Representatives of Civil Society Organizations (CSOs) from the East African Community and Southern African Development Community (SADC) sub-regions, working on fiscal justice, extractives, investment, human and environmental rights, debt, climate and gender justice, convened from 10th to 12th December 2024, at the Regional Dialogue on ‘‘Addressing the Impact of Illicit Financial Flows (IFFs) and Debt on Domestic Resource Mobilization (DRM) in the East African Community (EAC) and Southern African Development Community (SADC) sub-regions’’ united under the theme “Promoting Accountable, Equitable, and Inclusive Domestic Resource Mobilization Systems in the EAC and SADC Regions,” and formulated actionable strategies and calls for action to enhance DRM efforts while at the same time addressing the impacts of IFFs and , unsustainable debt, on the financial integrity and broader governance and development frameworks of our respective countries. These strategies, rooted in tax justice and prudent debt management, are key to ensuring accountable, equitable, and inclusive DRM systems (frameworks) in the EAC and SADC sub-regions.
The dialogue reaffirmed the critical importance of Domestic Resource Mobilization (DRM) in achieving sustainable development in both East Africa and Southern Africa. However, without addressing the underlying issues of Illicit Financial Flows (IFFs) and unsustainable debt, the region will continue to face significant obstacles in realizing its Sustainable Development Goals, according to CSOs.
We observe that while various efforts have been undertaken to curb IFFs and promote prudent debt management, significant gaps persist in the implementation, enforcement, and coordination of these initiatives. Illicit Financial Flows (IFFs) and the escalating Debt burden threaten the ability of EAC and SADC Regional Economic Blocs to mobilize resources for social services, drive long-term national development and fulfill regional commitments on the achievement of Sustainable Development Goals. These challenges erode economic stability, state sovereignty, and future development prospects in the EAC and SADC.
Mr. Herbert Kafeero, Programs and Communications Manager at SEATIN Uganda
‘’We note that to effectively mitigate the impacts of Illicit Financial Flows (IFFs) and unsustainable debt, concerted efforts must be made to tackle the underlying causes that drive these challenges. The root causes of IFFs are multifaceted, including tax evasion and avoidance, money laundering, informal trade (such as smuggling), abuse of Double Taxation Agreements (DTAs), and capital flight, among others. These activities have facilitated the outflow of vast sums of much-needed resources that could otherwise be used to invest in the well-being of citizens, stimulate economic growth, and support critical sectors such as healthcare, education, infrastructure development, and access to clean water’’, noted the CSOs representatives during the press conference.
CSOs Call for Strengthening of regional tax harmonization efforts to reduce tax evasion EAC, SADC regions
Recent data underscores the significant revenue losses across East Africa due to IFFs and related activities. In Tanzania, it is estimated that the country loses approximately USD 1.4 billion annually to illicit trade. In Kenya, fraudulent practices by both domestic firms and multinational corporations account for an estimated 8.3% of government revenue, equating to nearly USD 10.7 billion for the fiscal year ending June 2020. Similarly, Uganda faces annual losses exceeding USD 700 million from IFFs (UNCTAD, 2020), presenting a severe challenge to resource mobilization and fiscal stability in the region.
Illicit Financial Flows (IFFs) represent a severe drain on resources vital for national development in Africa regions. Estimates from UNECA, indicate that African countries lose between $50 billion to $80 billion annually to IFFs, funds that could otherwise support public service delivery and human capital development, as well as driving industrial and productive investments. This financial hemorrhage is a significant obstacle to achieving the sustainable development goals, due to the growing financing gap that cannot be addressed by the Official Development Aid the regions receive
The region remains vulnerable to revenue leakages facilitated by weak regulatory framework, inadequate domestic tax policies to address the evolving landscape for instance the digital economy, limited technical and human capacity to enforce international tax practices compounded by loopholes in the global tax governance framework that allow multinational and wealthy individuals to exploit the inconsistences within the domestic tax systems
Unproductive Tax incentives and exemptions
In the bid to attract Foreign direct Investments, African countries continue to compete among themselves while offer unproductive tax incentives and exceptions that have failed to translate into the economic benefits (growth) envisioned at the time of the award. Studies on the Tax competition within the EAC region by Tax Justice Network – Africa indicate these incentives have been found to contribute to very large revenue losses for governments and promote harmful tax competition in the region.
