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Corporate stranglehold on development finance must end in Addis

Corporate stranglehold on development finance must end in Addis

July 10, 2015

The corporate grip on development finance must be loosened if the Finance for Development Conference is going to help mobilize the resources needed to overcome poverty. Oxfam issued this warning ahead of third Finance for Development Conference which is to be held in Addis, Ethiopia from 13 – 16 July.

The Addis Conference is due to agree the financial architecture through which the global community will finance poverty eradication and sustainable development; including how they will raise the estimated additional US$1.5 trillion a year needed to finance the Sustainable Development Goals – a set of universal global goals for eradicating poverty and protecting the planet – which are due to be agreed in New York in September.

Over months of negotiations rich countries have systematically blocked any attempt to rebalance skewed international finance rules that benefit rich countries and companies, but cost the developing world billions of dollars every year. Since 2008, it has been estimated that for every US$1 dollar developing countries gain (through, for example, foreign direct investment or aid) they lose around US$2 dollars (through, for example, tax avoidance and evasion).

Winnie Byanyima, Oxfam International Executive Director said:  “Addis risks doing more for the global business communities’ bottom line then it does for the world’s poorest people. Governments must find the vision and leadership to rebalance the rules governing tax, aid and private finance so they work for the many; not just the few. Only then can we hope to mobilize the money needed to overcome poverty and deliver the Sustainable Development Goals.”

Negotiations for Addis are currently at a standstill over the contentious issue of international tax reform.  Rich countries are vigorously opposing the establishment of an international tax body that would clamp down on corporate tax dodgers. According to UNCTAD, developing countries lose an estimated US$100 billion a year through just one kind of tax avoidance scheme involving tax havens.

Addis is also set to give the green light to an expanded role for private finance without the checks and balances needed to ensure it delivers for poor people. Private finance has a poor track record; for example, a public private hospital in Lesotho used up 51 percent of the health budget for the entire country and left many rural areas with dangerously low levels of health care coverage.

Byanyima said: "Addis must establish an international tax body where all countries work together to crack down on the corporate tax cheats who are denying developing countries billions of dollars in much needed revenue. Addis must also wake up to the hazards of private finance and put in place the safeguards needed to ensure public money is not squandered on public-private initiatives that have dubious outcomes for poor people.”

International finance organizations, such as the World Bank, and national governments will also be announcing funding for a number of development initiatives in Addis.

Byanyima said: “Governments and international institutions should be under no illusions. Pitching up to Addis with funding for a few pet development projects can never be a substitute for the fundamental changes in international finance that are needed pay for a more prosperous, equal and safer world.”

Oxfam is calling for the following steps to be taken in Addis:

  • Creation of an intergovernmental body for cooperation in tax matters that includes all countries, developed and developing, on an equal footing in decision making; and broaden the scope of future tax negotiations to address tax dodging in developing countries.
  • Rich countries re-commit to delivering 0.7 percent of their national income in aid with 50 percent of this aid targeted at the world’s poorest countries within the next five years.  They must also ensure climate finance contributions are additional to overseas development aid.
  • Ensure the proper checks and balances are in place to ensure private finance projects reduce poverty and promote sustainable development and ensure that private finance is not promoted as a substitute for overseas aid spending.

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