Report from Addis: Advancing Financial Inclusion in Africa through Digital Finance

We are pleased to share a report from the Financing for Development Conference from Ericsson’s Vice President of Sustainability and Corporate Responsibility, Elaine Weidman-Grunewald, who participated in a side event covering new initiatives to advance financial inclusion through digital technology.

The side event highlighted Ericsson’s research, which shows that while 70% of the world’s population will have a smart phone in 2020, access to 3G/4G data networks is still severely limited in developing regions (Africa and the Middle East currently have only 20% penetration of 3G/4G). At the same time, much of the innovation in digital finance has started in Africa, so one can only imagine what will happen as broadband access in these regions climbs to 70% in the coming year.

In fact, significant progress is currently being made in digital finance, such as the rapid spread of mobile banking, which as The World Banks reports, reduced the unbanked population from 2.5 billion to 700 million between 2011 and 2014. The panelists agreed that various actors, particularly banks and telecom services, must work together to create a network of partnerships (or financial “ecosystems”) that will drive development of the sector. Weidman-Grunewald also calls for “standardization and interoperability” between borders and technologies and the need to ensure secure and private transactions. She ends her post by emphasizing public-private cooperation: “Private sector innovation and scale were the themes of the day, but we also need models that meet development goals and are commercially viable.”

Improving private sector participation would accelerate progress on the sustainable development goals. Unfortunately, as there were only six business representatives out of hundreds of UN and government officials at each of the three UN General Assembly “round tables,” it is clear that the private sector’s role in the development agenda has yet to be fully recognized.

Indeed, as Weidman-Grunewald observed in a second post from Addis about the Business Forum organized by the Business Sector Steering Committee for Financing for Development, the private sector is “far from leveraged.” However, she is still hopeful, as there is an emerging consensus that it has a tremendous role to play and that “governments could make positive impacts on their development agendas” if ODA and government finance came in “where the innovation potential exists but struggles to achieve scale.” 

Read both of Elaine’s posts here and more about Ericsson’s approach to sustainability here. 

USCIB and its members play a major role in Ffd3 in Addis

USCIB and its global network have welcomed the conclusion of the Third International Conference on Financing for Development (FfD3), as the outcome emphasizes an enhanced role for the private sector in the United Nations Post-2015 Development Agenda. FfD3 formally concluded on July 16 in Addis Ababa, Ethiopia after three days of negotiations to agree on a new global financing framework to support sustainable development. The final text—known as the Addis Ababa Action Agenda—sets out  the means of implementation, including technology, domestic resource mobilization and blended finance and investment for the UN Sustainable Development Goals (SDGs).

In a letter to Ambassador Lisa Kubiske of the U.S. State Department, dated July 7, USCIB’s President and CEO, Peter Robinson stated that a successful FfD3 would “amplify the opportunity to catalyze private initiative and investment to advance sustainable development and economic growth.  It will be actionable and practical for governments and business; it will synergize with the global market place and provide opportunities to advance entrepreneurship in support of shared prosperity.”  In that letter, Robinson also raised USCIB’s concerns with some aspects of the Addis outcome, relating to taxation and the proposed technology facilitation mechanism in terms of its role vis-à-vis protection of intellectual property.

USCIB played a central role in marshaling business input into FfD3, having worked actively with members and the International Chamber of Commerce (ICC) to ensure that the private sector’s voice was heard in Addis. USCIB and its members have engaged on several occasions with the U.S. negotiating team, and USCIB Vice President Ariel Meyerstein met with the co-facilitators of the FfD3 process as part of the Business Steering Committee for Financing for Development, chaired by the ICC Permanent Representative to the UN, Louise Kantrow.

USCIB was instrumental in organizing the conference’s landmark Business Forum on July 14. USCIB lined up an impressive array of member speakers for the business forum to share their insights about investing in emerging markets, including Jay Collins, vice chairman of corporate investment banking at Citi; Peter Sullivan, head of the Africa public sector group at Citi; Walt M. MacNee, executive vice chairman of MasterCard; Elaine Weidman, vice president for sustainability and corporate responsibility at Ericsson; and Jay Ireland, CEO of GE Africa.

“We welcome the Addis agreement as an important step towards realizing a more sustainable and prosperous future for us all,” said International Chamber of Commerce Secretary General John Danilovich. “By establishing a framework that seeks to harness private sector investment, we’ve seen a major leap forward in the international community’s approach to development cooperation.” (Read ICC Secretary General John Danilovich’s letter to the Financial Times on enabling trade for development.)