The recent Tax Expenditure reports within the region reveal the fiscal impact of these incentives: Kenya loses KES 510.56 billion (2024 report), Uganda forfeits UGX 2,972 billion (2022/23 report), Tanzania incurs losses of TZS 3,081.31 billion (2023 report), and Rwanda sacrifices RWF 556.3 billion (2022/23 report). These losses undermine efforts by EAC member states to achieve the 25% tax-to-GDP ratio set under the Monetary Union Protocol, limiting their ability to mobilize resources for sustainable development reflecting weakness in the tax administration and contribute to the overreliance on external financing.
The Debt Trap and its implications for DRM in the EAC and SADC member states:
The rising debt levels in East and Southern Africa are a growing concern with significant impact on Domestic Revenue Mobilization, due to high debt servicing obligations taking a significant toll on domestically generated revenues. For example, Uganda’s 2024/2025 national budget projects a revenue collection of UGX 32 trillion (approximately US$ 8.5 billion), yet the country’s debt servicing requirement stands at UGX 34 trillion (about USD 8.9 billion). This means that debt repayments are outpacing revenue collection, leaving little to no fiscal space for investments that drive long-term development
Countries in both the EAC and SADC are increasingly turning to non-traditional creditors at much higher interest rates, further compounding the debt burden. This trend is reflected in the rising debt-to-GDP ratios in several EAC and SADC countries. For example, Zambia’s debt-to-GDP ratio surged to over 130% in 2023, one of the highest in sub-Saharan Africa, highlighting the need for urgent debt restructuring.
With official development assistance (ODA) declining and the borrowing space becoming constrained, countries face severe limitations in pursuing long-term development strategies. This leaves very limited room for meeting SDGs and application of innovative public-policy solutions to Africa’s rapid-development needs. The UNCTAD World Investment Report (2024) cautions that the growing reliance on private creditors exacerbates the already challenging debt situation. These creditors often offer more expensive and short-term debt that cannot be directed towards productive investments which are essential for sustainable development. This shift makes it harder for governments to focus on long-term development projects.
Corruption and Lack of Transparency in Debt Management
Corruption remains a significant barrier to effective DRM in both regions. Borrowed funds that increase public debt are often mismanaged or diverted to non-productive uses, undermining the intended development outcomes. Weak institutional frameworks, limited public accountability, and inadequate political goodwill and bureaucratic commitment exacerbate this issue of corruption and opacity in public debt management. In several countries, debt funds have been misallocated or misused due to lack of robust oversight mechanisms and political goodwill to curb the vice and utilize debt to transform structures of these economies.
Furthermore, the lack of transparency in debt management and resource allocation makes it difficult for citizens to hold their governments accountable. Civil society organizations continue to call for greater public access to debt information, improved budget transparency, and public participation in decision-making processes, to ensure that resources are used in ways that benefit the wider population and not just elite interests.
Regional Collaboration and the Role of Civil Society
Recognizing the role of various initiatives to curb IFFs and promote exchange of information on tax matters within the African continent, these efforts are undermined by lack of robust mechanism and policy frameworks to facilitate the recovery of tax claims derived from such exchanges. This creates a significant gap in collection of revenue and international cooperation undermining the potential gains from enhanced cooperation.
‘’Furthermore, we note that while, several commitments have been made on the regional and sub regional levels, these are affected by the slow domestication by member countries and limited political will to support these commitments affecting the implementation and execution of such initiatives. This has caused the silo mentality of individual countries trying to fight these revenue leakages while frustrated by the slow progress of the other countries.
The fight against IFFs, the need for financial system reforms, and the challenges posed by unsustainable debt require greater collaboration across borders. Civil society plays a crucial role in advocating tax justice, prudent debt management, and the reduction of IFFs through regional and international advocacy. However, to achieve greater impact, these efforts must be amplified and coordinated to influence policy decisions at the national, regional, and global levels’’, adds a joint statement.
‘’We representatives of CSOs participating in this Regional Dialogue also recognize the importance of regional cooperation in tackling tax evasion, reducing IFFs, and improving the effectiveness of DRM systems. Initiatives such as the African Union’s African Tax Administration Forum (ATAF) and the African Union’s 2063 Agenda are vital in strengthening regional tax frameworks and enhancing the capacity of governments to protect national resources’’.
