Africa loses US$90 billion in illicit financial flows annually

11 Jun 2016 16:30pm
By Maggy Thomas
WINDHOEK, 11 JUN (NAMPA) - Africa is estimated to be losing more than US$90 billion (approximately N.dollars 1.3 trillion ) annually in Illicit Financial Flows (IFFs).
But these estimates may well fall short of reality, as accurate data does not exist for all African countries.
Such estimates also often exclude some forms of IFFs that by nature are secret and cannot be properly estimated, such as proceeds of bribery and trafficking of drugs, people and firearms.
This is the view of Mojanku Gumbi, advisor to former South African President Thabo Mbeki.
Mbeki is the Chairperson of the Panel on High Level of Illicit Outflow of Africa.
In an interview with Nampa on Saturday, Gumbi said these outflows are of serious concern, given inadequate growth, high levels of poverty, resource needs and the changing global landscape of official development assistance to the continent.
The interview was held on the sidelines of the Committee on Economic Development, Finance and Trade meeting taking place ahead of the 31st plenary session of the African, Caribbean and Pacific (ACP) countries and European Union (EU) Joint Parliamentary Assembly (JPA) to commence in Windhoek on Monday.
Gumbi indicated that the illegal capital outflows stem from tax evasion, crime and corruption, among other illicit activities.
She said about US$1.1 trillion (approximately N.dollars 16.5 trillion) flowed illicitly out of developing and emerging economies in 2013 alone, the latest year for which data is available.
“This money that leaves the continent is money that can be used for development. If we are able to retain such amount of money in developing countries it will make a huge impact on our own development, in building schools, clinics and investing in other sectors to eradicate poverty.
“In fact, this money is almost one-and-a-half times more than the money we receive from development assistance and foreign direct investment,” she said
She stated that from 2004 to 2013, developing countries lost US$7.8 trillion (approximately N.dollars 117 trillion) to illicit outflows, and these outflows increased at an average inflation-adjusted rate of 6.5 per cent per year over the decade, significantly outpacing Gross Domestic Product (GDP) growth.
As a percentage of GDP, Sub-Saharan Africa suffered the biggest loss of illicit capital.
Illicit outflows from the region averaged 6.1 per cent of GDP annually. Globally, illicit financial outflows averaged 4.0 per cent of GDP.
The US$1.1 trillion (approximately N.dollars 16.5 trillion) that flowed illicitly out of developing countries in 2013 was greater than the combined total of foreign direct investment (FDI) and net official development assistance (ODA), which these economies received that year.
“The fraudulent mis-invoicing of trade transactions was revealed to be the largest component of illicit financial flows from developing countries, accounting for 83.4 percent of all illicit flows and highlighting that any effort to significantly curtail illicit financial flows must address trade mis-invoicing,” she stated.
Gumbi further stated that although African economies have been growing at an average of about 5 per cent a year since the turn of the century, this rate is considered encouraging but inadequate,.
She then called on governments to establish, among other instruments, public registries of verified beneficial ownership information on all legal entities.
All banks should know the true beneficial owners of any account opened in their financial institution, she advised.
She also urged government authorities to adopt and fully implement all of the Financial Action Task Force’s anti-money laundering recommendations. Laws already in place should be strongly enforced.
The JPA will take place in Windhoek from 13 to 15 June and is expected to be attended by about 350 MPs from 28 EU countries and 79 ACP states.
The assembly will provide an opportunity for a strategic discussion on the future of partnerships between the EU and ACP countries after 2020.
Furthermore, the JPA will debate and vote on three resolutions - the Continental Free Trade Area in Africa; opportunities to stimulate exchanges on the African continent; and potential benefits for ACP countries.
Migration between ACP countries and EU members; causes, consequences and strategies for joint management; and improved participatory governance through decentralisation and strengthening of local governance will also be discussed.