The private sector and other development institutions and donor countries led the way in a number of areas that went far beyond the confines of the Outcome Document. Several blended finance initiatives were announced, including the Sustainable Development Investment Partnership, which will try to unlock private capital for development, and Convergence, an online platform for developing a pipeline of projects ripe for investment and the exchange of information and capacity building. In addition, the European Union announced that it would add $2.8 billion to Power Africa, an initiative spearheaded by the U.S. government and private sector companies and other partners in sub-Saharan Africa to add more than 30,000 megawatts (MW) of cleaner, more efficient electricity generation capacity as well as increase electricity access by adding 60 million new home and business connections. Other major international financial institutions announced plans to make $400 billion available in the next three years to finance the sustainable development goals.

The conference also provided some cliffhanging moments of concern to business as a proposal by developing countries to elevate the UN tax committee to an intergovernmental body with universal membership nearly brought the conference to a stalemate. The proposal was ultimately rejected, but some in civil society were disappointed with that outcome and along with some governments, can be expected to continue to press for such an upgrade to be reconsidered during the remaining negotiations leading to the UN General Assembly and Post 2015 Summit in September. Significantly, a number of global initiatives were launched to improve the capacity of national tax authorities because taxation is a key aspect of domestic resource mobilization – one of the key resource streams for financing development that could surpass the revenue streams from both foreign direct investment and official development assistance (ODA). These initiatives included the launch of the OECD’s Tax Collectors Beyond Borders Project (a joint venture of the UN Development Program and the OECD) and the Addis Tax Initiative (an effort by 18 developed countries, including the United States, to double official development assistance for tax authority capacity) and a joint World Bank/IMF initiative to provide capacity building for tax authorities in developing countries.

USCIB’s SDG Working Group, chaired by Tam Nguyen (Bechtel) and Brian Lowry (Monsanto), will continue to weigh in to the UN and the administration on USCIB member interests as the UN process continues to deliberate on a wide range of business issues and implementation.  In addition, USCIB has created an online platform to showcase the private sector’s continuing contributions to sustainable development, and demonstrates the many ongoing business initiatives in support of the UN’s Post-2015 Development Agenda. Visit businessforpost-2015.org to learn more.

Is a new UN tax body really the solution?

A recent Guardian piece ("Ten reasons why European governments should back a global tax body") (June 25, 2015) calls upon European governments to push the upcoming Financing for Development conference in Addis Ababa, Ethiopia to call for a new UN tax body.  But is a new tax body at the UN really needed?   Before even discussing whether a UN tax body would be an effective mechanism, its best to get the facts straight on the work of the OECD's Base Erosion and Profit-shifting program, which has been laboring away for close to two years to better harmonize taxation regimes around the world. The Guardian piece, written by Tove Maria Ryding of the Eurodad, seems to ignore the BEPs Project's efforts at being inclusive.

As one of its justifications for a UN tax body, the Guardian piece says that "global tax standards are decided behind closed doors at the Organization for Economic Co-operation and Development (OECD) - also known as the "rich countries' club".  But this caricature obscures the extensive developing country consultation that has occurred throughout the BEPs Project.

Beyond the 34 OECD member countries, 14 countries from a cross-section of regions and per capita income-levels directly participate in the Committee on Fiscal Affairs and the Working Party on meetings on the BEPs Project:  Albania, Azerbaijan, Bangladesh, Croatia, Georgia, Jamaica, Kenya, Morocco, Nigeria, Peru, Philippines, Senegal, Tunisia, and Vietnam.  In addition, two regional tax organizations - the African Tax Administration Forum (ATAF) and the Inter-American Centre for Tax Administration (CIAT) are also directly involved in the BEPs Project. Through this direct involvement in the project, countries are able to provide input at the working and the decision-making levels to ensure their specific concerns are taken into account.

Moreover, a large number of developing countries have also been consulted extensively through a combination of regional and global high-level policy dialogues. Over 80 developing countries and other non-OECD/non-G20 economies have been consulted in the first year of the Project through four in-depth regional consultations and five thematic global fora, attended by more than 110 jurisdictions and a number of representatives from civil society and the business community.  The OECD coordinating work on a Multilateral Instrument to Modify Bilateral Tax Treaties has also been very broad.

What the Guardian piece also fails to note is that these supposed "closed-door" consultations also make make public all comments received on the various BEPs Action Items.  The current UN tax committee does not seem to have the same robust stakeholder engagement mechanisms and it is unclear how an upgraded body would function in this regard.

We need to work with the facts before creating new global mechanisms of any kind.  The June 25, 2015 draft of the Outcome Document for the Financing for Development Conference appears to be on the right track on this point:  it "welcomes" the work of the BEPs Project and at the same time calls for enhanced support of the existing UN Committee of Experts on International Tax Matters, including by doubling its meeting schedule and improving its engagement with members of the Economic and Social Council (ECOSOC). Enhanced coordination between the UN tax committee and the BEPs Project would also be welcome, but we should not be too hasty to discount how inclusive the BEPs Project truly is.