Weak governance in the Extractive and Natural Resources Sector
The EAC is focusing on the Development and Promotion of Extractive Industries and Mineral Value Addition. This is in recognition that the EAC Partner States are endowed with rich mineral resources potential ranging from gemstones, precious metals, base metals, and industrial & construction minerals amongst others. Even though African countries subscribe to several commitments for instance African Mining Vision (AMV) that envision a sector that catalyzes and contributes to the broad-based growth & development of, and is fully integrated into, a single African market through ensuring that the down-stream linkages into mineral beneficiation and manufacturing. However, several EAC member states are still exporting unprocessed minerals thus facilitating revenue loss and Illicit Financial flows. Furthermore, in a case of Uganda, a member of the Extractive Transparency Initiative (EITI) since August 2020, the country is still challenged in accessing critical information, for instance, Production Sharing Agreements, access to gold exports, Production data and critical data necessary for transparency, limited access to beneficial owner data or information among others. This has made the extractive sector contribute less revenue to their national resource envelope while at the same time facilitating IFFS.
A Comprehensive and Inclusive Approach to Debt Management
Given the limited capacity for DRM in many East African and SADC countries, there is an urgent need to adopt alternative strategies to address the growing debt crisis and damaging IFFs. Debt swaps, restructuring, and renegotiation mechanisms should be explored to alleviate the burden of unsustainable debt while ensuring that borrowed funds are directed toward long-term, productive development. Capacity building for relevant State and non-State institutions, broadly conceived, will go a long way in improving debt management and countering IFFs.
Moreover, regional tax harmonization efforts are essential to reduce tax evasion and capital flight. Strengthening tax administration, enforcing multilateral tax agreements, and creating fairer tax environments are crucial to mobilizing domestic resources more effectively.
Civil socities recommend the following:
Strengthen regional tax harmonization efforts to reduce tax evasion and promote fair tax practices across the EAC and SADC regions.
Push for the implementation of existing frameworks to curb IFFs, including stricter regulation of international financial transactions and trade flows.
Improve debt management practices to ensure borrowed funds are directed towards productive, long-term investments and not wasted on servicing debt.
Expand access to information and promote public participation in decision-making processes related to budgeting, debt acquisition, and resource allocation.
Enhance the capacity of regional CSOs to engage effectively with governments and international organizations to influence DRM policies, reduce IFFs, and address unsustainable debt challenges.
Hold annual Regional Presidential Roundtables, at EAC and SADC levels, and discuss serious policy adaptations and innovations that can address IFFs and debt burdens facing both regions.
Undertake bold industrial policies that are intended to reclaim national- and regional-level controls over entire value chains for critical minerals and other extractives, in order to maximise public-revenue generation and other development benefits from the exploitation of our Natural Resources.
A cost benefit analysis is needed for the tax exemption being awarded in the name attracting investment in the EAC to ensure value for money
The fourth estate needs to be brought on board to undertake investigating journalism related to issues of illicit Financial Flows
Targeted capacity building and sensitization about tax is critical which will require separating tax administration and tax awareness to the extent of creating an independent body
Addressing these issues requires a comprehensive and regionally coordinated approach, including stronger regulatory frameworks, enhanced enforcement of existing laws, improved transparency, and international cooperation. Only by addressing the root causes of IFFs and promoting sound fiscal management can the region secure the resources necessary to drive sustainable development and improve the livelihoods of its people.
A coordinated effort among civil society, governments, and international partners is essential to create a more transparent, accountable, and equitable financial system that will enable both sub-regions to mobilize resources effectively and invest the same for the benefit of their populations.
It is now time for East Africa and Southern Africa to take bold, decisive, actions that prioritize equitable revenue mobilization, transparent fiscal systems, and effective governance of natural resources to ensure the realization of sustainable and inclusive development for all citizens.
This press conference was organized as part of the ongoing sub-regional (EAC and SADC) dialogue on the impact of Illicit Financial Flows (IFFs) and debt on Domestic Resource Mobilization (DRM) within the East African Community (EAC) and the Southern Africa Development Community. The Dialogue has been organized by the Southern and Eastern African Trade Information and Negotiations Institute (SEATINI) with support from Diakonia Africa.
The panelists included Mr. John Oduk, Policy Assistant, African Forum and Network on Debt and Development (AFRODAD), Ms. Lurit Yugusuk, Outreach Officer, Institute of Public Finance (IPF), Kenya, Mr. Zvikomborero Sibanda, Senior Economist, Zimbabwe Coalition on Debt and Development (ZIMCODD) and Ms. Irene Otieno, East African Tax and Governance Network (EATGN)