illicit financial flows, problems in taxation, like tax evasion, or even lower rates of taxation, or these kinds of things, to what extent they’re affecting domestic resource mobilization?
There is evidence. It’s very understandable why this happens. Countries are desperate to attract investment from overseas. And one way to do this is to promise some relief on the tax burden. And this is something that investors often look for. But if you do that in core sectors of the economy, then it undermines the tax base of the country. So there’s a lot of evidence that these tax breaks, tax incentives can reach a level where they undermine a country’s ability to mobilize enough resources domestically. And there’s also evidence for the illicit outflows. These flows are in the billions of dollars.
So what do you think can African countries or regional blocs, like the African Union, do in this regard?
One thing they are doing right now is that they are advocating for international agreements that would help address these challenges. So as I said, it’s very difficult for any one country to address this alone. Of course, there are many things countries can do at home; strengthen tax administrations, good governance, and more transparency, all of this helps; but it’s not going to be enough. So there is a need to have better international agreements and rules that make sure that, it’s not the actions of other countries that undermine these efforts.
African countries have brought these discussions to the UN. And just next week there’ll be negotiations in New York at the United Nations to agree on Terms of Reference for a new international framework convention on tax cooperation. This discussion is happening only because of the leadership of the African group. So they have brought this issue to the international community. And it’s yielding results. These kinds of international agreements take time to be finalized, and then for the impact to be felt on the ground. But they are a real, fundamental change in the system and the solution in the long term. So African countries, as I said earlier, have been real leaders on this.
So regarding the SDGs integration is the flagship project of the African Union Agenda 2063. To what extent is being integrated and implemented? And how do you see daily effectiveness?
These agendas are well aligned, the 2030 agenda and agenda 2063. They have very different time horizons, of course. For the SDGs, we have five years left here, and then we will need to think about what’s the next step. Where do we go next? Whereas the agenda 2063 is a long-term vision for the development of the continent. It’s important that you have a global agreement, a global vision, the 2030 agenda. But of course, Africa has its priorities and its needs. Both agendas have important roles to play.
And when we say one thing raised along with this is accelerating of efforts. So what do we mean by that? And what it is, do we have to focus on in this acceleration, especially regarding?
The most important thing at this point is to accelerate investment: investment in people, investment in infrastructure, and investment in climate action. The only way to meet the SDGs within the next six years, which is the time we have left, is to really, significantly scale up these investments. And that’s true globally. But it’s especially true in Africa. To do this, we need to do a few things. First, we need to help countries. Many countries suffer from very high debt burdens right now. If you have high debt, and you dedicate 20% to 30% of your tax revenues just to service the debt, you’re not going to be able to make these investments. Many countries are in distress. They’re cut off from markets because they are defaulting. And we don’t have good ways to help them resolve this crisis quickly. These countries will not be able to invest. So the first big priority is to address the debt challenges. And maybe I’ll mention one more. Second. one of the most effective tools we have to quickly increase financing for these investments is the development banks: the World Bank, and the Regional African Development Banks. But also we have other development banks that can help do this, and that’s why there’s a lot of focus on making sure that these banks can quickly scale up the financing they provide. And that’s also a big priority in our discussions. How do we make sure that these public Development Banks can scale up, financing quickly and affordably so countries can invest?
So we see acceleration. To what extent are you hopeful that we can catch up?
I think there are different ways to look at this. A lot is happening, right? If you compare where these institutions are now, compared to five years ago, there have been a lot of positive steps. On the debt front, we now have the common framework, which for the first time brings together all the official creditors, including China to coordinate efforts. On the development banks, they’ve already taken quite a few steps to scale up their lending. With the measures they’ve taken so far they will increase lending by almost half a trillion dollars over the next decade. So it’s important to acknowledge the efforts that have been made. But when you compare it to the needs, it’s still not enough. That’s the reality. So we need to continue to work on doing more.
What’s your expectation out of this conference?
We hope that the conference can help do precisely that it can help raise the ambition on these issues and help do even more than we’ve already done. So when you think about the debt, we have to, we have to find a way to more systematically help countries.
I mentioned the progress we’ve made. Still, the support that’s given to countries is case by case, it takes a long time, Ethiopia is a good example. It takes a long time to resolve this issue. So we need to find a way to provide the support more systematically, that might mean we need some kind of initiative. So that when countries are in this situation, it doesn’t take years To address it. To resolve it, we need to bring that timeline down. So, hopefully, the conference can agree to some package or some initiative that can help not just one or two countries at a time, very slowly, but have many countries much more quickly to address these challenges. And second, we talked about the development bank, so how do we find ways that they can do even more? Right now they are saying 400 to 500 billion over a decade, that’s 30 to 40 billion, maybe $50 billion more a year. How do we get to the next 50 or 100 billion a year? Because the financing gaps are larger, they are larger than that. So, it is very likely that we need to not just help them optimize how they use their resources, which is what they’re focused on right now. But to give them more resources, so they need to increase their capital basis. So we need to have a discussion around, capital increases for these public development banks. And the conversations are starting, this is not unrealistic, the conference can hopefully create the political momentum to deliver this, and we will have many heads of state who will be convening. They will be very aware, of the urgency. They understand that this is a real urgent need of humanity. And so maybe they can, together create the political will to say, that means we also need to put money on the table, for example, by giving a generous capital increase to the World Bank to the African Development Bank, and then these institutions can scale up their support.
So I just finished with my questions, maybe if you have more points that you’d like to raise to us then you give us a chance.
One thing I would say is that the discussions this week, have been encouraging. We had very high-level participation, more than 40 ministers from 100 countries that can be together and also when you listen to them, a real shared sense of urgency and a willingness to talk about very concrete ideas. So countries didn’t just come here, they came, with ideas and proposals. So it’s a very encouraging start to this process. And so I’m more optimistic today than I was a week ago that we can deliver some of the things next year for the main further conference.
Thank you very much for your valuable comments.
Thank you. I am glad, too!
BY ZEKARIAS WOLDEMARIAM
THE ETHIOPIAN HERALD SATURDAY 27 JULY 2024
