The Third International Conference on Finance for Development (FFD3): A Lack of Delivery from the Developed World?

*By Alem Asmelash

From 13-16 July 2015, the Third International Conference on Financing for Development (FFD3) was held in Addis Ababa, Ethiopia. Its objective was to: assess the progress made in the implementation of the Monterrey Consensus (2003) and the Doha Declaration (2008); address new and emerging issue to promote international development cooperation as well as reinvigorate and strengthen the financing for development follow-up process.

The Addis Ababa conference also hosted a number of side conferences dealing with issues ranging from the role of banks and women in sustaining development as well the future of Foreign Direct Investment (FDI). By the end of the conference the Addis Ababa Action Agenda (AAAA) was adopted. The agreement reached is thought to provide for a framework that can finance the Sustainable Development Goals (SDGs) amounting close to $3 trillion per year.  The meeting had mainly focused on global tax reforms, the universal right to free basic services and welfare, and support for the poorest but has shown lack of commitment from the developed world and was unable to specify concrete deliverables.

Towards a Changed Global Tax System

During the Conference, developing countries had pushed for the inclusion of much tighter provisions in the AAAA that can assert more authoritative stipulation towards the creation of an Intergovernmental Committee of Experts on International Cooperation in Tax Matters as well as increasing the provision of resources. For developing countries the creation of an intergovernmental tax body under the auspices of the United Nations (UN) embodies both a step forward in systemic issues as well as a concrete mechanism within the UN that can contribute to ensuring coherence of the international financial system for the post 2015 Development Agenda. The very countries most affected by illicit financial flows as well as tax evasion by large corporations should have an equal participation in the agenda-setting and decision-making on global tax rules and policy reforms.  Such a universal body, developing countries have stated from the beginning of the FFD3 negotiations, can only exist within the UN.

However developed countries had rejected these proposals from the outset and so the AAAA has failed to grant the wishes of developing nations towards the creation of a democratized tax governance system under the auspices of the UN. It should be noted that developing nations in Africa lose close to 100 to 210 billion US dollars from Multinational Corporations (MNCs) tax-avoidances. This is likely to affect developing countries’ ability in realizing the post 2015 development goals. This becomes glaringly evident when we note that in many low-income countries, tax is less than 15 percent of GDP, against at least 24 percent in advanced economies. However, on a positive note, governments in Addis have agreed to strengthen institutional capacities of tax administration especially in the developing world. This will prove handy in bolstering the capacity of national tax authorities to collect as much taxes as rightfully possible. However with the increasing flow of FDI, it was essential for the world to adopt a fairer and more inclusive global tax system which the Addis conference failed to reach an agreement upon. Wu Hongbo, the UN under Secretary-General for Economic & Social Affairs noted that it will be a “gradual process”.

Consensus over ‘Social Compact’

Perhaps the most important success of the AAAA is its affirmed stance on portraying a global consensus on the right to basic social services such as free access for all by 2030 to healthcare, quality education along with the reduction of inequality and eradication of poverty . The commitments would mean that governments would now be forced to work for the provision of public services which will ultimately contribute to the attainment of the post-2015 Development Agenda as most of the aspired rights underpin the 17 SDGs.

Therefore provisions for finance become an important issue. It is evident that developing countries by themselves cannot provide finance that can support the attainment of the aspired rights, thus Official Development Assistance (ODA) becomes a vital finance resort that the developing world can look for. However most developed countries have failed to provide the agreed 0.7percent of ODA/GNI to least developed countries. However, the European Union (EU) has reaffirmed its commitments towards providing the specified ODA.

While recommitting to the ODA commitments was a step in the right direction, the lack in clear time frames and actionable commitments makes the attaining of the post 2015 Agenda precarious.

On Women Rights

The AAAA has reaffirmed the importance of including women in all development endeavors. But critics have held that the document fails to focus on the obstacles that women face in attaining their economic rights and control over resources. It is argued that the Addis conference did not provide any concrete measures towards women rights rather reiterated the already existing commitments. It rather seems to focus on channeling the contribution of women towards growth without solving the structural problems they face.

What’s the upshot of all this?

Keeping the commitments that governments have entered into, it is important for African governments to devise national policies that can attract both public and private funding. Whereas the Addis Ababa conference provided for a platform for countries to create a framework to finance the SDGs, it however lacks in stipulating concrete and actionable points. Perhaps the UN assembly in New York in September might be able to do that, however developing countries need to provide detailed policies that can attain the SDGs and solicit finance based on the framework created by the AAAA. Moreover for African countries governments, parallel to their commitments to the SDGs, they also have to align their policies to continental commitments such as those under the Agenda 2063.

For instance African countries now also have to be able to look towards other means of finance. It is seen that the developing world falls short in delivering its commitment towards ODA and African economies also have the commitment under Agenda 2063 to decrease reliance on aid by 50%. This needs to push African countries to strengthen their internal tax administration, decrease corruption and upgrade transparency in their governance system. It is also important to note that since 2010 remittance to the Africa now has outgrown both ODA and FDI flows to the continent. This perhaps is an instance that can show that there is alternative to the traditional finance sources that governments usually pursue.

Alem Asmelash (alem.a@ipss-addis.org ) is a Communication Assistant at the Africa Peace and Security Programme (APSP), a joint programme of the Institute for Peace and Security Studies (IPSS) and the African Union. All views expressed in the AfSol blog are solely the views of the authors and do not in any represent the views of the IPSS or APSP. For more information on AfSol Blog, please contact research@ipss-addis.org

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